Public Research Universities: Understanding the Financial Model


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The Lincoln Project: Excellence and Access in Public Higher Education

Faced with sudden and dramatic state and federal budget reductions, university administrations across the country have responded with inventiveness and urgency. Nearly all public research universities have reduced administrative costs; improved financial processes and management; found new efficiencies in purchasing, IT, and HR infrastructure; and developed more effective and economical ways of serving students. In addition, public research universities have embedded themselves more intensively in local economies by offering services and partnerships to governments and businesses, diversifying their sources of revenue, and extending educational offerings to previously underserved populations of students.

But even provided the enormous energy devoted to innovation within these institutions, the creation of new and sustainable funding models for public research universities remains immensely challenging. Tuition, by necessity, has become the principal revenue source for many public research universities. Data clearly show that most of the increases in tuition at public universities were a direct result of decreased state appropriations. This reality is often obscured in the public debate about higher education, but it is a reality that must instruct any proposed solutions.

Public research universities are dedicated to the public: that is their mission; it is the value that animates all of their activities. These universities are a critical piece of the intellectual and economic infrastructure of our nation and, as such, are as important to our future prosperity as physical infrastructure like roads and bridges. But it is the public character of these institutions that the current financial model has put at the greatest risk. Recent trends threaten to increase the divide between well-endowed public research universities and lesser-endowed institutions, and weaken the relative quality of the educational experience at both. Without careful and sustained attention, we not only risk blurring the line between public and private research universities, we also risk magnifying other social divides.

Clearly, the current model is broken, unsustainable, and sorely in need of an infusion of new strategies, ideas, and partnerships from and with the state and federal governments, corporate America, and philanthropy. Universities must continue to do their part by containing costs and enhancing existing—and developing new—revenue streams. Governments and corporations need to recommit as well. States should restore (and maintain) per-student funding at public institutions to the mean level of the fifteen-year period preceding the recession, adjusted for inflation.32 Federal programs should match state funding in order to incentivize and leverage state investment. Corporations should contribute directly to public research universities, recognizing that their private sector success is correlated with the talent and creativity of employees recruited from these educational institutions. Using the power of collaboration and leverage, a new compact for financial sustainability for public research universities is possible, and will ensure that these institutions remain a powerful component to the success and prosperity of our democracy.


32 National Research Council of the National Academies, Research Universities and the Future of America: Ten Breakthrough Actions Vital to Our Nation’s Prosperity and Security (Washington, D.C.: National Academies Press, 2012), 9.