How Colleges Make Money

College is a public good with a luxury price tag.

Tuition has risen by an astronomical rate at nearly every university in America since the 1980s (Source). What’s surprising, then, is how small of a role tuition plays in the overall funding structure for most colleges. The tens of thousands of dollars you pay to attend college often accounts for as little as 15% of their total budget.

Most universities don’t make the majority of their money by teaching students. Rather, they fund their institutions through government appropriations, donor gifts, and auxiliary services (more on what these actually consist of below).

In a paper published by Ithaka S+R, James Dean Ward calls such funding discrepancies “misaligned incentives” (Source).

We pay tuition believing that our dollars get a significant say in what our institutions prioritize and in what our educational experience looks like. In reality, how colleges make money is a complex, political, and prejudicial web of competing incentives. And when incentives are dollar-driven, those with the deepest pockets ultimately call the shots.

The 4 Types of Colleges in America

It might be a bit of an oversimplification, but, by and large, America’s 4,000+ universities are categorized according to how they acquire funding. Which leads us to 4 broad categories:

Private nonprofit — A diverse group including Harvard University + most ivies, Liberty University +…