How much public funding do private universities in the United States receive, directly or indirectly?

Question

I am trying to assess how much public funding private universities in the United States receive.

I found a study that partially answers the question:

Taxpayer Subsidies for Most Colleges and Universities Average Between $8,000 to More than $100,000 for Each Bachelor’s Degree, New Study Finds (published in 2011):

Washington, D.C. – Taxpayer subsidies that cover the operating costs of most colleges and universities ranges from around $8,000 to more than $100,000 for each bachelor’s degree awarded, with most public institutions averaging more than $60,000 per degree, according to an analysis by the American Institutes for Research (AIR) and Nexus Research and Policy Center (Nexus).

Among elite private universities, like Harvard and Yale, the average taxpayer subsidy is $13,000 per student per year, while the annual subsidy at the most selective public universities, like the University of North Carolina, Chapel Hill, and the University of California, Los Angeles is more than $23,000 per student annually.

The financial figures reflect the amount of money colleges and universities receive in direct government support and tax breaks. They do not include loans and grants provided by state and federal governments to help students meet tuition costs.

However, this leaves out how much public funding go into loans and grants provided by state and federal governments to help students meet tuition costs in the United States.

I got interested in that question reading U.S. to Forgive at Least $108 Billion in Student Debt in Coming Years (published on November 30, 2016).

Answer 1

Estimating indirect subsidies is a much more subtle question than it sounds like. There's no way to answer it without some economic modeling, and even if you do that, you'll get a debatable answer.

For example, consider tax deductions for charitable donations. To what extent should they be counted as a subsidy? (For scale, current-use giving and endowment distributions amounted to 40% of Harvard's budget last year, so how you account for this really matters.)

Imagine a well-off donor, with a marginal tax rate of 33%. If they donate $1000 and deduct this money from their taxable income, then the government loses $330 in tax revenue. Should we count the $330 as a government contribution?

One argument says yes. Imagine that the donor has chosen $1000 because that's how much they feel they can spare. If they had been charged the $330 tax, then they would have been able to spare only $670 if they wanted to end up keeping the same amount. This means the tax-deductible donation is really equivalent to a $670 donation from the donor plus a $330 subsidy from the government. Under this theory, a substantial fraction of charitable giving is really a government subsidy in disguise.

Another argument says no. Many donors, especially small-to-medium donors, don't make carefully optimized financial decisions based on the tax consequences. They probably chose $1000 because it sounded like a reasonable number, and would have made the same donation regardless of the tax situation. In that case, the $330 in reduced taxes ends up as a reward to the donor for being charitable, and it has nothing to do with the university's finances. To the extent a change in tax policy wouldn't change the donation rate, it's unfair to count the tax deduction as a subsidy.

Of course these aren't the only arguments one could make on this topic, but let's focus on these two. Now the question is which argument better describes charitable giving practices. The truth is undoubtedly somewhere in between: donors are in fact influenced by tax deductions, but don't make all their decisions on this basis. To give a principled number for how great the effective subsidy is, you'll have to model this effect, and the answer may even vary between universities based on differences in their donor pools.

What makes this whole issue even more subject to debate is that politics comes into the picture. If you view the $330 as tax money that by default belongs to the government, then the whole $330 should obviously be counted as a subsidy. If you believe the government has no business taxing charities or donations to them, then none of it is a subsidy because the government never had any right to this money in the first place. Many people lie somewhere between these views, but some pile up at the extremes.

The net effect is that if you really want to figure out how much of an indirect governmental subsidy private universities get in the U.S., you'll first have to articulate your political position, and then do some economic modeling if politics hasn't settled everything yet. Whatever you decide, someone will tell you you're doing it all wrong. There is no answer all reasonable people must agree with.

Answer 2

According to http://www.cnn.com/2017/03/16/health/trump-budget-medical-science-huge-cuts/ (mirror) federal support to academic institutions for basic research in the United States amount to $35 billion annually:

It's unclear what would happen to the National Science Foundation. That agency gives out more than $7 billion annually in research grants, accounting for about 20% of federal support to academic institutions for basic research, but didn't get a mention in the budget.

Massachusetts Institute of Technology (2017-03-27):

we rely on federal funding for 66% of our campus research support

http://www.foxbusiness.com/features/2017/04/03/ivy-league-colleges-collecting-more-than-41-billion-in-taxpayer-money-report-says.html (mirror):

According to a report compiled by the non-profit group Open the Books, America's Ivy League colleges’ payments and entitlements cost taxpayers more than $41 billion over a six-year period from fiscal year 2010 to fiscal year 2015. This is equivalent to $120,000 per student in government aid or $6.93 billion per year.

More details regarding the report (mirror) they cite:

KEY FINDINGS:

1. Ivy League payments and entitlements cost taxpayers $41.59 billion over a six-year period (FY2010-FY2015). This is equivalent to $120,000 in government monies, subsidies, & special tax treatment per undergraduate student, or $6.93 billion per year.

2. The Ivy League was the recipient of $25.73 billion worth of federal payments during this period: contracts ($1.37 billion), grants ($23.9 billion) and direct payments – student assistance ($460 million).

3. In monetary terms, the ‘government contracting’ business of the Ivy League ($25.27 billion – federal contracts and grants) exceeded their educational mission ($22 billion in student tuition) FY2010-FY2015.

4. The eight colleges of the Ivy League received more money ($4.31 billion) – on average - annually from the federal government than sixteen states: see report.

5. The Ivy League endowment funds (2015) exceeded $119 billion, which is equivalent to nearly $2 million per undergraduate student.

6. As a non-profit, educational institution, the Ivy League pays no tax on investment gains. Between FY2011-FY2015, the Ivy League schools received a $9.6 billion tax break on the $27.3 billion growth of their endowment funds. In FY2014, the tax-free subsidy on endowment gains amounted to $3.4 billion, or nearly $60,000 per student.

7. With continued gifts at present rates, the $119 billion endowment fund provides free tuition to the entire student body in perpetuity. Without new gifts, the endowment is equivalent to a full-ride scholarship for all Ivy League undergraduate students for 51-years, or until 2068.

8. In FY2014, the balance sheet for all Ivy League colleges showed $194,332,115,120 in accumulated gross assets. This is equivalent to $3.35 million per undergraduate student.

9. The Ivy League employs 47 administrators who each earn more than $1 million per year. Two executives each earned $20 million between 2010-2014. Ivy League employees earned $62 billion in compensation.

10. In a five-year period (2010-2014) the Ivy League spent $17.8 million on lobbying, which included issues mostly related to their endowment, federal contracting, immigration and student aid.