[Excerpt] What I hope to convince you today is that the financial models that private research universities operate under is under great stress and is breaking down. I am going to briefly state four reasons for this conclusion and then provide more details about each:
- Our tuition levels have increased at rates that were 3 to 3.5% more than the rate of inflation for the last 30 years, but we have reached the point where economic and political forces will limit our ability to raise tuition in the future.
- Our financial aid budgets have dramatically increased, partially because of the great recession, but partially because of the policies we have pursued to make ourselves more accessible to students from families with limited means. The typical private research university now gives back more than 40% of each dollar that it takes in in undergraduate tuition in the form of financial aid. For most of us, undergraduate tuition is the major sources of unrestricted operating revenue and this limits our ability to fund our operating budgets.
- The share of our ever increasing research budgets that are funded out of our own internal funds nationwide grew from around 10% in 1970 to about 20% in 2000 and has stayed roughly at that level since then. Although we talk about how full paying students (students who receive no institutional grant aid) are paying far less than the cost of their education, such a conclusion is based upon our including estimates of the value of the services provided by our buildings (which were often funded by gifts) into the calculation. In truth we may well be subsidizing research out of undergraduate tuition dollars. As federal funding for research becomes scarcer, we will increasingly have to turn to other external sources or to our internal funds to support research and/or we will have to reduce our commitment to research. Popular backlash to our funding research out of undergraduate tuition revenues will grow and it will be difficult for us to continue to do this.
- During the last 20 to 30 years, our instructional costs have declined relative to almost every other category of expenditures including student services and administration. While partially this reflects a shift at many research universities to increased use of part-time and full-time nontenure track faculty in instruction, we need to dramatically reduce our administrative cost structures. A number of major universities have taken steps to do so, but these actions are not a panacea and often impost costs on faculty.
Moreover, all of these things are occurring at a time when many financial analysts predict that endowment returns in the years ahead will be lower than those that our institutions grew to expect in the years prior to the financial meltdown. Put simply, our institutions cannot count on high endowment returns to help alleviate our financial problems.