There are good schools, there are great schools, and then there’s Ivy League. At the pinnacle of American education, only a small handful of contenders are vying for the title of “Best”. At the top of that list, you’ll find Harvard. One look at the hallowed halls and serene, stately grounds and you begin to understand that some institutions truly are not created equal. However, Harvard works hard to stay on top. Do they deserve what they get for the effort? It’s a matter of perspective.
How much money does Harvard University Bring in Annually? It’s an interesting question and not the easiest to answer because the answer changes from year to year. The surplus operating revenue was $196 million in 2018. This is listed as 4% of their revenue. The budget for the same year was a whopping $5 billion. However, simply spitting out a number like this is not a complete answer or a complete picture. Harvard did not collect $5 billion dollars, they planned to spend that much.
A mere figure, whether high or low, has no context. It is not as though Harvard has a bank vault somewhere that Scrooge McDuck designed for them to fill with gold coins. Financial reality is not always about simple things, like initial numerical appearances. If such were the case, everyone would live carefree lives with their personal budget balanced, and people as a whole would, by and large, be composed of financial wizards who never worried about money. Sadly this is not the case.
In order to understand what Harvard “Makes,” you have to dig a little deeper. Thinking of the institution as though it were someone’s personal finances is a bad start if you intend to understand the schools’ realistic income. The way we look at and spend money is one of the defining differences between the wealthy elite and lower classes, and this extends to institutions and businesses as well as individuals. What comes in as well as what must be spent and saved are all only partial financial pictures.
Where Does it All Go?
Running a school is not cheap. From sports equipment to paying the janitors, absolutely everything on the 5,076-acre campus has to be maintained, right down to the last blade of grass. If you do the math that means it takes about $985,027 per acre to run one of the world’s most elite schools. It may seem at first that this is a large sum, nearly a million dollars an acre. However that million dollars an acre is covering anything from lawns and landscape to cutting edge medical and scientific breakthroughs made by students doing in-house research on University grants.
Unlike government programs, Harvard is a private university. Even schools that are not the creme de la creme elite of the Ivy League don’t typically settle for the lowest bidder. At least, not if they have any sort of wiggle room in their budget. Universities have a reputation to maintain and standards to uphold that are miles beyond the base model, off-the-rack, factory showroom floor thinking of some businesses.
Consider sports for just a moment. The arenas, fields, courts, and stadiums are not designed for mere function. Fans are not sitting on bare minimum wooden bleachers like they would at a local high school game. Instead, they have a whole sporting experience to look forward to when they go to cheer on their favorite team. They pay for premium tickets to be sure, but they have a higher expectation as a result. This exchange is part of what keeps fans coming back. The extra expense means value added. Seats have cushions and armrests. There is merchandise available, and snacks to be purchased from concessions. As things go up in levels of complexity and desirability, so too the costs rise to participate and to maintain the appropriate level of output in terms of the experience.
An average professor at Harvard is the highest paid of any University in America, and well they should be for the most prestigious school. Harvard pays approximately $198,400 a year to their full professors. Naturally, there is plenty of other staff to consider in this equation, but this is simply for context on the realistic cost of running Harvard for a year.
The varying rates earned by coaches, administrators, librarians, and all the myriad remaining staffers is doubtless just as generous since Harvard doesn’t settle for having anything second rate. Plus, in addition to the current staff, there is the issue of pensions. In 2017 Harvard held $836 million dollars in pension assets. They paid out $64.7 million in post-retirement health benefits and pensions.
The staff alone is a substantial investment for the school, and all told they are still a relatively small portion of the budget. There are scholarships, buildings, and grounds to maintain. Parking, security, top of the line laboratory equipment, each item has a price tag attached and the costs compound quickly. Once you step far enough back from those initial huge sums, you can see how the cost to actually run a place like Harvard becomes absolutely astronomical really rather quickly.
There are other fees and expenditures that are part of running a school. Not everything is as predictable as you might hope to see. Some of the more oddball examples are things like traveling fees for coaches who are recruiting next season’s sports stars, envelopes and stamps (or the modern electronic equivalent) for every letter of acceptance and rejection that goes out, and document shredding services for old paperwork to be properly disposed of.
Where Does the Income Come From?
Much like operating costs, the sources of a schools’ income are not as cut and dried as you may think. Perhaps you never considered it, or you assumed that tuition alone is enough to keep an institution of higher learning solvent and educating future generations. Unfortunately, it takes a bit more than just collecting registration fees to make a top tier University worth getting a diploma from.
In 2017 Harvard raised an unheard of amount of money. $1.28 billion dollars. The difference between this money and, for example, the income from the many companies that sponsor Harvard’s various sports, is a critical one. Donors who contributed to the fundraising efforts, whether they were alumni or some other interested party, did not expect to get anything in return except a possible tax write off.
There’s a mutual benefit there since receipts for tax write-offs can be issued, but in general, the money was freely given just to support the school. In the last few years, Harvard has raised somewhere north of $8 Billion, which is an incredible sum and certainly beats the nearest rival, Stanford by a fair distance. Gifts of this nature are standard fare for universities and all sorts of nonprofit organizations.
Over two dozen large corporations sponsor Harvard Crimson Sports. These include but are not limited to, Geico, Coca Cola, Marriott, and Nissan. The difference between these contributors and the groups, businesses, and individuals who donated to the fundraising efforts is that most of these businesses see more than just the tax write off. They engender some goodwill with the public and at the same time earn free advertising or other perks that help them remain on top of their respective industries.
As a University, Harvard typically does not offer its services free of charge. For the 2018-2019 school year, the average student attending Harvard paid $46,340 in tuition. If you include room, board, and fees, the sum is closer to $67,580. That is the per/student total for just one year. In 2017 Harvard had 22,947 students. That means that if each student paid the full sum, and the number of students was the same, Harvard would have collected $1,550,758,260 in tuition and associated fees. That’s a little more than 1/5 of their yearly budget to run the school.
Obviously, tuition alone wouldn’t cover the education students receive. In addition to those somewhat surprising numbers, Harvard has a comprehensive financial aid program. Any student who qualifies and is accepted can attend Harvard regardless of their family financial status. A family earning less than $65,000 a year can send a student to Harvard completely free. The school covers 100% of the room, board, fees, and tuition for students in this situation without the need to qualify for other loans and aid.
A more ‘middle class’ family whose combined income falls between $65,000 and $150,000 a year will also see a significantly different total on the tuition requirement. In these cases, depending on the situation, the family pays between 0 and 10% of their income. It is a worthwhile investment, and a bit of a shock to some who didn’t know Harvard was so invested in being inclusive to all great minds whether they could afford it or not. Though the less well to do students are hardly the majority of the student body, it’s noteworthy that Harvard is not collecting every possible penny from each student, but rather reaching out to those who would otherwise go without the opportunity they so richly deserve.
The schools’ money managers also take a portion of what Harvard makes and invest that money. As with all investments, there is risk involved and the school has actually lost some of it’s money in the past. Enough that they have not yet regained the ‘nest egg,’ they once had. Though Harvard is hardly suffering, they have had some financial woes in the last few years. Investments are meant to help you gain in the long run, but they just don’t always work out that way and it means some of your assets are tied up in places you can’t use them for a while.
The reported endowments, all together, for Harvard comes to about $37.1 billion. As has been emphasized, this is not the whole picture. The nature of most endowments is that they are limited in both scope and duration. The money can’t just go anywhere or sit there forever. There are thousands of individual funds included in the total. Some can only be used for sports, others for books or upkeep on a particular building and so forth.
Who Manages All This Money?
Founded in 1974 and based out of Boston Massachusetts, HMC is owned by Harvard. Harvard Management Company or HMC manages the over-12,000 funds that make up the full endowment of the university. The company personally oversees about one-third of the funds and works cooperatively to help oversee and maintain the rest with the aid of other outside companies.
In addition to the endowments, the working capital, pension assets and non-cash gifts all combine and require constant and diligent supervision. When handling the largest University endowment in the world, the need to constantly inspect for miscalculations that might prove disastrous is paramount so it only makes sense that Harvard would found its own business to handle Harvard’s financial assets.
Harvard is the gold standard for university excellence. If you are going to maintain the highest standards in the country, you will have to pay for them somehow. It is not as though future CEOs and the best lawyers and doctors in the country would pay their tuition to a place with crumbling walls and patchy grass. Some things are about standards and the students and faculty of Harvard hold everything to the very highest standard there is.
The question, “How much is too much,” is something that an institution of this nature doesn’t really consider. For one thing, recent outcries aside, a fair portion of this money goes to more than cosmetic improvements. Not only do they pay top tier staff what they are worth, but also maintain libraries and research facilities among other concerns. While some say it is too extravagant, others would simply comment that if one is going to “overspend,” then perhaps doing so in the name of a world-class educational institution with 382 years of experience is the correct choice. It is unfortunate that not every school can have the same advantageous budget to work with, but it’s nice to know someone does.