Running Head: UNIVERSITY FUNDING 1

University Funding

Hudson Clare

Oklahoma State University

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Intro

In an American society where cash is king, there has been an ongoing conversation about the

funding of higher education. For higher education to operate at the highest level, funding must be

properly allocated so that universities are able to carry out all of the necessary functions of a

university as well as provide additional services. State legislators have been reluctant to fund

higher education in meaningful ways over the last decade or so, creating financial burdens for

universities, students, and employees. This burden has resulted in universities focusing more on

their efforts with their annual fund, constituent relationships, and corporate sponsorships. Public

universities are being forced to operate similarly to private universities without the freedom to

operate as a non-state affiliated institution. The funding crisis has significantly affected all

universities due to the economic climate that the United States has been enduring over the last

decade. Through this paper, I will discuss the issues that higher education faces as a result of the

lack of funding, the ways in which universities fund their endeavors, and my suggestion to the

response that administrators need to make in light of this issue.

Different universities but same problem

There are an abundance of different university structures and types in American higher

education. We have technical schools, community colleges, and four-year universities; but within

these, we also have public, private, liberal arts, and research institutions. Despite the differences

among institutional types in higher education, all institutions face similar problems surrounding

the issues of funding. “Educational institutions rely on tuition for funding: for every 1% decline

in non-tuition funding, usually from government cuts, a 4.1% increase in tuition occurs”

(Kantrowitz 2002). That is a lot of pressure on university efforts in the area of fundraising
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because every time there is a state budget cut, the university must find private donations to offset

the difference or risk having tuition increases which impact recruitment and retention efforts.

Not to mention this becomes an even more apparent need at private universities that

receive zero state allocated funds. In the case of a private university, the university is forced to

rely heavily on their alumni base and tuition to supplement the cost of operations. This also

explains why traditionally the cost of tuition is higher at private universities because they are

fully dependent on the money their tuition raises and the outside support they receive. Some

would see this as a challenge but in the case of the private university, there are some universities

who are thriving. Seven of the ten largest endowments in higher education come from the private

university sector, with Harvard University leading the pack at a 37-billion-dollar endowment

(National Center for Education Statistics). Though these universities have a large endowment,

they are still heavily focused on their fundraising efforts, because the funds needed to conduct

research and support faculty and students comes with a lofty price tag every year. It is important

to also mention that all universities are not cut from the same cloth. There are plenty of smaller

private universities that run the risk of closure year in and year out. For example schools such as

Bryan College in Dayton, Tennessee has to continually raise tuition prices because they are not

able to garner enough financial support from their alumnus.

On the flip side, there are public universities across the country that are continually

forced to reconfigure the yearly budget and make changes to tuition costs. The result of this is an

aggressive approach to fundraising. At some universities, these departments can be comprised of

200-400 employees, working to secure gifts to support the mission of the university.
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Problems

According to a report in 2017, the state of Oklahoma is the poorest funded state higher education

system in regard to state funding. In the period between 2012 and 2017, the state cut higher

education budgets by 17.8 percent (Renehan, 2015). This does not take into account all of the

funding that has been cut leading up to the 2012 year mark. Unfortunately, this is not only the

case in Oklahoma but is the case for a number of other states. The result of this funding deficit

caused universities to rely heavily on tuition and fees to offset costs. Tuition increases create

challenges in creating access for the student from low socio-economic backgrounds because of

affordability. Oftentimes, state legislators will say that students can apply for federal aid or

student loans, but the problem is that the Trump administration proposed a 4 billion dollar cut to

federal student aid programs (Douglas-Gabriel, 2018). In addition, even with low-interest rates,

the lack of security in entry into the job market causes fear for many students who consider

loans.

The purpose of higher education all boils down to the question that both the general

society and higher education officials wrestle with: Is higher education a private or a public

good? State and federal legislators clearly proclaim their answers in the budget allocations they

grant to higher education institutions. Some states are better than others but, for the most part,

states seem to view higher education as something that benefits the individual and views students

as individuals paying for a service to enrich their personal lives. Whereas university system

employees view their students as contributors to society and ones who can make a difference

through their education in the environments they work and live in.

Fortunately, business is booming and universities have been able to raise philanthropic

support at staggering rates.

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According to the Voluntary Support of Education (VSE) survey conducted annually by

the Council for Aid to Education (CAE), colleges and universities raised a staggering

$43.6 billion in 2017. New normal, indeed. The figure represents a 6.3 percent increase

over 2016 and is the highest level reported by the CAE since the survey’s inception in

1957 (Scutari 2018)

The problem with this statistic is that there is no guarantee that donors will continue to provide

comparable philanthropic gifts in the future.

State’s View

State’s don’t have a great solution for the problems that universities are facing due to budget

shortages. In 2008, we began to see a downhill trend of funds given by the state to universities,

in large part due to the recession. The state had an abundance of problems it was facing that

affected the economy and citizens of the state that took priority over higher education. As we

have moved out of this economic climate into a more prosperous time, states are still fearful of

experiencing another 2008 and, because of that, are reluctant to drastically change the funding of

higher education. Legislators are forced to confront the complaints of students and administrators

in regard to the cost of attendance for universities. Many individuals want affordable options for

higher education, but this is a challenge in part because of the mere quantity of universities in a

state.

To combat the repercussions of rising tuition, some call for an increase in public funding.

If education is highly subsidized at only a few schools within each students’ home state,

then interstate competition among institutions will diminish, and with it, the unnecessary

expenses institutions maintain to attract students. However, this solution is costly. States
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will have to sharply raise taxes hence stunting the economy. This sort of legislation is

unpopular and difficult to pass. (Lye 2011, Toutkoushian 2010).

Tax increases will directly impact the businesses and citizens of each state; that is something that

all state legislatures take into consideration in revising a budget or policy. In addition to not

wanting to impact citizens, helping students do not have as high of a return on investment for

politicians. Fighting for cheaper tuition would benefit students who are not paying taxes for the

most part. Students are the lowest represented voters for state elections and why would a

politician put himself out there and hurt non-student citizens’ tax rates? Citizens hold the future

of these politicians’ careers and tuition is not a hill many people want to die on.

Furthermore, there are state legislatures who believe that the funding that higher

education receives is more than adequate to service the needs of a university. Additionally, state

legislature sees that universities receive funding on the federal level as well and believe this

support levels out recent state cuts. To support this claim PEW research did a study and found

that between 2000-2012 “without adjusting for enrollment growth, total federal revenue grew by

92 percent from $43.3 billion to $83.2 billion in real terms, while state revenue fell by 9 percent

from $77.8 billion to $70.8 billion after adjusting for inflation” (The Pew Charitable Trusts)

When the math is done it is hard to argue with the state because these figures result in a 33.1

million dollar increase in funding compared to 2000. These figures do not take into account the

additional support that federal or state aid that is awarded to students. For instance,

The federal government is the nation’s largest student lender; it issued $103 billion in

loans in 2013. States, by contrast, provided only $840 million in loans that year, less than

1 percent of the federal amount…Federal loans grew 376 percent between 1990 and 2013

in real terms, compared with enrollment growth of 60 percent (The Pew Charitable)
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In addition, state dollars create scholarship opportunities for students. In the state of Florida,

lottery earnings are used to create the bright futures scholarship program, which pays for 75-

100% of a student's in-state tuition if they meet the academic requirements. When you take into

account that federal and state dollars are the ones who basically pay for students to attend school,

seemingly it appears they do their jobs of allowing there to be access to higher education.

Students’ View

Students are not fully aware of the necessity for private and state funding to ensure that an

institution makes their bottom line. Rather students see the enormous price tag and wonder

whether the value of higher education is going to pay off like it is promised. Also, students are

now being told that they must pursue specific majors or get a masters or doctorate to make it in

the workforce. This seemingly makes it to where one considers if an education over 4-10 years is

really going to differentiate them from the rest of society who don’t have a degree. Statistically,

we can see that having a degree can pay dividends in our net earnings in a lifetime.

Over a 40-year career, those who didn’t earn a high school diploma or GED are expected

to bring in less than $1 million, which translates into slightly more than $24,000 a year

($11.70 per hour). Obtaining a high school diploma adds 33 percent more to lifetime

earnings; the average annual earnings of people with a high school diploma are $32,600

($15.67 per hour). Clearly, then, the economic penalty for not finishing high school is

steep — almost $9,000 a year Having some postsecondary education, even without

earning a degree, adds nearly one-quarter of a million dollars to lifetime earnings. Annual

earnings rise to $38,700 ($18.69 per hour). Getting an Associate’s degree adds another

bump of nearly $200,000 in lifetime earnings. At $43,200 a year ($20.77 per hour), those

with Associate’s degrees earn nearly one-third more than those with just a high school
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diploma. These numbers demonstrate conclusively the advantage of non-baccalaureate

postsecondary education. Getting a Bachelor’s degree adds another large increase in

lifetime earnings. With median earnings of $56,700 ($27.26 per hour), or $2.3 million

over a lifetime, Bachelor’s degree holders earn 31 percent more than workers with an

Associate’s degree and 74 percent more than those with just a high school diploma.

Further, obtaining a Bachelor’s is also the gateway to entering and completing graduate

education. About one-third of Bachelor’s degree holders obtain a graduate degree. All

graduate degree holders can expect lifetime earnings at least double that of those with

only a high school diploma. For those with a Master’s degree (which includes those with

Master’s degrees in elementary teaching and in business administration), typical lifetime

earnings are $2.7 million ($66,800 a year or $32 per hour).4 Moreover, earnings rise

substantially for those with Doctoral and Professional degrees: Doctoral degree holders

have lifetime earnings of $3.3 million ($81,300 per year; $39 per hour) while those with

Professional degrees (mainly doctors and lawyers) have the highest earnings, making

over $3.6 million over the course of a lifetime ($91,200 per year; $44 per hour). This is a

61 percent increase (nearly 1.4 million) over Bachelor’s degree holders (Carnevale, Rose,

& Cheah 2011).

Data has proven that the value of an education is there, but that all education is not equal. Even

when you compare the income inequality between doctorate degrees to those who get a

professional degree. The global economy rightly puts certain values on certain careers and lines

of work but the price tag to get the education to be in these fields is frightening to many students

and families. The average tuition for an in-state student at a public university in 2018-2019 is
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$10,230 (College Board). Tuition alone will set back at student approximately $41,000 and when

you add books, fees, and living expenses it is hard to find a way to make it happen.

This has resulted in students utilizing federal, state, and private loans to ensure that they can pay

for their education. The student debt in America in 2018 is at $1.48 trillion and affects 44.2

million Americans (Federal Reserve). You would think that with all of this promise for a better

life and the high spending of a student that they would be fine. Students have come to realize that

this is just not the case. Generation Z grew up in the era of instant gratification and to tell a

student that getting a four-year degree in their desired field of study may land them a job at

Starbucks as a Barista does not bode well for many students or their families. Furthermore, this

becomes an even bigger concern for students in low socio-economic families.

Non-economist social scientists argue that low-income individuals are still hurt with high

tuition, as it deters them from attending college. Low-income individuals are not willing

to take out thousands of dollars in loans if there is a chance that they will not graduate, in

which case they will be stuck under the burden of the loans without a college degree.

They argue that only a return to predominantly publicly funded higher education will

create equality. Completely publicly funded education does create the most equality. Yet

the US is a mixed economy with capitalist and socialist components: the American

ideology entails a balance between efficiency and equality. 100% publicly funded

education is inefficient and would impede economic growth (Lye 2011).

Low socio-economic students desiring to enter college may not be given an opportunity to go to

college because of the financial burdens. In addition, students must strongly consider whether or

not the debt they incur over the lifetime of their college career will position them to be successful

at an individual level or if they will be in poverty themselves.

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In working with college students on a day to day basis, I don’t think the frustration in their head

lies on the shoulders of the state legislature. Rather, I think their frustration lies directly with the

universities they attend. Most see the cost of college and only associate with the university is

appearance wise setting the price of tuition. As a student myself I look at the state and federal

allocated budget in conjunction with the private gifts that a university receives and believe the

issue lies with the stewardship that universities have with the funds in which they have. I believe

that funds go toward over-the-top facilities, overpaid administration, and unneeded services. On

the other hand, as a student, I understand that universities are in a tough position because

administrators want to continue to grow and change with time. Unfortunately, students can't have

it both ways and want the best and love the eye candy, but also want that eye candy to not be

something that directly affects how much their attendance will cost.

Universities’ View

Universities see funding as a means to help educational efforts such as research while also

supporting all of the extra-curricular areas such as facility improvements, athletics, and student

organizations. In a climate where students are choosing universities for a myriad of different

reasons, it is imperative that universities keep up with competitors or they face losing out on

potential enrollees. This catching up with the Jones’s model has been detrimental to the existing

and future generations of students because tuition rates must heighten to offset the cost.

Unfortunately, it is the game that universities feel obligated to play and until student's voice a

desire for change or begin to forgo attending college it will stay the same. So, for now, what do

universities do? They look at funding as something worth fighting for at the state level, solicit

private donations, and also are proactive in their recruitment efforts of certain student

populations.
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At private universities, they do not have to worry about state legislature and solely raise

money through tuition and private gifts. For the most part, that is commonly understood by

students. At the large or prestigious private universities, this is okay and it is something that

administrators have been doing for years. Whereas at small private universities, they feel the

burden of this responsibility. In these cases universities have to focus on the mission and why a

student should want to come and give to the university after graduation (ex. culture, community,

religion, female college)

At state institutions, the university devises a budget based on current and perceived needs

and proposes it to the state. These budgets have to be approved by the state, even though the state

only supports a fraction of the cost of operation. This model doesn’t reflect that public education

is, in fact, public education, but rather feels like a state-subsidized private university.

Universities administrators are grateful for the taxpayer dollars but are always looking for ways

to assess their work and validate that they are worthy of more taxpayer dollars.

Another key component of universities view on funding is their work to secure financial

gifts from private donors. All universities have departments dedicated to this area and they serve

to manage relationships to increase understanding and support among an educational institution's

key constituents. (CASE) These constituents can give in a variety of ways, including annual

fund, major gifts, planned giving, and estate gifts. The concern for universities is that charitable

gifts are at an all-time high, but alumni giving is down 8.5% compared to the previous year

(Scutari 2018). This is because universities are receiving more and more gifts that surpass 10

million dollars. Unfortunately, a university can not plan its budget around mega-gifts which are

hard to predict and may be a one-time gift.

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Thus universities have to begin to look at the students that they are recruiting and are

strategic in whom they recruit so that the university can secure similar gifts in the future.

“Attracting top students is the predominant competition educational institutions participate in to

build their endowments. They want students who will make money after they graduate, reflect

well on the institution, donate, and attract more third-party funding” (Kantrowitz 2002).

Universities understand that by producing top-tier talent, not only will that benefit society but it

will also potentially benefit the fiscal health of a university down the road. Not to mention,

corporations will be more likely to fund different ventures and support different colleges because

they see the students as investments that may eventually come work for them.

It is a hard position for universities to be in because universities value and strive for

diversity because it enhances the higher education experience for everyone. As a result of a need

for funding, universities have to set aside their desires and target affluent student populations

because there is security in knowing a student has the financial means to get through school. As

well as students from these affluent communities have a better educational K-12 system that will

reflect better SAT and ACT numbers, which helps in school rankings (Renehan, 2015). This

approach compromises the mission of the university and makes administrators revert to practices

that are undesirable. At the end of the day, universities are forced into looking at their mission as,

yes, something that can holistically shape a student but also a multi-faceted business that must

produce graduates. In the midst of striving for high graduation and retention rates, corners are cut

and the focus on students can be lost.

Response administrators should have

Administrators need to understand they have a civic responsibility to ensure that future

generations of students can receive a world-class education here in the United States. Though we
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would like to say that this responsibility falls on the shoulder of state and federal legislature. The

reality is that many universities will never receive the support that it will take to fully support a

university. So it is time for administrators to take action and devise new strategic plans to propel

today’s university into the future. My suggestion would be to allocate resources into

development and advancement departments. The reason being, these departments work to secure

gifts for all areas of the university. Specifically looking at public universities, when we go back

to the statistic that says that seven out of ten of the largest endowments in the country are private

universities. We see that state universities can learn from this approach to funding. Public

Universities could take a similar approach and focus heavily on private philanthropic support and

supplement it with state aid and have a larger working operational budget then their private

counterparts. It will take time to create a culture of philanthropy at many public universities, but

if administrators are able to be transparent of the needs and desires of the University. The sheer

quantity of alumni should be able to support the endeavors of the University moving forward.

Now, this does not just happen but rather is something that occurs when an alumnus has an

affinity toward the university. To accomplish this, university administrators must be proactive in

shaping the culture of their university and ensure that students have a world-class experience.

While I recognize that these ventures take financial capital, this is why administrators need to be

conscientious of every penny spent and cut spending on unnecessary expenses that don’t show a

high return on investment.

If higher education is going to have to be responsible for raising its own funding and

develop its own budget. It is time for administrators to shy away from not wanting to call

themselves a business. When in fact everything that the university in the modern age is having to

do is consistent with the responsibilities of businesses in spaces outside of higher education.

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Functioning as a business is like breaking the cardinal rule of higher education in some

administrators eyes. I would argue that universities do not have a choice and can still operate as a

business while still remaining true to the original mission to educate students.

My final suggestion is to continue pursuing legislative changes that grant higher

education state funding. State and federal legislation can change and the funding can increase by

percentages over time, but it is at the hands of the administrators to develop relationships with

the key political constituents. Administrators are in positions of leadership and have the platform

to show the value of higher education.

Conclusion

Despite all of the funding issues that propose challenges for universities and students in the

modern era. I still have hope for the United States and its educational establishments. The trends

show that funding will increase as state universities begin to invest more in their development

and advancement offices. Thus, creating a better overall experience for students and as a result of

these financial gifts, will allow for tuition reductions and better amenities for the student to

experience. As a future administrator in the field of higher education, I move into this field with

optimism to shape lives and ensure that higher education is an opportunity afforded to all people.
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