In March, MIT announced a tuition increase of 3.25% for the coming academic year. This was one of the lowest increases among our peers.Every year, we go through a process to determine if a tuition increase is necessary and what would be reasonable. As a service industry, higher education costs are largely driven by labor costs. MIT is no exception and our salary costs go up, on average, 3% annually. We have also recently experienced increased costs associated with housing.
In considering any tuition increase, we try very carefully to account for inflation and maintain our longstanding commitment to affordability.; In fact, this process is not just about setting the tuition rate but also setting the financial aid budget so that we can meet the full demonstrated financial need of all applicants we admit. For over a decade, financial aid has been increasing at a faster rate than tuition. For the coming year, the financial aid budget will increase by 4.7%.
The process starts with a committee run by the Dean for Undergraduate Education and including the Provost, the Chancellor, the Executive Vice President, the Vice President for Finance, the Dean for Graduate Education, the Dean for Student Life, the Chair of the Faculty, and the Chair of CUAFA. The committee makes a recommendation on the necessary increases in tuition and financial aid to Academic Council and the President, which, in turn, goes on to the Corporation.
Tuition is determined as part of a larger decision on how MIT will cover the full cost of education in the upcoming year. Tuition is the price of education. The total cost of undergraduate education is actually much higher. Based on internal studies, we determined the total current cost is about $72,000 per undergraduate student per academic year. This does not include housing and board and is consistent with the cost of education at our peers. However, tuition for 2011-12 was significantly less, just over $40,000. In reality, MIT subsidizes the education of all students, even those who pay full tuition. Moreover, since over 60% of MIT students receive need-based financial aid, the net amount of tuition we collected, averaged over all undergraduate students, was about $19,000 per student.
To fund the full cost of education, MIT draws from three sources: tuition, gifts and payout from the endowment. Ultimately, the Corporation determines the exact amount of revenue that will be drawn from each of these sources. This includes setting the tuition rate and associated financial aid budget at a level that helps offset cost increases while maintaining affordability. Their decision is informed by the recommendation of the senior administrators but also considers the short and long-term goals of the Institute and the state of the economy. It is important to note that while research funds are used to fund UROPs, research funds are strictly used to fund the research enterprise and do not directly support the educational enterprise.
Funding education is part of the complex financial management of the Institute. Periodically, the Institute holds forums to report the financial status of the Institute and these are open to students. I encourage you to attend and learn more about this process.