Financing Public and Private Higher Education Higher education in the United States consists of varieties of institutions that award degree certificates, associate certificates, and postgraduates' certificates. Data presented by National Center for Education Statistics (2011) reveal that there are approximately total number of 4,495 degree and non-degree granting institutions in the United States where 2,774 grant 4-year and postgraduate degrees and 1,721 higher institutions grant associate degrees. As being revealed in Table 1, there are 1000 public higher institutions granting 2-year associate degrees while 721 are private higher institutions granting associate degree. On the other hand, there are total number of 2,102 private higher institutions that grant 4-year and postgraduate degree certificates where 672 are public higher institutions that grant 4-year and postgraduate degree certificates.

Table1: Total Number of Private and Public Higher Education in the United States

4-YEAR INSTITUTIONS

Public

Private

2-YEAR INSTITUTIONS

Public

Private

TOTAL NUMBER OF HIGHER INSTITUTIONS

Source: National Center for Education Statistics. (2011).

Mainstay of the higher educations in the United States is the private and public funding. Both public and private higher educations rely on different sources of funding to remain in operations. These institutions use this finance to pay tutors' salaries and run day-to-day administrations.

Fundamental objective of this paper is to investigate the funding sources of higher education in the United States with special emphasis of the University of California, Berkeley (public), and Princeton University (private).

The paper discusses the complexity facing public and private higher education in the United States.

Complexity of Finance in Higher Education

U.S higher education has faced a significant sharp drop in funding from the states within the last two decades. For several decades, states were the principal source of finance for public higher institutions. However, since 1990s, there has been a gradual decline of the proportion of revenues from the states making many public higher educations to increase the tuition and fees. Generally, there has been a 10% decline of state expenditure on many public higher institutions. Despite the decline in the funding from the state, there has been a general increase in the college and university expenditures, which include academic support and services for students. (Geiger & Heller 2011).

University of California, Berkeley is one of the largest public funded universities in the state of California. The recession that swept across the United States in 2008 affected the university leading to the severe budget cuts without long-term strategic plan, which makes the University of California to be slowly starved of state public funding. (Douglass, 2010).

Kane, & Orszag, (2005) argue that there has been a general decline of government funding and the decline in the states' funding was from $62.8 billion to $60.2 billion between 2002 and 2004. The big challenge facing higher education is due to the increase in inflation leading to the increase on the expenditure per student. The state funding per student at University of California, Berkeley has declined steadily while student's enrollment in the university has increased due to the growth of Californian population.

Between 2000 and 2008, there was an increase in the student enrollment in the higher education with 2.8% growth in annual rate of enrollment. The increase in the enrollment has been generally due to the increase in the U.S. population. By 2008, the student enrollment increased by 47%. Concurrent increase in the enrollment has led to the increase in the tuitions fees within the higher educations making higher institutions to become more expensive for many households. Despite the increase in the student enrollment in the United States, expenditure per student in public state institutions has increased in the last 10 years. Thus, higher institutions have devised several strategies to source for both private and government funding.

Sources of Funding of Higher Education: Case of UC Berkeley and Princeton University

University of California, Berkeley is a public university owned by the State of California. The expenditure of the university per year is approximately $1.8 billion, which the university uses in fulfilling research, teaching, and public service mission. Typically, Berkeley sources for funding from eight different sources. The largest comes from the general-fund allocation that comes from the State of California, which are in form of the general-fund allocation and this funding is approximately 28% of the total source of funding for the university. However, since 2003, there is a general decline in the state support for the University. Between 2010 and 2011, there was a decrease of $37 million from the state support primarily due to the $68 million decline in Recovery Act (ARRA) support.

As being revealed in Table 2, Berkeley received $430 Million in 2007 which was the highest state fund that the university has ever...

Since 2007, the state's funding has declined from $430 million in 2007 to $241 Million in 2012. (UC Berkeley Financial Report 2011).
Table 2: Berkeley'state Funding since 2003. ($Million)

Year

2003-04

2006-07

2009-10

2010-11

2011-12

State Funding

$422

$430

$319

$351

$241

Percentages

26.5%

25.4%

15.2%

14.9%

11%

On the other hand, Princeton University is the best private university in the United States. Contrary to the UC Berkeley, which receives annual support from the California state government, Princeton University does not receive annual funding support from the state government because the university is a private university. However, Princeton University receives one-quarter of a billion dollars of sponsored research funding yearly from both federal government and private organizations.

Tuition and Fees

The tuition and fees is the second largest of source of funding for the University of California, Berkeley. Tuitions and fees come from students and contribute to 20% of the university source of funding. Between 2010 and 2011, the university tuition and fees increase from $337.7 Million to $413.9 Million. The decline in the state support has made the university to increase the tuition fees and the decision to raise tuition and fees is due to the high financial contributions from the tuition. Typically, the tuition and fees accounted for the 22% of the university revenue between 2010 and 2011. In 2012, the university realised $582 Million due to the increase in the tuition and fees. (See Table 3).

Table 3: Berkeley's Tuition and Fees since 2003. ($ Million)

Year

2003-04

2006-07

2009-10

2010-11

2011-12

Tuition & Fees

$247

$310

$412

$508

$582

Percentages

15.5%

18.3%

19.6%

21.6%

26.5%

Similarly, Princeton University also relies on the tuition and fees for the sources of funding. Unlike Berkeley that charge different tuitions for residents and non-residents students, Princeton University charges the same tuition and fees for both residents and non-resident students and the university tuition and fees is one of the highest in the country, which is approximately $63,427 per student for an academic calendar. In 2010, the total funding that the university received from tuition and fees was $87.6 Million while the total funding from the tuitions and fees increased to $98.4 Million in 2011. (Princeton University, 2011). However, Princeton assists students to graduate with zero debts because the university offers different grants to students which students do not need to repay after graduation making Princeton's financial aid program to be one of the best in the country.

Federal Government Funding

Federal government funding is 19% of the total funding received by the UC Berkeley. The federal government funding that the university received increased from $99 Million in 2010 to $113 Million in 2011. Typically, the university receives funding from different federal government sources which include funding from:

National Science Foundation (NSF).

Department of Defense

Department of Energy (DOE),

the National Institutes of Health (NIH),

NASA (National Aeronautics and Space Administration)

Berkeley receives annual funding from these federal agencies because of the federal government special interests to fund science program to develop science and technology in the country. The initiative to increase the science program in the United States has made federal government to increase the allocation of NSF from $3 billion to $6.5 Billion. The university also receives indirect funding from the federal government which include low income student grant, Student aid, and direct loan program. It is essential to realize that 40% of students of the University of California pay no tuition because they receive grants and scholarships from the federal governments. Similarly, Princeton also receives different grant opportunities from the federal government which include research funding from the National Science Foundation, Department of Energy, and National Institutes of Health. Typically, Princeton receives funding from up to 26 grant making federal government agencies. Princeton received $242 Million grants from the Federal government in 2010 and the government grant that the university received increased to $253 Million in 2011. (Princeton University, 2011).

Private Gifts, Grants and Contract

The revenues of the UC Berkeley have grown because of the overall increase in the non-state funding which include research contract, philanthropic gifts and grants from the private organizations. These sources of funding account for 18% of the university revenue. Similarly, Princeton University also receives gift from philanthropic organizations, private organizations and individuals. In 2012, Princeton University receives $20 million form of gift from university alumni Robert Scully and Nancy Peretsman. The university also receives $15 Million gift from Wallace brothers to fund dance building and theater. The total gifts that the university received were $67 Million in 2010 and increased to $72 Million in 2011. (Princeton University, 2011).

Sales and Services of Educational Activities

UC Berkeley also derives funding sources from the research and public service activities. The university derives revenue…