Penn State remains on solid financial footing, focused on institutional priorities

UNIVERSITY PARK, Pa. — Penn State continues to operate from a position of financial strength, empowering the University to accelerate institutional priorities and advance its land-grant mission.

The University's best-practice-driven budget model, which primarily uses student headcounts and credit hours to allocate funding to colleges and campuses, has made Penn State more nimble and better able to deliver a world-class education and successful student outcomes, attract and retain top faculty and staff talent, and grow research and academic excellence in high-demand fields.

“Our approach will always focus on student success and high-quality educational experiences,” said President Neeli Bendapudi. “The budget model helps to bring greater clarity to how resources align with these goals, enabling us to react swiftly to changing student needs, interests and priorities; quickly identify and invest in academic and research growth opportunities; and fund initiatives that are core to our strategic vision.”

>>> HOW PENN STATE FUNDS ITS MISSION: Learn more about Penn State’s annual budget process and how funding is allocated across the institution in this budget primer. <<<

Penn State is not immune to the forces affecting higher education, however. Changing demographics; enrollment declines; flat state funding; and rising costs, especially for employee health care, are all prompting difficult decisions at institutions nationwide, Bendapudi said.

The reality of limited resources

Executive Vice President and Provost Fotis Sotiropoulos emphasized that although Penn State remains in a strong position, the pool of money supporting Penn State’s core academic mission — primarily student tuition and state funding — is not keeping pace with rising costs. This is a trend University leaders expect will continue into future years.

“Penn State is in a much better place today compared to many others in higher education,” Sotiropoulos said. “We have developed a fulsome, comprehensive approach to budgeting that is aligned with our institutional priorities, with a budget model that allows for sustainable excellence. We have made tremendous progress and, as we look to the future, our long-term success depends on our ability to focus on our priorities and invest our spending in ways that have the greatest impact on the lives of our students and communities across Pennsylvania.”

Sotiropoulos said Penn State must be thoughtful and intentional about all facets of its operations, including its academic offerings. The Academic Portfolio and Program Review, for example, will enter its next phase this year.

“The goal is to make certain that Penn State’s academic offerings are strategic, sustainable and aligned with student interests and demand, as well as state and national workforce needs and trends,” Sotiropoulos said.

In parallel, Penn State is advancing a multi-year effort to transform internal operations. By creating more efficient, unified approaches to providing business services in areas such as information technology, finance, research, physical plant and human resources, University leaders aim to reduce administrative burden at the unit level and allow colleges and campuses to focus more fully on students and their academic mission.

1.1% decrease in budget model allocations projected for 2027-28

Even in the face of these challenges, Sara Thorndike, senior vice president for Finance and Business/treasurer and chief financial officer, said the projected changes in the FY28 budget are modest, with an overall decrease of 1.1%, or $24.6 million, in unit-based allocations, out of projected Education and General (E&G) budget model revenues of $2.2 billion, not including financial aid. The E&G budget supports the University’s core teaching and research activities.

Penn State operates on a two-year budget cycle, with the 2027-28 budget taking effect on July 1, 2027, and running through June 30, 2028.

>>> YOU’VE ASKED, WE’VE ANSWERED: Learn more about the ins-and-outs of Penn State’s budget as we answer your top budget questions. <<<

Thorndike said the University was able to hold the aggregate FY28 reduction to 1.1% — significantly below the rate of inflation — because of temporary funding adjustments in the budget model. This includes providing $10 million in provost academic subvention, or operating subsidies, to the University Park academic colleges; awarding $10 million in subvention to the Commonwealth Campuses from the president’s strategic funds, and covering a $4 million reduction for the Office of Physical Plant with investment income outside of the model.

Thorndike also noted that these are initial allocations for E&G revenues and do not yet include funds for employee compensation and benefits increases. Separate and distinct from these initial allocations, the University is committed to providing additional central funding to E&G units to be able to cover salary increases, and Penn State continues to maintain a 75%/25% health insurance cost share with employees, despite significantly rising costs.

In total, the 2027-28 budget projects $78 million in additional central costs to cover increases for health insurance, annual salary increases, faculty promotions, and graduate assistant stipends, and these funds will be added to unit allocations if approved by the Board of Trustees when it considers the University’s overall 2027-28 operating budget in July.

It is important to note that the $2.2 billion in E&G budget-model-based allocations represent only a portion of the funds available to unit leaders to meet expenses and invest in the future. The University manages approximately $2.2 billion in additional funds as part of its “all-funds” budget, including grant/contract revenues, investment income, gifts, student-initiated fees, the Land Scrip appropriation (for the College of Agricultural Sciences), and law school tuition. These dollars are designated for specific units or purposes and are not available to allocate via the University’s budget model but provide additional critical resources in support of teaching and research.

Several major University operations are self-sustaining and not funded by the core academic budget. These include Intercollegiate Athletics at University Park; Auxiliary and Business Services, which includes Housing and Food Services; the Penn State Health clinical enterprise; and the Applied Research Laboratory, among others.

Budget model updates for FY28

The budget model includes two primary adjustments for FY28, Thorndike said, including an update to the way the University pays for unified services and administrative and student support units, and an adjustment to incentive funding for research.

“These changes were primarily made based on feedback we received from faculty and budget executives,” Thorndike said. “Our budget model was designed to change as the world changes around us, and to be fluid as we refine our approach. Both of those factors came into play as we developed the FY28 budget.”

The University has changed how it funds shared services and administrative and student support units. These services benefit everyone and allow academic unit leaders to focus their time and attention on their core educational mission, while relying on the University to efficiently manage shared needs. Examples include building maintenance, electricity costs, student support and health services, employee computers and common IT services such as email and software, University Police and Public Safety, Human Resources, and other administrative units that provide services for Penn State as a whole. Beginning in FY28, these costs are deducted from revenues at the outset of the model, rather than charged back to the units, as in previous years.

The University’s incentive funding for research is a $24 million allocation in FY28, funded by investment income. This allocation is $6 million more than was allocated to academic units in FY27. Now called Graduate Research Incentive Funding, the allocation is based on dollars spent on graduate students from sponsored research awards, and unspent funds may be carried forward from one year to the next to support multi-year research priorities.

More information about updates to the budget model; individual college, campus and unit budget allocations; and answers to frequently asked questions specific to the FY28 budget, can be found on the University budget website.

Looking ahead

Initial FY28 budget allocations were shared with unit leaders in December, and additional conversations and budget planning will be ongoing throughout spring 2026 as unit budgets are constructed and finalized. Penn State’s final FY28 budget, including accompanying tuition and fees schedules, will be presented to the Board of Trustees for approval at its July 16-17 meeting at Pennsylvania College of Technology in Williamsport.

The FY28 budget model workbooks, allocations and additional FAQs can be found on the University budget website.

Penn State sets its budgets two years in advance, and the University’s 2026-27 operating budget and tuition schedules, which go into effect on July 1, 2026, were previously approved by the board in July 2025.