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Decoding Financial Aid’s Impact on College Price

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Back to College Finance & Operations

Hidden deep inside College Navigator is a particularly helpful clue to a university or college’s financial health: the proportion of its entering students who get institutional financial aid. At about 300 colleges and universities nationwide, all first-year students get institutional financial aid, evidence at wealthy institutions of admirable generosity, and at less-well-resourced ones, of potential desperation.

This speaks to one of the most confounding realities of higher education finance: that almost no one pays the advertised price. Look on College Navigator for the net price to see what families actually pay; a very low net price means much less revenue for the institution than the list price might suggest is coming in.

That leads to one of the most important measures of a college or university’s financial health: the discount rate. The discount rate measures the percentage of revenue from tuition that goes back out the door in the form of discounts and financial aid.

The collective national average discount rate — which has reached about 54 percent for first-year students and 48 percent overall — is published every spring by the National Association of College and University Business Officers, or NACUBO. (Why is it higher for first-years? Because, after that, colleges and universities typically reduce their financial aid, a little-known kind of bait-and-switch tactic called “front-loading.”)

To get a general idea of a private institution’s discount rate, go to another valuable resource: its IRS Form 990 tax return. There are two ways to find a nonprofit organization’s Form 990 online: in ProPublica’s Nonprofit Explorer and through Guidestar (which requires a free registration). In either case, the documents may not be the most recent available, though they’re good starting points and you can use them to go back a few years and follow trends. Like all nonprofits, private universities and colleges are also required by the IRS to provide three years’ worth of their Form 990s, directly, on request. However, because of extensions, these also are likely to be a few years out of date.

Form 990s contain a lot of helpful information. On them, institutions are required to report their annual revenues down to the income from vending machines; their expenditures, including on such things as travel, lobbying and for servicing their debt; the (often eye-opening) salaries of their senior employees; and their highest-paid contractors.

It’s also where you can get a general sense of the discount rate. Go to Part IX, Line 2 (“Grants and other assistance to domestic individuals,” meaning institutional discounts and financial aid) and divide the number there by Part VIII, Line 2a: “Tuition and fees.” Once you have the answer, take it to the university or college to confirm.

Among other things not widely understood about colleges and universities is that they make a growing proportion of their revenue from dorms and dining, listed on the Form 990 (Part III) as “auxiliary services” — from 10 to 30 percent, depending on the size of the campus, according to Robert Kelchen, Seton Hall University associate professor of education, leadership and policy. Part III of the Form 990 also usually shows breakdowns of revenue from undergraduate and (much more profitable) graduate programs.

Understanding Pay and Perks

Salaries and benefits at private nonprofits are in Part VII of the Form 990. Note the often-high amounts of deferred compensation in the far right-hand column — additional payments on top of base pay put aside separately but that should always be included in reported salaries.

Parts of salaries and benefits for public institution presidents, other administrators and coaches are sometimes paid by university and college foundations that the institutions argue (not always successfully, as in this case brought by the Chicago Tribune against College of DuPage) are exempt from public-records laws.

Many (but not all) comptrollers’ offices or other state agencies provide centralized salary data for public university and college employees, by name and position. Here, as an example, is the Massachusetts comptroller’s searchable statewide payroll, which includes all public university and college employees.

What’s not visible are other deals reached by governing boards that increasingly provide huge severance packages and other costly perks for university and college presidents and chancellors. At public universities and colleges, contracts can be requested through public-records requests, but even some of them resist turning them over. These golden parachutes often aren’t publicly visible until after they’re paid out.

For example, unless they’re fired, the presidents of almost every public university are entitled to some kind of substantial disbursement when they leave, from the equivalent of one year’s salary to the value of the time remaining on their contracts, according to research by James Finkelstein, professor emeritus of public policy at George Mason University’s Schar School of Policy and Government, and a colleague, Judith Wilde, who have collected presidential contracts using public records requests. Thirteen percent are entitled to “contract completion bonuses” that range from $50,000 to $1 million. Nearly half are eligible, after stepping down, for year-long sabbaticals, at their full presidential pay, and about two-thirds are guaranteed positions on the faculty.

Benefits for other university and college administrators are tracked by the College and University Professional Association for Human Resources, or CUPA-HR, which publishes it in a very expensive annual report but will usually provide excerpts to journalists without charge.

Faculty salaries are reported by the American Association of University Professors in its annual faculty compensation survey. (Go to the appendices for salaries at individual institutions). The data also requires care in interpretation, since the union lumps together all faculty, regardless of rank, in what a skeptic might construe as an attempt to make faculty salaries seem flat or down. Dig deeper and check out changes in pay by category; full, associate and assistant professors usually do better, especially at large research universities, compared to much-put-upon instructors, who drag down the average.

The cost of university and college employee retirement (Part IX, Line 8) and benefit plans (Line 9) are broadly available on Form 990s. Benefits for people who work in higher education are generally far more generous than for their counterparts in other industries. Sixty-three percent have health care provided for them after they retire, reports the TIAA Institute, compared to 25 percent of employees at other types of businesses with 200 workers or more. Full-time faculty get contributions to their retirement plans equal to an average of 10.7 percent of their salaries, the AAUP says — more than double the national average employer contribution to employee 401(k)s.