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Budget Essentials

Early in 2016, Vice President for Finance and Administration Greg Brown launched a three-week class entitled “Budget Essentials” to inform and engage the campus community about the College’s finances and budget processes. For participants, the program provided answers to such questions as: “How does the College develop an annual budget?” “How is its endowment used to support the annual budget?” “How are financial aid decisions made?” “What role does philanthropy play?” and “Is the College’s business model sustainable?”

A mix of faculty, staff, and students—selected by lottery given the high level of interest—attended the class. Going forward, Brown plans to offer the class once a semester. Through this program and other initiatives, Brown hopes to increase campus understanding of the College’s finances and improve transparency about the College’s operations.

The noncredit course was developed by a team of Finance staff, including Brown, Chief Investment Officer Mark Amstutz, Director of Financial Aid Varo Duffins, Associate Vice President for Finance and Treasurer Eileen Petula, and Director of Institutional Research and Assessment Robin Shores. The College Budget Committee, a standing committee of faculty, staff, and students, reviewed the curriculum and helped shape the program. Instructors included Brown, Amstutz, Duffins, and Vice President for Development and Alumni Relations Karl Clauss.

Following are highlights from the “Budget Essentials” program.



An operating budget is a reflection of strategic priorities, financial forecasts, and resource allocation decisions. The College’s annual operating budget for 2016-17 is $153 million. This amounts to expenditures of about $100,000 per student in the coming year. All students—even those who are able to pay the full price of $63,550 for tuition and room and board for the coming year—essentially are receiving a subsidy to support their education, thanks in large part to support from the College’s endowment.

Crafting an operating budget consists of two basic elements: (1) determining how much income to expect and (2) allocating this income among competing expenditure priorities. Student tuition and fees, distribution from the endowment, and annual donor support constitute the College’s three main sources of income. At Swarthmore, the College uses multiyear financial modeling scenarios to forecast revenue and expenses. Since over half of the College’s operating revenues come from the distribution of endowment income, projections of future endowment growth, along with market volatility, create challenges for the development of the budget. The College strives to balance present spending needs with long-term growth of the overall portfolio.

Tuition and room and board rates are determined based on a review of general economic indicators and higher education trends. As the College expands its outreach to low-income and first-generation students, the financial aid budget has grown to a record $39.6 million for the coming fiscal year. Fifty-eight percent of the Class of 2020 will receive financial aid packages averaging almost $48,000.

Not surprisingly, well over half of the College’s operating expenses are devoted to the compensation of faculty and staff. Other major areas of expenditures, in descending order, are departmental expenses, debt service, facilities renewal and replacement, and utilities. With the exception of debt service, all of these expenditure categories are subject to inflationary pressures.



The dual roles of Swarthmore’s endowment are to contribute to annual operating expenses in perpetuity and to build the College’s financial strength for the benefit of future generations of students. Each year, the College seeks to spend from the endowment an amount sufficient to strengthen the College’s capacity to provide an outstanding liberal arts education. The targeted annual distribution from the endowment to support the operating budget ranges from 3.5 to 5 percent, with an average “spending rate” of 4.25 percent. (Proceeds from the endowment that are not spent are re-invested.) The goal, over time, is for the endowment’s appreciation to exceed the amount drawn from it annually. This enables the endowment to grow and the College to expand its mission.

Indeed, Swarthmore’s endowment has grown from $174 million in 1985 to its current $1.8 billion, a more than tenfold increase. Gains from investments account for most of this growth, but it is also a result of important donor support, for example, endowed scholarships and professorships. 

The College employs more than 75 active investment firms that use a variety of approaches to achieve the endowment’s long-term objectives. They invest in a broad range of asset classes, including equities, hedge funds, private equity, venture capital, real estate, natural resources, fixed income, and cash. 

The Investment Committee of the Board of Managers works closely and collaboratively with the College’s investment office to manage the endowment. The College’s investment process and on-going reviews of investment managers has served the College well over time, creating a dynamic and diversified portfolio to meet the current and future spending needs of the College.



Among the biggest financial challenges facing the College is maintaining its dual commitment to need-blind admissions while meeting the full financial needs of all admitted students. While the “full pay” amount for a Swarthmore education has increased from $27,000 in 1995-96 to more than $63,000 today, the amount that families of students receiving financial aid are asked to contribute has increased on average by only about $7,000 during the same period. 

The overall goal of the Financial Aid Office is to distribute equitably the College’s budgeted resources to students with financial need in order to support the College’s longstanding commitment to access and affordability.

Through a process that collects detailed information on each family, the Financial Aid Office determines the ability of a student’s family to contribute to the cost of annual attendance (tuition, fees, room, board, books, travel, and personal expenses). This ability to pay is known as the family contribution (from both parents and student). The family contribution is subtracted from the annual cost of attendance to determine a student’s demonstrated financial need. 

This demonstrated financial need is met through a combination of need-based grants and work aid from the College, the federal government, and state agencies. The College is a “loan free” school, meaning that it does not include student loans as part of its financial aid awards. However, some students choose to borrow money from federal sources (which most are eligible to receive) over and above the need-based aid they receive.

To determine the amount of a student’s demonstrated financial need, information on income and assets is assessed within the context of a family, i.e., the number of family members in a household and the number of dependent children in the household who are attending college concurrently. Allowing for different and distinctive levels of demonstrated need—even though two families might have identical incomes—constitutes a key aspect of Swarthmore’s need analysis process. For example, consider two families, each with a total of $150,000 in annual income. The first is a family of three (two parents—one of them employed—and an only child in college). The second is a family of six (two parents—both working—and four children, two of them in college). Despite their identical incomes, these two families are not in the same financial position. This basic concept lies at the foundation of the need analysis process. 

In sum, the goal of Swarthmore’s financial aid office is to consider each family’s distinct financial circumstances in order to determine a family’s ability to pay.



Donor support has always played a crucial role in the College’s growth and success. Although many do not typically equate the endowment with philanthropy, the truth is that all of its $1.8 billion is ultimately the result of individuals who over the years have expressed their values and their support of Swarthmore’s mission through giving.

From 2011 to 2015, alumni and other supporters made philanthropic commitments totaling $213 million. Some of this amount helped to grow the endowment; some was applied to annual expenses and some to capital projects. Over this time period, nearly 70 percent of the alumni with whom the College is in contact made at least one gift.

For FY 2016-17, about four percent (nearly $6 million) of the College’s income is budgeted to come from annual giving through the Swarthmore Fund. Some Swarthmore Fund gifts are unrestricted, while others are designated for specific purposes—financial aid, athletics, or summer research experiences for students, to name just a few. All Swarthmore Fund gifts are spent during the year in which they are received, thus they make an immediate impact. Assuming an endowment spending rate of 4.5 percent, a $100 gift to the Swarthmore Fund has the same short-term impact as a $2,200 gift to the endowment. 

The perception that the College has all the money it needs constitutes the most common reason individuals cite for not giving (or not giving more) to the College. This perception is no doubt a result of the College’s substantial endowment as compared to most peer schools. However, the amount the College is able to spend from its endowment is limited by the need to meet current needs while preserving intergenerational equity.

Continued generous giving will be required to sufficiently address the many financial challenges facing the College, including the increasing costs of financial aid, providing additional programming for first- generation students, funding for summer research, increasing faculty support, and investing in campus facilities. In the next few years, the College will be constructing a building to house the Biology, Engineering, and Psychology departments. As planned, this new, environmentally friendly structure will be sizable—larger than Parrish Hall. It comes with a budget of $126 million. In addition, the College is constructing a 120-bed residence hall and a smaller academic building on campus.



Swarthmore College has significant financial, human, and physical resources, and it has a long history of managing them judiciously to assure that future generations will enjoy the lifelong benefits of its rigorous educational environment. Through prudent management of its resources and with continued philanthropy, the College is in an excellent position to meet the challenges ahead as we endeavor to support current and future generations of students. 

An important element in sustaining the College’s budget model is to be sure that all campus constituencies have a shared understanding of the College’s finances and the choices that lie ahead.

The “Budget Essentials” program is an essential building block in the development of this shared understanding and should foster constructive dialogue on campus.