Despite rising tuition due to economic inflation, Howard remains committed to keeping education accessible
Howard’s undergraduate tuition and compulsory fees remain significantly lower than those of comparable institutions despite a 7.5% increase for the 2022-2023 academic year over the previous year, which will bring tuition at $30,584.
According to data from the 2020-2021 academic year, Howard’s tuition and fees were 50% lower than institutions with a similar ranking in US News & World Report and 64% lower than institutions individuals in the Washington, DC area. Among the historically black colleges and universities (HBCUs) with the five highest rankings, Howard’s undergraduate tuition and compulsory fees are only $583 above average, and both below average. Hampton University and Morehouse College, although Howard is the only HBCU in the top 100 national universities.
Tuition and net fees represent an important source of funding for Howard, especially since they are unlimited and provide the University with the greatest flexibility in pricing and usage. Additionally, Howard strives to return tuition and fee revenue to students in the form of scholarships. For fiscal year 2021, the University recognized $164 million in net tuition and fee revenue; gross revenue from tuition and fees was $312 million and institutional aid was $148 million. Therefore, on average, for every dollar of tuition and fees charged, 47% is returned to students as a rebate.
It is important to note that living expenses, such as accommodation and meals, are not included in the mandatory fees. Accommodation and meal plans and meals are a separate cost for students. While we recognize that tuition and compulsory fees do not encompass the full cost of attendance, this particular overview provides significant insight into the affordability of a Howard education.
Increased operating expenses due to inflation, student services provided, regulatory requirements, and strategic investments for future growth necessitated an increase in tuition fees to meet University expenses. The tuition increase is being implemented at a time when the University, and the country as a whole, are facing pressure from levels of economic inflation not seen in decades. In March 2022, the consumer price index showed an increase in inflation of 8% year-on-year. As the cost of utilities, supplies, contract labor, travel and the like continue to rise, the University’s operating budget must increase commensurately. Additionally, the current labor market for retaining and recruiting faculty and staff is extremely competitive. Consequently, salary inflation also has an impact on the University’s operating budget. As the University continues to bring campus life back to pre-COVID-19 levels of services and experiences, investments in student life activities will also increase significantly next year.
Despite the difficult financial and economic environment, Howard strives to keep tuition and fees low by emphasizing other sources of income.
As a federally chartered HBCU, the University receives an annual appropriation to support University operations. Excluding Howard University Hospital (HUH), the University received a federal appropriation of $216 million in fiscal year 2021. This funding source represents 42% of the University’s operating budget Howard.
In fiscal year 2021, Howard received the largest philanthropic contributions in its history – $177 million – which was the University’s second largest source of revenue. However, as is generally the case with philanthropy, the majority of contributions received (64%) are reserved for donors for a specific use in time and/or for a specific purpose. For endowed gifts, the initial investment is intended to exist in perpetuity. Therefore, expenditures for an endowment gift are limited to the income from these investments. To ensure consistency in budgeting, universities use an annual expenditure rate to consistently allocate resources to the operating budget. At Howard University, the spend rate is 4% based on a three-year average value of each endowed gift. For example, a donation of $1 million would provide $40,000 in support of the annual operating budget.
Another important source of funding for the University is grant income. In fiscal year 2021, the University recognized $86 million in grant revenue. The University is also on track to meet its Howard Forward goal of $100 million in annual grant revenue and earn Carnegie designation of a 1 research institution. However, as with earmarked donations, revenue of the grant are limited to cover expenses specific to the subject of the grant.
For capital expenditure, a major source of financing is debt financing. The University issues bonds and uses the proceeds of these bonds to finance major capital projects (for example, the construction of the new steam plant). Using debt to fund capital projects allows the University to spread the impact on operating cash flow over the life of the bonds, typically 30 years. However, like a residential mortgage, the University makes annual interest and principal payments on these bonds using operating cash flow. The University is limited in the amount of debt it can issue by financial covenants that are attached to each of the University’s existing bond issues. In addition to large capital projects financed by debt, the University funds smaller capital projects and maintenance expenditures using cash flow from operations.
As expenses rise at Howard and the University prepares for a historic real estate investment, tuition will remain an important funding item. But just as important, the University is committed to keeping tuition fees low to ensure that Howard remains an accessible higher education destination for all. The increase in tuition fees this year reflects the University’s need to maintain its financial viability in this environment of rising expenses and investments. Howard has a historic duty to offer an opportunity to those who would not otherwise have one. Even as we become one of the most selective higher education institutions, we remain committed to also being one of the most affordable.
Stephen Graham is the Chief Financial Officer of Howard University.