NCPA - National Center for Policy Analysis

Non-Profit Colleges Can Be Very Profitable

August 22, 2011

Now that people are examining the relative costs and benefits of college education more closely than ever, the argument that schools are charging substantially more than undergraduate education really needs to cost is gaining traction.  According to a paper by Professor Vance Fried of Oklahoma State University, many colleges and universities are charging their undergraduates much more than their education costs, says the Pope Center for Higher Education.

  • In his book "Better/Cheaper College," Fried carefully calculated that a quality liberal arts education at a residential college only needs to cost around $8,000 per year.
  • The revenues that most schools receive, however, are considerably in excess of that amount.
  • Based on tuition revenues alone, the average private undergraduate school makes about $5,500 per student.
  • When donations and endowment income are added, profits jump to $12,800 per student.
  • That is twice the profit margin earned by for-profit University of Phoenix, he states.

In their book "Higher Education?" Andrew Hacker and Claudia Dreifus identify a number of schools, such as Western Oregon University, where "there are no star professors, not much research, and the administration is bare bones.  All these limits inadvertently make Western Oregon a delightful place."  So there are colleges that don't rake in "profits" but just give their students a good, affordable education.  Why aren't there more of them?

  • Fried's answer is that the copious amount of government money that flows into most colleges and universities makes it irresistibly tempting for them to spend the profits on frills.
  • He advocates shutting off the flow: "Less federal money would force higher college productivity and, of course, lower government spending."

Source: George Leef, "Non-Profit Colleges Can Be Very Profitable," Pope Center for Higher Education, August 17, 2011.

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