Coyote Don: Where Does the Money Come From?

This week, we’ll look at where Sarah Lawrence gets its money.

All colleges and universities get their money from six main sources:

*   Tuition
*   Other education. Everything from child care to cooking courses.
*   Auxiliary services. Think dorms, food, athletics, and swag sales.
*   Government. Your tax dollars at work.
*   Gifts. Alums, foundations, corporations, etc..
*   Investment. Many schools have an “endowment” which is a big pot of money that is supposed to earn more money.

The distribution between these categories varies widely for different kinds of institutions.  There is no “best” distribution, but it’s usually not a good idea to be too reliant on any single category.

When you hear that college tuition nationwide has gone up dramatically in the last few decades, it’s in large part because the other categories have been drying up, particularly government and gifts. That means state schools have had tuition go up a lot, while liberal arts colleges have had smaller increases.

Sarah Lawrence: Sources of Financial Information

Where can you get information on Sarah Lawrence’s finances? There are three particularly good sources:

The College’s Annual Report, available on its website. For some reason, this hasn’t been updated in two and a half years, so it’s a bit out of date, but has a nice summary from the 2010-2011 school year.

The IPEDS data center. This is information collected by the federal government from all colleges and universities, so it’s standardized from one school to the next–no funny business! This information takes a while to process and release, so the most recent is from the end of the 2010-2011 school year.

Form 990’s. These are tax forms for nonprofits that are required to be made public. Because it’s a tax form, the accounting is a little too careful–it’s not quite in the normal form for schools. But it’s often the most recent information available, and it contains some details that the other sources don’t. The most recent is from the 2011-2012 school year.

2010-2011 Revenue by Source

Using the Annual Report, which is the simplest source, I’ve created the pie chart labeled  “2010-2011 Gross Revenue by Source.” The total happens to be very close to one hundred million dollars, so you can also read the percentages as millions of dollars.

But this pie chart can be a little misleading. For example, it treats every student as if they are paying the full price tuition, making financial aid an “expense.” But another way to look at it is that the College never takes that money in–financial aid is then thought of as a discount off the price.

Since the mission of the College is to provide students an education, it’s also possible to think of housing and feeding students as a kind of sideline business that brings in profits that we use for our main mission. Seen that way, the expenses to the College of food and lodging should be subtracted from the revenues from those programs, to give a net profit which is then used to subsidize the main mission of education.

Finally, investment income bounces around as financial markets go up and down. A better practice is to figure that the endowment can generate the same average rate over the long run, and use that rate year after year even though it generates more in boom times and may even lose money during recessions. Sarah Lawrence uses 6% for budgeting purposes.

Using those three assumptions, I’ve created a second pie chart under the label “2010-2011 Net Revenue by Source.” The total this way is about 63 million dollars, so you need to do some arithmetic if you want to turn the percentages in to dollar figures.

So What?

We all know the College is facing challenging times financially. While next week we’ll look at where the money goes, it’s good to first think about where it comes from. Tuition is the largest slice by far. That number could be increased in any of four ways, or by a combination of more than one: bringing in more students (but that also increases expenses), recruiting a class that needs less financial aid (if we could go back to the level of need SLC students had in 2007, we would have no financial difficulties), cutting the financial aid of current students, or raising the full price tuition.

While this week’s column has been mostly informational, let me say that Coyote Don thinks that cutting the financial aid of current students is a terrible idea! It represents a broken promise, and would cause us to lose students who are already here…and so wouldn’t save as much as it might seem, in addition to being a reprehensible bait and switch.

The next biggest slice after tuition, at least on the net revenue chart, is gifts. You might think this comes mainly from small to medium size donations from alums, but that doesn’t add up. With roughly 10,000 living alums, even if each one gave $100 per year, that would only add up to one million dollars, out of a total of 12 million. So where does the rest come from? Mainly the Trustees and a few wealthy alums, along with an occasional gift from a foundation. That part of our revenue is dependent on the “1%.”

That doesn’t mean that small contributions from alums aren’t important. Potential big donors look at the fraction of alums who give to help decide if the College is worth giving to. If very few of the recent, relatively poor alums are shelling out $20 per year, then the rich donors worry they are giving money to something that recent students don’t themselves support. For that reason, it actually means more to the College if you give $20 per year every year than if you give $100 every other year. The second may be more money, but the first serves as a more consistent vote of confidence.

As for the other categories of revenue, there’s not much that can be done about the endowment in the short term, except for trying to secure donations to make it bigger.

Higher enrollment might raise some revenue in auxiliary services, but at some point we run out of space to put people (or even to feed them).

“Other education” is a possible area for expansion–are we do everything we can with local high school students in the summers, for instance?

The tiny little slice that is “government” is also interesting. It includes overhead the federal government pays on grants awarded to faculty, and at some liberal arts colleges that slice is considerably bigger.

So much for where the money comes from. Next week Coyote Don will look at where it goes.

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