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Some hard truths about college spending

The casual observer might well be excused for thinking that higher education is in the midst of good times. After all, more students are enrolling in college than every before and more money is flowing into higher education coffers. The picture is, however, misleading.

“There are, Jane Wellman has noted,” at least two stories to be told here, one of a private sector where competition for students and resources are clearly driving costs; and one of a public sector characterized by rapid changes in revenues, growing privatization, and cost-cutting.”

Wellman heads up the Delta Cost Project and has spent much of the past several years analyzing data on how colleges and universities spend money. The results can be framed by asking a series of discomforting questions and answering with the results of the data analysis derived from the April 2008 report, “The Growing Imbalance, Recent Trends in U.S. Postsecondary Education Finance.”

A series of discomforting questions:

1) Are college tuitions rising because spending is growing? If so, where is the money going?

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.

The greatest increases in spending have been in contracted funding for research and public service, and for institutional aid. Except for the private research sector, the share of spending going to instruction has merely kept pace with inflation, and has actually been reduced at public two year institutions.

2) Is there any evidence of cost cutting? If so, are tuitions being held down as a result?

There is evidence of cost cutting. However, spending cuts have not resulted in tuition reductions—and will not, unless costs are cut much more drastically than they have been to date. Tuitions at public institutions continued to increase, despite spending cuts, because the tuition share of total costs increased.

3) What is the relation between revenue source and spending? Have increased private revenues reduced pressure on growing college tuitions? Will increased spending from endowments mitigate tuition increases?

Revenues have been privatized in both the public and private sectors, predominantly from growing dependence on student tuitions. The patterns to date suggest that privatization may benefit the research and service functions, but has yet to create infusions of new revenue for core instructional programs.

4) Are low-income students losing access to higher education as a result of tuition increases?

A higher proportion of low income, Black and Hispanic students are enrolled in the public two-year and proprietary sector than in the past. Whether this is because they are being ‘priced-out’ of the higher cost institutions, or because of a combination of tuition increases and greater competition for enrollment, isn’t clear. The larger question of whether growing proportions of low-income students are being left out of higher education altogether can’t be answered with the public data that are available at this time.

5) Can institutions increase productivity as a way to lower costs and, ultimately, tuitions?

Hypothetically they could; they appear not to have done so to date. To contain costs to students, institutions need to both contain spending and maintain the student share of total costs.

6) What should public policy makers do to address the college cost problem?

This last question is the most important—and the most difficult. But the answer begins with redefining the traditional understanding of the college cost problem, from an exclusive focus on tuition and financial aid, to a better understanding of spending and of how spending relates to performance. And it will also require a better way to measure quality, other than student admissions selectivity and revenue.

The bottom line

Spending in higher education is increasing—but more spending doesn’t seem to be translating into better performance. Where spending has increased most rapidly, there is no evidence to suggest that the increased investment paid off in greater access, degree attainment or improvements in quality. But not all institutions are spending more: the rising tide is not lifting all boats equally.

Most troublesome, low-income students are increasingly being concentrated in institutions that have the least to invest in their success, and where graduation and transfer rates have historically been the lowest in postsecondary education. These trends, if they remain uncorrected, bode ill for meeting future needs for increasing capacity and degree attainment in higher education.

To learn more: “The Growing Imbalance, Recent Trends in U.S. Postsecondary Education Finance.”