The Spending Side of the Equation

New analysis -- attempting to shift college cost debate -- finds shrinking share of funds going to instruction and growing public-private gap.
May 1, 2008

Across sectors of higher education, only a minority of spending by colleges supports direct instructional costs, according to a report being released today as part of an effort to reframe the debate over college costs.

"The Growing Imbalance: Recent Trends in U.S. Postsecondary Education Finance," is the result of an unusual attempt to change the way colleges and policy makers analyze higher education. The report -- issued for the first time today and now to be an annual project -- examines not only revenues, but how colleges actually spend their money.

After years in which people have read about tuition going up, and about state support covering smaller shares of public higher education budgets, the idea is to focus on what results from these and other trends. Some of the findings challenge conventional wisdom -- such as the widely quoted belief that the top expense for higher education is the personnel costs associated with professors and other employees.

The report was produced by the Delta Cost Project, part of the Lumina Foundation for Education's Making Opportunity Affordable program. The overarching thesis of the work is that higher education will do a better job of serving students if everyone is aware of where the money goes -- not just how much college costs. By examining the different spending patterns at different types of institutions, the report notes growing gaps among sectors and among items receiving financial support. For example, spending per student at private research universities is almost twice that of public research universities.

The following data show both the public-private gap and the relatively small share of funds that goes to instructional costs (faculty and departmental costs related to what goes on in the classroom), compared to other education-related costs (such as student services and admissions) and non-educational costs (primarily research and service activities).

Median Spending Per Full-time Enrolled Student, 2005, by Sector

Sector Direct Instructional Costs Other Educational Costs Non-Educational Costs Total
Private research university $14,134 $11,214 $8,940 $34,288
Public research university $7,255 $4,416 $9,393 $21,064
Private master's institution $6,577 $8,520 $693 $15,790
Public master's institution $5,064 $4,620 $1,734 $11,418
Private bachelor's institution $6,655 $10,598 $1,208 $18,461
Public community college $4,051 $3,976 $1,092 $9,119

While the disparities in these figures alone may raise questions to many people, the report notes other factors that may make the figures even more troublesome. One is that spending per student at public community colleges and master's institutions has gone down, as enrollments have grown and increases in support for these institutions have been modest. Another key factor is that the institutions that spend less and are heading downward in spending per student are the very institutions (along with for-profit institutions) that are enrolling a disproportionate number of the minority and first generation college students whose arrival in higher education is seen by many as crucial to the country's economic success.

Further, across sectors, spending on instruction has become relatively flat, and is increasing at slower rates than in the past. For example, at private research universities, the report finds that the average percentage change in median spending per full-time enrolled student on instruction was 2.2 percent in the period 1987-1996. But in the period 1998-2005, the increase was only 1 percent. (For public research universities, the figures were 0.5 percent and 0.4 percent in those two periods.)

Jane Wellman, executive director of the project and author of the report (along with Donna M. Desrochers and Colleen M. Lenihan), said that while the data are not shocking to those who work in the field, "a lot of people will be surprised that the big driver of spending is not instruction."

Another surprise to some, although probably not to those at public colleges, will be the gap in public-private spending rates. "The private research universities are really pulling away," she said.

In addition, the data raise questions about some of the common strategies suggested for public higher education to support its mission at a time of constrained state budgets. While the data clearly show that public research universities attract considerable research support, that money is for specific projects and has not closed the gap in instructional spending, Wellman said. Further, even as public colleges have raised tuition and raised much more money from private sources, those funds have only made up for some of the losses in state support and have not allowed public higher education to keep up with the privates.

Too many legislators, Wellman said, believe that "if you cut money for higher ed, you can replace it" with tuition revenue and fund raising. The reality, she said, is that "there is no more private money pay for the enterprise than there was 20 years ago."

"They can't fund raise their way out of this," she said.

The dramatic gaps between public and private spending are in large part attributable to the category of non-instructional, education related costs. At research universities, private spending is more than twice public spending per FTE.

This is where spending is on "amenities and the arms race" of competition, Wellman said -- especially in student services. Many critics of higher education focus on this type of spending, equating it with the much discussed competition for the best climbing walls in campus recreation centers. Wellman stressed that much of the spending in this category is actually very focused on education: computing, advising services, counseling services and so forth.

Much of this spending is also "consumer driven," in that colleges are responding to their perceptions of services that students and parents want, she added.

Wellman stressed that the idea of pointing out this and other spending patterns was not to declare such spending bad, but to ask questions about whether it was justified by evidence. "Better counseling might be a cost-effective expenditure," she said. But the question colleges may want to ask is whether they can show that. Does spending on a new writing center translate into better student performance in the classroom and in turn to better completion rates? Asking such questions, Wellman said, would help colleges identify both areas for improvement and areas for cost savings (or even more spending).

Similarly, she said that focusing on spending will draw attention to the questionable impact of tuition discounting. Advocates of tuition discounting tend to focus on the impact on applications or yield rates. But looking at spending draws attention to the way tuition discounting (when not needed to provide access for low-income students) reduces tuition revenue, and in turn reduces available funds to spend on educational needs.

Along with the data on spending categories, the report includes sections examining tuition and demographic trends. But the portion of the report that is notably different from other analyses is the emphasis on spending. In keeping with the idea of the Delta Project, the data are being made available for use by colleges and others seeking to do their own analyses. Regional groupings -- broken down by sector -- are also available on the project's Web site.

What this all adds up to in the report may depress those writing tuition checks. For while the report finds evidence of cost cutting, especially in the public sector, there is no evidence that the changes have led to tuition reductions. And so students are left with insufficient data, the report says, on what they are getting for their tuition dollars. There may be good answers, but the report suggests that they haven't been offered in enough detail to date -- either by colleges or by the state lawmakers who are making decisions that dictate both tuition rates and college spending patterns.

In the report's closing section, it poses two questions: "Are college tuitions rising because spending is growing? If so, where is the money going?"

The answer: "For more than three-quarters of the students enrolled in higher education, the answer is no: Students at public institutions are paying for a higher proportion of costs, but their money is not translating into a higher level of service. These students are paying more, and getting less. For students in private, nonprofit institutions, the answer is clearly yes: Students are paying more, and the institutions are spending more. But even here, there is not clear evidence that greater spending is translating to improvements in degree productivity."


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