Does college graduetes make more money?
Executive Summary
The purpose of this report is to investigate if college graduates make more money or
not around the world. Colleges and universities have numerous ways of generating
revenue to run their budgets and educate their students. These include the tuition
and fees that students pay to earn their degrees. In turn, graduates can reap
substantial rewards: Getting an education has long been associated with higher
lifetime earnings—for example, a bachelor's degree, on average, is worth $2.8
million in lifetime income.
But making money can be challenging for schools of higher education when
attendance lags. For the fall 2021 term, total college enrollment fell by 2.7%, or
476,100 fewer students.2 Lower enrollment numbers can increase the pressure on
schools to find new ways to generate revenue—or force them to cut their budgets,
increase tuition, or even close their doors.
Key findings

College and university enrollment is in decline due in part to the COVID-19
pandemic as well as rising tuition costs.

Schools that depend largely on tuition for funding may be at risk of becoming
financially unstable or even facing closure.

Aside from tuition and fees, schools can pursue other options for making
money, including endowments, college sports, and fundraising.

For students, the question of attending college is often linked to affordability,
which can influence enrollment rates.
Colleges and universities can receive funding in a diverse range of ways. Where a
school gets its money from can depend on whether it's a public or private institution,
or if the school in question operates on a for-profit or not-for-profit basis.
For starters, colleges and universities, including both two- and four-year schools,
receive significant funding from the federal government. In 2018, for example, the
government paid out $149 billion to colleges and universities.3 This money was
provided to schools in three ways:

Student aid, including grants, scholarships, work-study, and loans

Grants for research

Contracts for goods or services
And all types of schools receive tuition revenue and other non-federal funding
revenue, but how the formula works differs by type.
How Public Universities Make Money
Tuition and fees paid by students represent a large share of the funding pie for public
colleges and universities. For the 2021–22 academic year, the typical student
attending a four-year public college on an in-state basis paid $9,349 in tuition; on
average, out-of-state students paid $27,023.
State universities also receive funding from state tax revenues, but that amount has
decreased significantly in recent years. A Center on Budget and Policy Priorities
(CBPP) study reports that two- and four-year colleges got over $6.6 billion less (in
inflation-adjusted dollars) in the 2018 school year than in 2008. States spent 13%
less per student overall, and six states spent over 30% less. One result of this decline
in state funding is a 37% tuition rise since 2008, according to the CBPP report.
Endowments are another revenue source. An endowment is money that's invested
in a college or university with the goal of supporting its mission. Schools that
receive endowments may use this money to fund research projects or to expand aid
packages for eligible students. The median endowment of public colleges and
universities is $35.4 million.6
How Private Colleges Make Money
Private
colleges
and
universities
also
generate
revenue
by
charging
students tuition—considerably higher tuition than at public colleges. For the 2021–
22 academic year, the average cost of tuition and fees at a four-year private
university was $35,807. That means the loss of even one student could mean losing
nearly $150,000 in revenue from tuition over the course of four years.
Aside from tuition, private schools also receive funding through endowments. The
median endowment for private colleges and universities is $37.1 million, though
some schools have much larger endowments. Harvard University's endowment, for
example, distributed $2 billion in the fiscal year ending June 30, 2021. This money
was used to fund specific academic programs and scholarships offered by the
school. Large endowments mean that some schools are able to offer very generous
scholarships to offset their high tuition costs.
Whether a school operates on a for-profit or nonprofit basis can influence how it
makes money and how much it costs students to attend. It can also influence the
quality of the education a student receives and how money is reinvested into the
school's education programs.
Harvard, for example, is a private university that operates on a nonprofit basis. That
means the money it receives from endowments, tuition, or other avenues is
reinvested into the school. As a nonprofit, the school also enjoys tax-exempt
status at both the federal and state levels.8 Though Harvard offers a top-notch
education, it also comes with a $54,768 annual tuition bill for full-time students.9
Tuition made up 17% of Harvard's total revenue for 2021, with endowment income
accounting for 39% of revenue. Research grants, gifts, and other sources of funding
accounted for the rest of the school's revenue numbers.10
Contrast Harvard's tuition costs with those of Full Sail University, a private forprofit school located in Winter Park, Florida. Full Sail charges anywhere from
$45,500 to $89,000 in tuition and fees to earn an undergraduate degree. 11 According
to its Dun & Bradstreet (D&B) profile, the university generates $93.27 million in
revenue annually.1 2
Students who are considering a for-profit university should weigh the school's
accreditation status, graduation rates, and overall reputation to help decide if it's
worth the money.
Sports and College Funding
Sports can be a big moneymaker for public and private colleges and universities.
The typical revenue for athletic departments at public schools, for example, reached
$125 million in 2018. Collectively, college sports bring in some $14 billion in
revenue for schools annually.
Some of the most popular—and most profitable—sports for colleges and
universities are men's football and men's basketball, followed by other men's sports
and women's sports, respectively. In terms of how this money is spent, it's primarily
distributed among student aid packages, facility and equipment upgrades, and
coaches' salaries.
How much revenue a school can generate from sports can depend on how popular
its teams are in the competitive landscape. An NCAA Division I school that has a
sizable student body, thousands of alumni, and a long-standing rivalry with another
Division I school, for example, may reap bigger revenues than a smaller private
school that competes in a lower division.
Where Do Colleges Get Their Money?
Colleges and universities can make money from a number of sources, including
endowments, gifts, tuition and fees, athletics, and grants. Schools can also make
money by charging fees for international enrollment.
How Do Colleges Spend Their Money?
Nonprofit colleges and universities must reinvest their revenues in funding school
programs, including scholarships, student aid, and athletics. For-profit colleges are
not required to reinvest all of their revenues in school operations.
Conclusion
The pandemic has highlighted the dependence of colleges and universities on
tuition—and demonstrated how increasingly unaffordable college is becoming for
many students. Schools will need to be strategic in managing their finances and
driving enrollment to avoid the possibility of a worst-case scenario. That scenario—
the college closing completely or disappearing into a merger with a stronger
institution—has become increasingly common in the past two years.
References
1.
Georgetown University. "The College Payoff."
2.
National Student Clearinghouse Research Center. "Current Term
Enrollment Estimates Fall 2021," Page 1.
3.
USASpending Data Lab. "Federal Investment in Higher Education."
4.
Education Data Initiative. "Average Cost of College & Tuition."
5.
Center on Budget and Policy Priorities. "State Higher Education
Funding Cuts Have Pushed Costs to Students, Worsened Inequality."
6.
American Council on Education. "Understanding College and
University Endowments," Page 2.
7.
Harvard
University
Financial
Administration.
"Harvard's
Endowment."
8.
Harvard University Financial Administration Office of the Controller.
"Is Harvard University a Tax-Exempt Organization?"
9.
Harvard Graduate School of Education. "Tuition & Costs."
10.
Harvard University Financial Administration. "Financial Overview."
11.
Full Sail University. "Tuition."
12.
Dun & Bradstreet. "Full Sail, LLC."
13.
National Bureau of Economic Research. "Revenue Redistribution in
Big-Time College Sports."
14.
Chris Murphy U.S. Senator for Connecticut. "Madness, Inc.: How
Everyone Is Getting Rich Off College Sports - Except the Players," Page 4.
15.
NCAA. "Where Does the Money Go?" Page 2.
16.
NCAA. "NCAA Releases Audited Financial Statement for Fiscal Year
2019-20."
17.
NCAA. "NCAA Adopts Interim Name, Image and Likeness Policy."
18.
Inside HIgher Ed. "The Number of Colleges Continues to Shrink."