How this private college maintains a $1 billion endowment without charging tuition

Berea College, a liberal arts college located in Kentucky, has a massive $1 billion endowment.

But unlike other private liberal arts colleges with whopping endowments, Berea has accumulated its endowment all while offering four-year degrees to students tuition-free.

Now that student loan debt is the second-largest source of consumer debt in America, it might be time to glean some lessons from Berea.Berea is a selective school, and 70% of its classes have fewer than 20 students. US News & World Report ranks it 69th among National Liberal Arts Colleges, and it clearly offers a quality education. But it has resisted the urge to spend funds on extravagant campus amenities, and it doesn't have a football team or lavish dorms.

Berea spends about $27,000 per student every year, where a typical top 20 school spends in the $40,000-$60,000 range, Berea College president, Lyle Roeloff, told Business Insider.

"We are really quite utilitarian and a student who can afford to pay for college probably on grounds of amenities and facilities wouldn't choose Berea college," Roeloff said.

---

Berea is in a unique position and doesn't compete against neighboring schools for applicants. Other private colleges must work to provide more lavish amenities to woo prospective students.

In addition, "99% of first-year students are eligible for Pell grants," according to the school's website. So, in addition to using endowment money to fund the school's budgetary needs, much of the cost is subsidized through Pell grants by the federal government. And a main objective of the Berea administration is aggressive fundraising. "It is a never-ending obligation of Berea presidents," Roeloff, said of fundraising to The Lane Report in 2013.

Berea has other creative methods for keeping costs down, including reducing the need for outside workers by employing its students around campus. Berea students work 10-15 hours a week as teaching assistants, grounds keepers, and farm workers.

The college's 250-acre organic farm actually produces 10% of the food eaten in the cafeteria including beef, pork, chicken, goat, and vegetables. The farm aims to produce 25% of the cafeteria's food within the next 10 years.

The college also has a large student craft operation that involves making and selling furniture. In fact, the craft operation made 120 chairs for the ballroom in the Kentucky Governor's Mansion in 2013.

Undoubtedly, Bereas must work hard to maintain its endowment as well as its tuition-free model. Berea was one of only 10 tuition-free colleges in the US, but that number changed to nine last year. Cooper Union college, located in New York City, started collecting tuition from students in 2014.