UNIVERSITY PARK, Pa. — Penn State leaders have released the University’s initial fiscal year 2027-28 (FY28) budget allocations for colleges, campuses, and administrative and student support units, as well as the updated budget model used to determine the allocations.
Links to the model and individual unit allocations can be found on Penn State’s budget website. The allocations are for units supported by Education and General (E&G) funds and are inclusive of tuition revenues, not including student aid; Penn State’s general support state appropriation; and some investment income. 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.
Below are answers to the most-asked questions about the University’s budget. Answers to additional FAQs can be found on a dedicated FAQ page on the University budget website.
1. What are some of the challenges influencing Penn State’s revenue streams and the overall funds available for budget allocations?
Like many universities in Pennsylvania and across the country, Penn State is navigating a finite financial environment marked by enrollment declines, pressure on tuition revenue, rising costs for employee compensation and benefits, and flat or uncertain state support.
These challenges are not temporary. Higher education is undergoing significant change, and the need to manage expenses carefully while identifying new revenue sources has become an ongoing reality. While Penn State remains resilient and well positioned for the future, our traditional funding streams — primarily student tuition and state appropriations — are not growing enough to keep pace with our increasing operating costs.
Consider that:
- In fall 2025, overall University-wide enrollment was down 1.6%, or 1,438 students, including a 5.8% aggregate decrease across our Commonwealth Campuses. This disrupts projections for both current and future tuition revenues, as follows:
- Non-closing campuses: $21 million decline to FY26 budget.
- Non-closing campuses: $12 million decline to FY27 budget.
- Closing campuses: $46 million, net, decline to FY27 budget.
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Total FY28 budget impact: $79 million.
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Increases in health insurance costs have also been a major cost driver for the University. The University remains committed to a 75%/25% cost-sharing agreement with employees. As health insurance costs continue to rise nationally, Penn State has seen a 9.4% increase in health care costs in 2025 alone, on par with the national average. For FY28, the University is projecting a $78 million increase in employee compensation and benefits, including an additional $49 million for proposed annual salary increases, $6 million for faculty promotions, and $24 million for benefits — primarily driven by an expected increase in health care costs.
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For a sixth consecutive year, Penn State’s general support appropriation from the commonwealth has remained flat at $242.1 million — despite inflationary cost increases over this time — putting significant pressure on our budget. Unadjusted for inflation, Penn State’s general support funding is less today than it was in the year 2000 — when the University received a general support appropriation of $242.9 million — despite nearly a quarter century of inflation and significant increases in instructional and operational costs. Had the University’s funding kept pace with inflation over the past 25 years, Penn State’s appropriation today would be more than $450 million, a difference of over $200 million annually.
2. How do initial budget allocations typically compare to final budget allocations? What factors can change a unit’s budget between now and July 1, 2027, when FY28 starts?
Every year, initial budget allocations are primarily based on projected revenues from tuition and state funds. Final tuition and state appropriation revenues usually differ somewhat from these projections, which are purposely conservative.
These initial allocations also do not include funds for cost increases related to annual salary increases, faculty promotions, and graduate assistant stipends. The 2027-28 budget projects $78 million in additional central costs to cover these compensation and benefit increases. Final allocations for the 2027-28 budget will be considered by the Board of Trustees in July. These funds are not included in our initial budget allocations, but, if they are approved by the board, they will be added to college, campus and unit budgets for the 2027-28 fiscal year.
After these initial allocations have been shared with the University community, any changes will be posted on the Office of Budget and Finance website in the roll-forward report.
Importantly, E&G funds are only a portion of a unit’s total budget. Unit budgets also include items such as grants, contracts and gifts, which are not reflected in our model-based budget allocations.
3. How and why did the University change the way it funds unified services and administrative and student support units?
The budget model was intentionally built to be adaptable, allowing it to evolve as conditions change and as the University refines its approach. With seven Commonwealth Campuses scheduled to close following the spring 2027 semester, the University needed to change how costs for unified services and administrative and student support units are distributed across the remaining campuses and academic colleges, so no individual campus or college bears a disproportionate share of these expenses. These are central services that benefit everyone and allow academic units to focus on their academic mission. As these units do not generate student headcounts or credit hours, they are not funded in the same way as colleges and campuses.
FY28 allocations for these units are now deducted from revenues at the top of the model before revenues are allocated to the colleges and campuses based on student credit hours and headcounts, instead of being deducted from colleges, campuses and auxiliary units at the bottom of the model. With this change, the administrative overhead fee charged to auxiliary units changed to a flat 3% increase. Auxiliary units are not supported with E&G funds but benefit from the services provided by E&G-funded administrative units like Human Resources, Information Technology and the Office of Physical Plant.
4. What is research incentive funding? How has the approach to distributing this funding changed for FY28, and what are the benefits of this change?
Research is incentivized in the budget model by allocating to colleges and campuses funds proportional to research activities. This funding is an annual allocation ($24 million in FY28) supported by investment income. Now referred to as Graduate Research Incentive Funding, or GRIF, these funds are distributed based on the dollars a unit spends on graduate students from sponsored awards. This approach is unambiguous and easily calculated. It also aligns with Penn State’s research and education mission and incentivizes units to externally support graduate students and their research.
Under this structure, tuition and state funding are directed primarily toward teaching and instructional activities, while investment income within the budget model supports research. The total amount available for research has increased by $6 million compared to the previous year because the funding is no longer reduced by overhead assessments. Importantly, any unspent funds at the end of the year may be carried forward to support future research activities, reflecting the use of unrestricted investment income rather than Education and General resources.
5. Why does the budget model change every year? How can units plan if the goal posts keep moving?
The budget model is a flexible, strategic framework that evolves alongside changes in the environment and institutional priorities, and it was designed to evolve from the very beginning. Each year a team comes together, in consultation with faculty and staff members of the Joint Committee on the University Budget, to review the model and make adjustments based on community feedback, shifting priorities and new realities.
For FY28, the projected changes are modest, with an overall decrease of 1.1%, or $24.6 million, in unit-based allocations, out of projected Education and General budget model revenues of $2.2 billion.
6. Who does the University consult when making changes or updates to the budget model?
All changes to the model are carefully considered, with community discussion and feedback central to the process. Penn State has sought annual community feedback since the new budget model was launched in 2023. Prior to making any adjustments, the University seeks feedback from deans and chancellors, as well as input from faculty and staff experts in this space, including the Joint Committee on the University Budget, which includes members of the University Faculty Senate and University Staff Advisory Council.
7. How does the $2.2 billion in E&G budget model revenue fit into Penn State’s overall budget of nearly $10.2 billion?
Roughly half of Penn State’s approximately $10.2 billion budget is comprised of the budgets for Penn State Health and Pennsylvania College of Technology.
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Penn State Health ($4.6 billion): No tuition dollars or the University's general support state funding are used to support the clinical enterprise of Penn State Health. Penn State Health contributes more than $70 million annually to the College of Medicine.
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Pennsylvania College of Technology ($189 million): A Penn State affiliate, Penn College manages its own operating budget and is self-supporting, and it receives its own line-item state funding.
The other half of the University’s budget, roughly speaking, is the $5.4 billion “all funds” revenue budget, which can be divided into three main buckets:
- Self-sustaining units ($1 billion): Penn State Intercollegiate Athletics, Auxiliary and Business Services, and the College of Medicine. These units do not receive a budget model allocation of tuition or state funding.
- Intercollegiate Athletics ($290 million): Unlike most universities, no tuition or state funding is used to support our Intercollegiate Athletics programs at University Park. Penn State is among a select few institutions where this is true.
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Auxiliary and Business Services ($393 million): No tuition or state funding is used to support expenses associated with on-campus housing and dining, or other auxiliary entities like the Bryce Jordan Center and Transportation Services.
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College of Medicine ($367 million): Unlike other academic colleges, the College of Medicine is supported by the revenues it generates and does not receive a budget model allocation.
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Designated funds ($2.2 billion), comprised primarily of grant/contract revenues, investment income, gifts, student-initiated fees, 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.
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E&G budget model revenues, net of student aid ($2.2 billion), including student tuition, minus student aid; Penn State’s general support appropriation from the state; and some investment income (graduate research incentive fund allocated to colleges). This funding supports Penn State’s core teaching and research activities and is the only part of our approximately $10.2 billion budget that is distributed to academic colleges, Commonwealth Campuses, and central administrative and student support units via the University’s budget model.
You can learn more about Penn State’s annual budget process by reading this simple primer on how Penn State funds its mission.
8. Penn State Intercollegiate Athletics spends millions of dollars each year. Are tuition or state dollars used to support Intercollegiate Athletics programs?
Penn State Intercollegiate Athletics, as an important part of the larger University enterprise, is one of just a few athletics programs in the country that is self-sustaining and therefore does not use any tuition or taxpayer dollars. Other self-sustaining units also are not funded via the E&G budget model, including Auxiliary and Business Services, which includes Penn State Housing and Food Services; the Penn State Health clinical enterprise; and the Applied Research Laboratory.
9. How are University-wide services and administrative functions accounted for in the budget model, and how do they impact individual unit allocations?
We are continuing our multi-year effort to change the way we do business, partnering with our employees and unit leaders to build efficient and coordinated approaches to common business functions such as Finance, IT, Physical Plant and Human Resources, for example. Diligent efforts have gone into finding efficiencies through centralization and review of historic spending to determine the appropriate level of funding. These efforts are meant to allow our colleges and campuses to focus more of their time on our students and academic mission, while relying on Penn State to provide the University-wide services needed to achieve that mission.
Across the budget model for FY28, we have accounted for unit-level costs for IT, finance and the web, and shifted them to the Office of Information Technology, Finance and Business, and the Office of Strategic Communications, respectively. This will allow units to focus more of their time on their students, and ultimately, we believe these changes will result in greater strategic impact and improved operational efficiencies for all of Penn State.
10. Since tuition revenues and state funding are not growing enough to keep pace with operating expenses, what actions are being taken by the University to grow its revenues from other sources?
Every unit works to identify areas of growth and opportunity.
For example, our research enterprise looks at opportunities for increasing research expenditures in areas of need for the nation; our faculty are looking at new opportunities to attract more students by expanding high-demand academic programs and majors; and across the institution we are looking at opportunities to grow revenues — and support the student experience — through corporate sponsorships and industry partnerships. The University also has been monetizing real estate (land sales, pursuing public-private partnerships for student housing and leasing space) and other assets (such as the hotels).