The Open Secret Colleges and Universities Don’t Want You To Know

In 1984, the average tuition, room and board was about $4,600, which equates to $14,000 in 2024, taking into consideration the inflation rate, which means todays price of tuition, room and board should be about 300% higher than in 1984.  But, we all know that isn’t the case.

The average tuition, room and board at a college or university (and it varies depending on whether the school is private or public) in 2024 is about $42,000 – about 900% more than in 1984.  Most private schools cost $80,000 – $100,000 annually which makes people – and especially parents – wonder why have the costs of educating our kids increased so dramatically?

The answer is quite simple although most colleges and universities are not stumbling over each other to educate the public.  The first reason is that full pay students subsidize the other students who cannot afford to pay full rate; and second, schools rarely spend all the revenue received and therefore add these funds to the general fund essentially growing their endowments (which is then invested and capitalized further increasing the endowment).

25-40% of students are full pay students which means they pay full tuition, room and board. The remainder of the students – 60-75% of the students receive “grants” or “scholarships” from the school and pay the remainder of costs with cash and loans.

Over the past few decades colleges and universities realized that a significant portion of families can afford to pay more (or borrow) to educate their children so they raised tuition, room, and board costs exponentially although the costs of tuition, room and board did not rise nearly has much.  The families who pay full rate essentially subsidize the education of the rest of the student body.  Schools recognize tuition as income and expense “grants” or “scholarships” to other students on the income statement.  The amount varies from school to school but roughly 30-50% of full pay tuition is used for grants to other students.

• At the University of Pennsylvania (UP), there are about 24,000 students. $1.7 billion was received in tuition and fees in 2022, which is about $70,000 per student. UP awarded $555 million in scholarships to about 14,000 students or an average of $40,000 each bringing the average net cost of scholarship students to $30,000.  In total, UP reported revenue of $11.1 billion, $8.2 billion in expenses, netting $2.8 billion in 2022.
• At Brown University (Brown), there are about 9,000 students. $775 million was received in tuition and fees in 2022,  which is about $86,000 per student.  Brown awarded $313 million in scholarships to about 5,600 students or an average of $56,000 each bringing the average net cost of scholarship students to $30,000. In total, Brown reported revenue of $1.8 billion, $1.4 billion in expenses, netting $400 million in 2022.
• At the University of Southern California (USC), there are about 47,000 students.  $2.5 billion was received in tuition and fees in 2022, which is about $50,000 per student.  USC awarded $725 million in scholarships to about 27,000 students or an average of $27,000 each bringing the average net cost of scholarship students to $23,000.  In total, USC reported revenue of $5.6 billion, $5 billion in expenses,, netting $500 million in 2022.
• At Grinnell College (Grinnell) , there are about 1,750 students.  $98 million was received in tuition and fees in 2022, which is about $56,000 per student.  Grinnell awarded $56 million in scholarships to 1,379 students or an average of $41,000 per student bringing the average net cost of scholarship students to $15,000. In total, Grinnell reported revenue of $351 million, $212 million in expenses, netting $139 million in 2022.
• At Harvard University (Harvard), there are about 23,000 students.  $1.7 billion was received in tuition and fees in 2022, which is about $74,000 per student.  Harvard awarded $679 million in scholarships to about 21,000 students or an average of $32,000 bringing the average net cost of scholarship students to $42,000. In total, Harvard reported revenue of $9.6 billion, $5.8 billion, netting $3.8 billion in 2022.

At year-end 2022, the college and universities listed above had notable endowments:

• University of Pennsylvania:  $25 billion
• Brown University:  $8 billion
• University of Southern California:  $9 billion
• Grinnell College:  $3 billion
• Harvard:  $59 billion

It is important to note the schools invest these funds which produce significant income every year and have allowed the schools to accumulate substantial wealth  If these institutions earned 2-8% annually on invested funds, then the 5 schools above would have investment income of $2 -$8 billion annually – more than enough to cover the scholarship costs reported above, which would effectively replace full rate families from paying for other student’s education with the school paying for the scholarships and grants awarded.

You may ask about other expenses (i.e. compensation, office-related expenses, travel and conferences, advertising, outside fees for services, interest, etc) and the answer (as indicted above) is that most schools (including those listed above) cover all their expenses (including the grants and scholarships) and have excess revenue at year-end, which supports the claim full pay families are paying for those unable to while adding significant funds to the endowments.