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Where the Money Comes From

Where the Money Comes From

(p.11) 1 Where the Money Comes From
Saving Alma Mater
Ernst R. Berndt
University of Chicago Press

This chapter presents the traditional “business plan” of public higher education. In higher education, there is no bottom line except in the sense that colleges must live within their budgets. However, colleges do have a large number of internal performance benchmarks. Many are quantitative but nonfinancial: student SAT scores, graduation rates, win/loss record of the basketball team, percent occupancy of dormitories, number of National Academy of Sciences faculty members, and number of pizzas consumed in dining halls. Furthermore, one can fill a ledger book with college financial benchmarks, including bond quality ratings, federal grant and contract dollars, endowment investment returns, and growth in alumni giving. But all of the benchmarks that ultimately differentiate good universities from mediocre ones are not rolled up into a single criterion of overall performance. A second factor that muddies the economics of higher education is school-to-school variability. Higher education is an industry in which no two organizations produce equivalent products. Despite their broad differences, however, all colleges and universities share one trait in common: they all need money to survive. And the fact that most of that money is influenced greatly by social, demographic, and economic forces highlights the importance of making sense of higher education's complex marketplace. Until the academic marketplace is sufficiently understood, policy makers will be hard-pressed to redress the system's more egregious shortcomings and prop up its shaky financial underpinnings.

Keywords:   public universities, college education, higher education, economics, cost analysis, academic culture

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