Advisor Insights

Your University Is in Trouble

Ralph Wanger

The views expressed here are those of the author and do not necessarily reflect the views of Morningstar.

How are U.S. colleges and universities financed? For the purposes of our discussion, we will focus on private nonprofit four-year undergraduate schools. University accounting has some differences from public companies, but both have revenues and costs. The P&L statement starts with operating revenues. They are tuition, associated fees such as dormitory rent and food services, plus alumni giving and endowment draws. In most countries, universities are run by the government, so tuition is a government appropriation and a professor is a government employee. Private schools exist overseas; in France, for example, there are some private colleges in engineering and business. In the U.S., students who go to private universities can get government support, such as Pell Grants, or borrow money from the Department of Education. But faculty and staff are employees of the university.