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Where Does All the Money Go? Let's Kick Around Colgate University

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Published : June 23rd, 2016
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Colgate University is a top tier liberal arts college that's near me. I often use their library. Today, I'll use them as an example of where the money comes from, and goes, in the better sort of university today. Colgate is focused on undergraduate education, and doesn't have much in the way of graduate studies or research, which simplifies things.

Colgate has 2,872 students, and 296 faculty, for a student:faculty ratio of a little better than 10:1. Pretty cushy. Headline tuition for 2015-16 was $49,560, and $62,540 including room/board and minor costs such as student activity fees.

As a nonprofit institution, Colgate is required to post its financials publicly. You can look at them here:

Isn't that amazing?

Let's take a look.

The most basic revenue is contributions/gift/grants, and "program service revenue" which basically means tuition and room/board expenses. This was about $191 million. Another $51 million or so came from what amounts to the endowment fund, for a total of $242 million.

Here we see total expenses of $206 million. That works out to $72,000 per student.

Out of that $206 million, we find that "other salaries and wages" amounted to $67 million. This is the entire faculty, and all administration below that top tier labeled "officers, directors, trustees and key employees," who shared a nifty $3.6 million between them. Another $4.4 million was paid as "management" fees. Pensions, benefits and payroll taxes amounted to an additional $19 million. This was 30% of payroll expenses ($19/$63).

In other words, their entire personnel expenses, except for a few overpaid leeches at the top, amounted to $86 million, which is only 42% of $206 million.

Here's the balance sheet:

They had $200 million in "tax-exempt bonds," which seems kind of silly for an organization with $1,226 million in assets. If we net that out, it leaves $1,026 million in net assets, including $340 million in buildings. There's also $6.3 million of prepaid expenses and inventories. The remainder, of $680 million, is essentially financial assets, of which $610 million consists of the university endowment fund, and the rest probably just working capital.

A "college" doesn't really amount to much except for teachers and buildings -- and the buildings are usually paid for. How much is actually being paid to the faculty, as opposed to the parasitic administrative class?

You need a few administrators, but the ratio should probably be no higher than about 1 administrative to 5 faculty. 1:10 would be better. It's closer to 1:1 today -- in other words, five to ten times too many administrators.

As it turns out, there's some detailed online data about that:

Doing the math, the average is $108,000 per faculty for the 256 faculty identified here -- close to the total of 296 listed by the university. 296*$108,000 is  $32 million. If we add 30% for pension, benefits and payroll taxes -- the ratio that they are paying now -- the amount comes to $41.6 million.

So, it turns out that Colgate is spending about $41.6 million for all of its faculty -- pretty generous pay, too, for nine months of work. An an extra-cushy 10:1 student:faculty ratio. $41.6 million is only 20% of the total spend of $206 million. Or, it is $14,484 per student.

In other words, the actual cost of the faculty at Colgate is $14,484 per student. Compared to tuition of $49,560.

Let's add a bit back in for necessary admin and building/grounds maintenance, and various student programs. Let's call it 50% of faculty costs, which is pretty generous. It comes to $20.8 million, for a total spend of $62.4 million. Or, $21,727 per student. Still plenty, but less than half of the present spending level.

This does not include room/board expenses. Their headline rate is $13,000 per student per year, which seems a little high for nine months -- particularly since the buildings are paid for -- but is not silly. It works out to $37.3 million of costs over 2,872 students.

However, the university is already getting grants of $36 million per year. Nice. Plus, it has an endowment of about $610 million. Typically, a nonprofit foundation will be required by law to pay out about 5% per year, or $30.5 million. Between grants and endowment income, you get income of $66.5 million. ("Grants" here does not break out grants for continuing operations, and grants for the endowment fund, which presumably would be excluded from continuing operations. But, we have quite a bit of leeway here, as shown below.)

Now, $66.5 million of non-tuition income is a bit more than the $62.4 million of justifiable spending.

In other words, even paying its faculty rather generously, and a luxurious 10:1 student:faculty ratio, Colgate Univeristy could easily afford free tuition for all students.

Where is all the other money going? Not to faculty, but rather, a large cohort of parasites and scammers.

Think about that, Mom and Dad, when you write the big checks next fall.

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Nathan Lewis was formerly the chief international economist of a firm that provided investment research for institutions. He now works for an asset management company based in New York. Lewis has written for the Financial Times, Asian Wall Street Journal, Japan Times, Pravda, and other publications. He has appeared on financial television in the United States, Japan, and the Middle East.
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It's even worse than that, I'm afraid. There's a massive over- and double- counting of faculty that you can't get from that sheet. Many of the "faculty" are actually staff/administrators. For example, at my school, the deans and librarians were counted as faculty, effectively halving the student/faculty ratio. There are similarly weird "job definition" rules that allow for some amazing salaries at the administrative level (for a time, the HR person was earning over a quarter million a year at a CC with less than 1000 students, because she was in position to re-define her job).

Anyway, you should go to some classes, and see with your own eyeballs, that there are more than 10 students in a typical class; this should be particularly true at an undergraduate-focused school, which wouldn't have the hyper-specialized material of grad school.

I'd love to know how to get those kinds of salaries; I've over 25 years of experience in higher education, books, many published (and paid) articles, spotless record, and will never break 50k in salary in my lifetime. I know my retirement income will be approximately zero (I'll have a better estimate in around 10 years), despite having the same employer for 20 years now.

Did you note how quickly the bonus compensation to the "top employees" is skyrocketing? A million in 2011, over three million in 2013? This is typical.

Meanwhile, when I do the math regarding the tuition of my students, I see I'm bringing in near 7 figures of revenue every year. Even though most students don't actually pay the sticker price of tuition, you, I, and everyone else who tries to follow the money in higher education gets puzzled trying to figure out where, exactly, does that money go.

I address many higher education-related questions on my blog:
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It's even worse than that, I'm afraid. There's a massive over- and double- counting of faculty that you can't get from that sheet. Many of the "faculty" are actually staff/administrators. For example, at my school, the deans and librarians were counted a  Read more
Doom - 6/20/2016 at 3:59 PM GMT
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