skip to content

Frequently Asked Questions

Note, December 16, 2009: Some of the answers below contain slightly outdated figures; updates will be made shortly.

MIT Finances & Endowment

Budget Reductions

Task Force for Institute-wide Planning

Salaries, Benefits and Personnel

Tuition and Financial Aid

Building Projects

 

MIT Finances & Endowment

What exactly is the General Institute Budget? How much is it? How does it relate to the operating budget?

MIT’s revenues and expenses are broken down into four categories: General Institute Budget (GIB), sponsored research, auxiliary, and designated funds. GIB is the category that contains sources and uses of money that are managed centrally and not restricted or designated for a particular use. The GIB for FiscalYear 2009 (ending June 30, 2009) is about $1.1 billion. A simplified version of last year's GIB can be found here.

The operating budget is all of MIT’s operating revenues and expenses. MIT’s operating budget expense –  the sum of the GIB, sponsored research, auxiliary (self-supporting activities such as housing, MIT Press, etc.), and designated funds (gifts or fees that are restricted to a specific purpose such as professors’ salaries or scholarships) – is about $2.4 billion for FY’09, including the Broad Institute and Lincoln Lab.

How will MIT’s finances be affected by the economic downturn? (Updated August 2009)

MIT finances will be affected in a number of ways. The most significant will be in the value of the endowment and, therefore, the funds from the endowment that support MIT’s operations. As of the end of December 2008, we estimated the value of our endowment had dropped from its June 30, 2008 value of $10.1 billion by approximately 25% in fiscal year 2009. When the value of the endowment drops, we have to decrease the distribution of funds from the endowment to the Institute’s operating budget to maintain the endowment’s purchasing power for future generations.

Our finances will almost certainly be affected in other ways as well. We anticipate that donors will be less able to support MIT through gifts. The government is dedicating significant resources to fixing the economy, and this could affect how much research it can sponsor. Other research sponsors may have less flexibility to grow or continue their commitment to our research. Also, our financial aid budget may come under pressure as our undergraduates’ families may see declines in their income and other assets.

Why can't money in some parts of the endowment be used to meet needs in other areas? Isn't the endowment one big financial pool?

Although the endowment is pooled for investment purposes, it is actually composed of many individual funds, most of which are restricted in some way. They may be restricted as to the amount that is expendable—only income in excess of the original principal value may be spent —or as to purpose—to be spent only in accordance with the donor’s instructions; most of the endowment funds carry both restrictions. Less than 10% of the funds in the endowment are entirely unrestricted for general Institute budget purposes.

How is MIT’s endowment invested? Is our current financial situation the result of overly risky investment or spending decisions?

MIT's endowment is professionally managed by the MIT Investment Management Company (MITIMCo), with the oversight of a Board of Directors appointed by the Executive Committee of the MIT Corporation. The endowment is invested in a diversified portfolio of assets designed to provide financial resources for both current and future generations of scholars, an objective commonly described as "intergenerational equity." The paradox of endowment management is that current generations favor the relative stability associated with fixed income investments, while future generations favor the high real rates of return associated with equity investments. If MIT is to spend approximately 5% of the endowment market value each year to meet the needs of current generations, the portfolio must grow at least that much each year (after inflation) to ensure that the endowment will provide similar resources to MIT students decades and centuries from now. In managing the endowment, MIT targets high real rates of return through investments in a diversified portfolio of stocks, bonds, real estate and other assets. Because a portfolio that favors equity and equity-like investments over bonds can be expected to experience volatility in its returns over time, MIT attempts to smooth out that volatility and to provide a stable flow of funds from the endowment to the operating budget through an endowment spending policy that emphasizes stability, but also allows for some participation in the investment results of the endowment.
 
The MIT endowment is prudently managed to return maximal value to MIT while balancing investment risk.  Over the years, its strong investment results have provided a significant source of revenue to support the Institute’s mission. Over the last five years alone, MIT's endowment has distributed a total of $1.7 billion to the Institute operating budget while its market value (after spending) has increased from $5.1 billion in June 2003 to $10.1 billion in June 2008. While the severe and rapid decline across nearly all markets during the first half of fiscal year 2009 has had a disappointing impact on the market value of the MIT endowment, MITIMCo believes that the impact of the decline was mitigated by adhering to a policy of diversification, through investment with only the highest quality investment managers, and through defensive moves taken within the portfolio over the last three years. 

What impact will the decreased endowment have on the budget?

While endowment distribution does lag behind the actual real-time fluctuations in endowment value due to the smoothing features in the distribution calculations, a drop in endowment value will decrease the distributions for operations.

Units will be affected by endowment payout in that the values of both their support from the GIB and also the distributions from their designated endowed funds will fluctuate with the approved rate, which will reflect endowment performance. As a result, units are focusing on reducing expenses now since payout is expected to be lower in the future.

How much will the endowment payout decline in future years?

The endowment payout formula smoothes out short-term fluctuations in endowment value to provide a more stable stream of income to support Institute operations, but sustained declines (and increases) in market value will be reflected in distributions over a few years. The future is just too uncertain to answer a question like this one with any reliability.

Budget Reductions

How did MIT determine that it needed a 5% ($50 million) budget reduction for FY’10 and $100-$150 million in reductions over the next 2-3 years?

In FY’09, MIT had a balanced General Institute Budget for the first time in over a decade. However, a significant portion of the Institute’s general revenue support (21% of the operating budget) comes from the endowment, which will vary with fluctuations in the economy. This  includes not only direct unrestricted endowment payout to the operating budget, but also payouts to support specific areas (such as financial aid or a particular department) that the operating budget would otherwise have to pay for.

A simulation of a number of different market scenarios shows that the Institute would develop a budget deficit in the neighborhood of $100 to $150 million if expense growth continued at a steady rate while endowment values declined. This analysis showed that the Institute would need to reduce expenses by $50 million in FY’10 and, if endowment performance did not improve significantly, another $50 million in each of FY’11 and FY’12 to put the Institute back on course for a balanced budget.

If the budget cuts in 2003 were so successful, why do we have to make larger cuts today?

The earlier budget cuts were implemented over a period of three years, ending in 2005. While they were successful in bringing MIT back to financial equilibrium at the time, we are now faced with a new set of financial challenges and must adjust accordingly. Some of the earlier reductions have since been fully or partially restored, such as decreases in the budgets for renovations and for fund-raising, and the Research Assistant tuition subsidy, which was reduced to 45% and has since been raised to 50%.

2009 expenses are expected to exceed 2005 expenses by over $250 million in a variety of categories, including compensation, utilities, rent, and new program support. The Institute-wide Planning Task Force will examine all expense categories in an effort to identify appropriate areas of savings.

Since our budget cuts are small compared to our total endowment, why not just spend a little more from endowment and avoid or reduce budget cuts? Once regular growth in the endowment returns, we’ll make up most of the extra expenditures.

There are several reasons why it isn’t a good idea to take significantly more when our endowment is losing value. To begin with, it is an unsustainable strategy.  The more endowment we spend now, the less there will be to invest. This is especially problematic when spending exceeds investment gains on a recurring basis, which can severely erode the endowment principal. Following this path would greatly increase the likelihood of having insufficient funds to support our ongoing activities and necessitate making even deeper, more drastic budget cuts in the future.

Given the low interest on debt, why don’t we refinance our debt service?

The vast majority of MIT’s debt is held by investors that tend to hold such assets to maturity, and most of that debt is not callable – meaning that MIT has no ready mechanism for refinancing or retiring it. As interest rates drop, MIT bonds become even more valuable to those holding them, and investors are less likely to sell them at reasonable cost. We actively monitor opportunities to reduce debt service cost and will pursue any that reduce our costs and satisfy our overall debt strategy.

I’ve heard that faculty members might not have budgets that will be affected by this. How can that be?

When new faculty are hired, the Institute makes a financial commitment to them including space renovations and start-up funds. MIT will protect these commitments. It’s important to note that these agreements are generally non-recurring, one-time expenses.

If I save more than I was asked to in FY’10, do I get credit for that in future years? (Updated August 2009)

For academic departments, any cuts in excess of targets for FY’10 will be carried forward (non-recurring) and applied to the subsequent year as a buffer.

For administrative units, any cuts in excess of targets this year will be considered when establishing individual targets in later years, but those targets will be established as necessary to achieve the Institute’s overall goals and mission.

Will there be a difference between academic and administrative units and the cuts that are expected? (Updated August 2009)

Yes. Administrative areas were required to cut a portion of their gross expense budgets for 2010. Academic areas were required to cut a portion of their General Institute Budget allocation, with the understanding that preserving resources for faculty salaries and positions is the highest priority. In FY’10, MIT’s administrative and academic units across campus achieved savings of $23.4 million, with administrative areas absorbing 7% reductions and academic areas 3% reductions in operating expenses on average.

I have a lot of ideas about things that can be done to minimize waste. What do I do about them? (Updated August 2009)

MIT launched the Institute-wide Planning Task Force to cross-functionally develop cost reduction strategies for the long term. To foster an inclusive process, we have created this website that will serve as a resource in the months ahead. In addition to providing up-to-date information about the Task Force, the site includes all announcements, reports and news related to the process. You may also use the website to submit comments directly to the Task Force leadership.

If I’m bringing in a lot of money for the Institute with my sponsored research, am I still responsible for making cuts?

The current cost reduction target is an Institute-wide effort to improve the efficiency of all the processes that go into running the Institute – nothing is off the table. However, deans, department heads, senior administration, and other leaders have significant discretion in determining how their organizations will approach meeting their reduction targets. The goal is to improve the Institute’s operations in ways that will not detract from the primary mission of the Institute. While we need to support growing research revenues, we must do so efficiently, with an eye toward reducing costs everywhere and in every way possible.

Will there be cuts to services to students? (Updated August 2009)

Every effort is being made to reduce costs without negatively impacting services, however we should anticipate some reduction in programs and activities as we focus our financial resources on MIT’s core strengths and central mission. The Task Force group on student life has studied services and programs that relate to students.

 

Task Force for Institute-wide Planning

How does the Institute-wide Planning Task Force work? Does it still exist? (Updated August 2009)

The Provost, the Chancellor, and the Executive Vice President and Treasurer appointed members of the Task Force in February 2009, and a coordinating team oversaw working groups focused on academic, administrative and student life areas. Each working group had faculty, staff and student representatives. The groups were charged with exploring means of reducing costs throughout the Institute while increasing opportunities for collaborative activities and identifying new ways to increase the efficiency and effectiveness of our operations.

Originally, the work of the Task Force was envisioned in two phases with a preliminary report in the summer of 2009 and the final report due in the fall.

The preliminary report is now available online. Members of the MIT community can share their feedback via the Idea Bank.

It is likely the working groups will finalize their individual reports in the near term and that an advisory team, comprised of the working group co-chairs, will be formed. The preliminary report of the Task Force provides a set of specific set of recommendations for how to move forward.

What is getting cut? How will I find out? When? (Updated August 2009)

In December 2008, Provost Reif, Chancellor Clay and Executive Vice President and Treasurer Stone shared a plan for reducing MIT's expenses by $100-150 million over two to three years.

Together, MIT’s units and administration have achieved initial savings of $58.3 million in recurring annual operating expenses. These savings, effective in the fiscal year that began on July 1, 2009, were accomplished through a variety of ways:

  • Senior faculty requested that MIT direct available salary funds to those members of our community with lower compensation, resulting in savings of $11.3 million.
  • The combined pool of funds directed for renovation and renewal of campus building infrastructure was decreased by $10 million, and the software capital pool was reduced by $500,000.
  • The elimination of funds available for new initiatives in FY’10 created $5 million in savings.
  • MIT’s administrative and academic units across campus have achieved savings of $23.4 million, with administrative areas absorbing 7% reductions and academic areas 3% reductions in operating expenses on average.
  • MIT saved $8.1 million through energy savings initiatives and price reductions in natural gas and electricity.

The additional $50 - $100 million budget reduction for Fiscal Year 2011 and beyond, will be achieved by a combination of unit-based expense reductions and the identification of new savings. Since February 2009, approximately 200 faculty, students, and staff on the Institute-wide Planning Task Force have creatively explored new ways of promoting our historic excellence in teaching and research, while preserving MIT’s financial stability. Their ideas and preliminary recommendations are available on the MIT Idea Bank. While some ideas are sufficiently developed and will be implemented early this fall, others will take months or years to evaluate and require extensive consultation with the many faculty, student, and staff committees that are the foundation of the Institute’s culture of shared governance. Decisions will be made by the Office of the Provost, and implementation and monitoring of recommendations will occur through October 2010. Throughout this process, the community will be kept up to date on the work of the Task Force through news announcements and reports.

Who has participated on the Task Force? (Updated August 2009)

Faculty, staff and student representatives appointed to Task Force working groups can be viewed on this website. Students were selected based on the regular student-nomination process directed by the Undergraduate Association and the Graduate Student Council. Faculty and staff membership were determined by MIT’s leadership team in consultation with the Task Force coordinating team and co-chairs as well as with senior academic and administrative leaders. Hundreds of additional community members participated by submitting their ideas to the Task Force via the Idea Bank.

Salaries, Benefits and Personnel

Have there been layoffs as a result of the budget reductions? Will there be more? (Updated August 2009)

Yes. When the global economic crisis took hold in 2008, MIT prudently moved to reduce our budget. Our planning model allowed for the prospect that the Institute’s endowment could lose a quarter or more of its value. Such losses would directly affect the operations of MIT, since a significant portion of the Institute’s general revenue support comes from payout from our endowment, and 40% of MIT’s General Institute Budget is used to support salaries. Given the level of expense reductions needed, it was inevitable that the Institute would have fewer employees in the future than it did in 2008.

MIT does not have an Institute-wide program with specific targets, so decisions about staffing have been occurring in the units with every department carefully considering available options to decrease expenses. Departments, labs, and centers consider alternatives to layoffs such as reducing schedules, job sharing, furloughs, and by leaving open positions unfilled.

Given the importance of this issue, the Institute-wide Planning Task Force included a Working Group on Human Resources and Benefits. While recognizing that some layoffs are likely to be necessary in the coming years, the working groups suggest that MIT continue to plan for these changes in ways that best support MIT’s mission. Among their recommendations are that the Institute should avoid “across the board” layoffs, try to place employees who have been laid off in new positions at MIT, and continue to ensure the lay off decision process is fair and equitable and that layoffs are done in a caring and humane way that recognizes the contributions of the employee.

Where can I find details and information about MIT's layoff policies? (updated 3/6/09)

If you have specific questions about layoffs, please visit the Labor & Employee Relations website to view frequently asked questions and answers about this topic. You may also contact the Office of Labor & Employee Relations at (617) 253-4251.

Is MIT freezing salaries or hiring? Why not a hiring freeze before layoffs? (updated 2/19/09)

Senior faculty have overwhelmingly requested that we direct available salary funds to those members of our community with lower compensation. Accordingly, a small pool for salary increases will be available for faculty members earning less than $125,000 a year and for full-time staff earning less than $75,000 a year. With these salary thresholds, approximately 40% of faculty, 50% of administrative staff and an overwhelming majority of support staff will be eligible for modest raises for the coming year. Service staff will receive increases based on their three-year negotiated contract.

There will not be an Institute-wide hiring freeze because some hiring still needs to occur during this time and we want to provide units with both flexibility and accountability for meeting budgets. However, hiring will be slower and reserved for core MIT needs. All hiring that impacts the General Institute Budget will require approval by the Provost for academic units, and by the Executive Vice President for administrative units. Although there is no Institute-wide hiring freeze, some units have decided individually to put a freeze on hiring. Any layoffs that occur would be the result of a unit determining what its core functions and needs are and what makes the most economic sense.

How much of MIT’s GIB is devoted to salaries?
Salaries constitute 40 percent, or $439.6 million, of the FY’09 GIB. Including employee benefits, this number increases to over 46 percent, or $512.3 million.  These figures do not reflect salaries paid for by research, auxiliary revenues, or designated funds. Of the $439.6 million for salary expenses, approximately 30 percent is for faculty, approximately 66 percent is for non-faculty, and the remainder is for students.

Will there be an early retirement program for staff? (Updated August 2009)

We are not entertaining this idea currently.

Will MIT continue to hire faculty during this economic downturn? With so many other universities freezing hires, it may be an ideal time to make MIT the destination of choice for potential recruits.

Yes, MIT will continue to attract and hire faculty members. The Institute has a strong appeal for potential faculty, and we will continue to leverage that. We expect to see reduced or slower hiring in many areas, but we do need to continue to refresh our intellectual talent. Each of the Deans will work with School Councils to determine the appropriate hiring levels for their unit.

Is MIT's senior administration going to reduce its expenses as well? Are they taking salary cuts or making staff reductions? (updated 2/19/09)

Yes, the marked decline in our endowment and in projections for future gifts, together with the expected increase in need for undergraduate financial aid, require that we make substantial budget reductions across the Institute. Members of Academic Council, senior administrators and department heads will forgo salary increases next year. The President has declined any salary increase for the current academic year and will do so for the next. In addition there have been immediate cuts across the Office of the President and of the VP for Institute Affairs, planning for a 10% reduction for FY10. Achieving cuts on this scale requires more than simple belt-tightening; it demands new ways of thinking about how we can work more effectively at lower cost. One example is the recent move to combine some functions of the MIT News Office and Technology Review, which will produce both substantial savings and more effective ways of bringing MIT's story to the world.

How does MIT's situation compare with other universities? What decisions have they announced about budgets, hiring, salary freezes, financial aid and other such actions? (Updated August 2009)

Public announcements have been made by numerous large research universities regarding the current economic crisis and its effect on operations. Each university is using solutions that best fit their situation and campus.

Tuition and Financial Aid

Will MIT continue its need-blind admissions and need-based financial aid policy?

Yes, this fundamental principle of MIT’s financial aid policy remains unchanged. MIT remains committed to need-blind admission and need-based financial aid for all undergraduate students.

What will it cost MIT to keep our promise of need-based financial aid for undergraduate students? Where will that money come from? (updated 2/19/09)

Taking into account increased need, particularly among middle-income families, and decreased Institute revenues, MIT's budget for next year includes a substantial increase for financial aid and only a modest increase in tuition. The total undergraduate financial aid budget for 2009-2010 will rise more than 10 percent to $81.6 million to support undergraduate students and families receiving financial aid. This budget an additional $7.6 million for financial aid enhancements, including an expansion in aid to middle-income families that will ensure even more students have access to an affordable education. This funding comes from two sources: earnings on endowment funds pledged by alumni and friends to support financial aid, and direct support from the Institute's general Operating Budget.

Is there additional support available for students whose families now have a diminished capacity to pay tuition and expenses?

Yes. Some families will need additional financial aid, and there may be new families who have not previously needed support but now do. Any family needing financial assistance should apply for financial aid through the regular application process.

As we always have in the past, MIT will work with our students and their families to provide financial assistance that reflects a reasonable assessment of each family’s current need, including cases in which the family’s economic situation has changed significantly since the student was originally admitted to MIT.

Families already receiving aid are welcome to discuss any changes in their financial situation with their designated financial aid officer.

Families who have not applied for aid in the past, but whose economic situation has worsened in some significant way, can contact the Student Financial Service Office for advice and assistance on how to apply. This option is available for the 2009-2010 academic year even for those who have not applied for aid in the past.

Finally, families who have questions about their bill or would like to explore other options for structuring their payments should be in touch with their dedicated student account counselor.

How will budget reductions and lower endowment returns affect sources of graduate student financial support, such as RAs, TAs, fellowships and loans?

Funding for graduate education comes from many different sources, each of which is likely to be affected differently by budget reductions and the overall economic situation.
 
Teaching assistantships, for example, are funded through allocations of general Institute budget funds that are provided to the departments. Departments may find it necessary to reduce the number of TAs that it can support. Each department head will decide on the extent to which the departmental budget reduction is achieved by reducing the number of TAs.
 
Fellowships come from many different sources, but are for the most part funded through payout from endowed accounts. Therefore, the number of fellowships that MIT provides from its own funds will decline as the endowment payout drops, particularly in the fiscal years after FY’10. In addition, some fellowships are not fully funded through endowment, and general Institute budget funds are used to make up the difference. There are likely to be fewer such fellowships starting in FY’10.
 
Research assistantships (RAs) are the single largest source of graduate student funding. Since research grants, contracts and other external sources fund RAs, they are not affected by cuts in MIT’s GIB. However, the general economic situation has an impact on research funding from industry, government, foundations and other sources, which may reduce MIT’s overall research volume and the ability of the faculty to support research assistants.
 
We expect student loans to continue to be available to eligible graduate students. One area of concern is finding sources of student loans for international graduate students. The MIT Federal Credit Union now offers borrowing options up to the cost of education for professional masters degree students at the Sloan School, domestic or international, including students who seek to borrow without a domestic cosigner. We are currently exploring options in an effort to make similar borrowing options available to other students. Domestic students are also eligible for federal loans.

Building Projects

Given our budget cuts, why are we continuing work on new buildings such as the Koch Institute, the Media Lab and the Sloan School expansion?

All of the major capital projects (Koch, Sloan, Media Lab) have been under construction for more than a year and are well under way. All these projects have significant gifts (and attendant obligations), and debt financing has been secured to complete their funding. To suspend any of them, given how far along they are, would be extremely costly and would severely disrupt academic and research programs.

Why did we suspend the W1 Project while continuing others? When do we really expect to restart the W1 renovation project?

Unlike Koch, Sloan, and the Media Lab, the renovation of W1 had not yet begun when the financial environment worsened in the fall. It was the only major capital project where it was realistic and practical to suspend construction without causing major disruption or incurring excessive expense. This was possible because the graduate students in the building had relocated to the new Ashdown, and accommodation had been made for the undergraduates who would occupy W1 when completed.

In spring 2009, MIT proceeded with limited improvements to W1 designed to prevent further erosion of the building’s condition. We were able to take this step due to the extraordinary generosity of an anonymous donor who understood the importance of this project to our campus community. The scope of work renewed the building envelope; it made economic sense, was critical to the overall project, and protects the building from further deterioration. We will continue our efforts to raise funding for the remainder of the project, which remains an Institute priority.

MIT will be around for the long term. Why not take advantage of lowered construction costs and low-interest debt and proceed with more construction projects?

We are keeping an open mind about this issue.  We are monitoring the cost of construction and will continually evaluate whether there are advantages to accessing external capital to accommodate our physical campus needs. That being said, we must proceed with caution. The economy and financial markets remain volatile and uncertain, so we must be cautious as we consider our capital structure and incurring further debt.