Pssst! Wanna Go to College for Free?

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Aside from saving parents and students from financial burden, attending a tuition-free school has other benefits. These schools create an environment where all students can feel comfortable with each other regardless of their personal finances, said Andrew McCreary, a second-year student from Salt Lake City at Deep Springs College. "Everyone came here as an equal, and everyone has the same free opportunity, so money never has to come up," said McCreary. "We are all on the same footing."

Endowments Help

Covering the tuition cost of an entire student body is not an easy task in today's higher-education market where the cost of faculty salaries, fringe benefits, and supplies and materials continues to rise. The inflation gauge used by higher education officials to track the costs of running a university, the Higher Education Price Index, increased by 3.4% in the 2007 fiscal year.

Fortunately, most tuition-free colleges are cushioned from the shock of these spiraling costs by large endowments given to the schools by benefactors. For example, the Cooper Union, a four-year college specializing in engineering, art, and architecture, has an endowment worth more than $600 million, the bulk of which is New York City real estate and securitized investments, said George Campbell, the school's president. The school spends $35 million annually to fund the tuition costs of its 950 students, in addition to $15 million for other operating expenses.

The endowment allows the school to maintain the mission of industrialist and inventor Peter Cooper, who founded the school in 1859 with the vision that "education should be as free as water or air," Campbell said, adding "It's a mandate that we hold close to us even today. We think we make a very unique and important contribution in the constellation of higher-education institutions that virtually no one else makes."

Olin a Recent Arrival

At the College of the Ozarks, the $375 million endowment is the "backbone" of the school's financial operation, along with donations from alumni, said Jerry Davis, the college's president. The school supplements its operating budget through mandatory work-study program, where students can work a job at one of 80 work stations, ranging from overseeing the school's hog farm to cooking in the fruitcake and jelly kitchen.

Students are appreciative of their free education, not complaining about their work loads or the college's strict chapel requirements and dress code, Davis said. "We think it's a bad idea to settle young people with modest means with heavy debt, so the students who come here are very fortunate and I think most people know that," he added.

While most of the country's tuition-free schools have been around for 100 years, some newer ones have been established in the past decade, such as the Olin College of Engineering. The engineering school officially launched in academic year 2002-2003 with the help off a $460 million endowment gift from the F.W. Olin Foundation.

Running a tuition-free school in today's financial market proved to be harder than the founders initially thought, said Stephen Hannabury, Olin's vice-president for administration and finance. There were some initial challenges as the school struggled to get off the ground. For example, the endowment did not grow as quickly as the school had anticipated and it had to scale back on the number of students it planned to admit. Since then, the endowment has climbed to $491 million and the school has graduated two classes of students.

"It is a little bit more complicated to set up this type of school today, but I think it is certainly worth other institutions' considering it if they have the financial resources to do it," Hannabury said. "The cost of higher education is getting to the point where different solutions, if you will, need to be looked at."

Click here to see a roundup of tuition-free colleges.

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Damast is a reporter for BusinessWeek.com.