Study: Big spending by 4-year colleges hasn’t fueled surge in graduation rates

ACTA report notes the cost on students and institutions in putting less money behind academics.
By: | August 26, 2021
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An analysis of more than 1,500 four-year colleges and universities over an eight-year period after the Great Recession showed that despite big increases in institutional spending on administrative costs, there were only modest improvements in four-year graduation rates.

The report from the nonprofit American Council of Trustees and Alumni (ACTA) highlights the negative impact it has had on students – two-thirds of whom now incur an average of $39,351 in loan debt – and on a large number of institutions that wildly spent but failed to devote enough toward academics.

Authors say “needless spending on ancillary activities [over] access and affordability” has been tied to rising tuition costs over the past two decades. They cite two institutions that had to shutter their doors as prime examples – Becker College in Massachusetts and MacMurray College in Illinois – which both spent nearly as much or more on which administrative costs than instruction before they shut down.

The 52-page study, titled The Cost of Excess: Why Colleges Must Control Runaway Spending, offers a thorough and critical analysis of institution spending and smart strategies that can help foster change.

“A proper understanding of an institution’s spending habits can provide valuable insights for governing boards seeking to allocate scarce resources efficiently toward what most benefits students,” said Michael Poliakoff, president of ACTA, which serves more than 23,000 members. “This report illustrates the implications for students—both financially and academically—of the steady growth in spending since the Great Recession. It is our hope that public awareness of this trend’s impact on student finances and student outcomes will encourage more prudent choices.”

Poliakoff and the ACTA team point to one of the institutions most stringent in keeping budgets on track while continually focusing on its academic programs and achievements – Purdue University, which by the way also has frozen tuition for 10 straight years.

Inside the study

The survey largely looks at data from the Department of Education’s National Center for Education Statistics from 2010-2018 but does offer a window into the current state of spending, as well as other statistics and input from other prominent higher education sources. It shows not only the remarkable costs being incurred by colleges but also how doing so unwisely can force those into folding, like Becker and MacMurray.

For example, the report notes that colleges budgeted only 17% for instruction (2% less than for administrative costs) while putting nearly 30% toward student services (defined in the report as “student activities, career services, and financial aid staff, diversity and inclusion initiatives and athletics”.) Private colleges spent nearly twice as much on student services as they did on instruction or academic support. Public institutions increased their spending 25% on student services to the tune of $112 billion over eight years, and ACTA says that didn’t move the needle on four-year graduation rates.

Despite the penchant to hire “less expensive and often less-credentialed instructional staff and more expensive administrative staff,” those that took the opposite approach reaped the benefits on student outcomes. Overall, those institutions were twice as effective at improving graduation rates (and that was five times better at private institutions).

One of the key findings was that during and shortly after the Great Recession, colleges and universities were not as keen to reduce expenses as other businesses. Instead, they upped their spending and increased tuition, thanks in part to big financial aid packages being given to students. For the most part, those open-wallet policies (and tuition hikes) haven’t stopped. Tuition and fees at public four-year institutions have increased 178% since 1980.

“Net tuition revenue increased by 39% per full-time equivalent student between 2008 and 2019, even after adjusting for inflation,” the report notes. “In more than half of the states, tuition revenue now accounts for over 50% of public institutions’ revenue.”

The authors say not all spending is negative. Some approaches, such as those that are data-driven or boost academic initiatives, can help lead to better students outcomes. They cite Arizona State University as the ultimate example of an institution that has gotten it right. But the bottom line, they say, is that the “arms race” that led to inordinate spending and higher tuition must stop. It is becoming less sustainable each year as institutions continue to pad high-salaried positions over instruction and launch a multitude of campus projects that may or may not help get students to completion.

ACTA says reducing costs can have an impact, but not when it is a one-off – where only one category is being lowered. Instead, colleges should couple those initiatives with tuition freezes and elimination of student fees, for example – to help offset costs to students and families, especially during moments of crisis.

“The long-term success of all students seeking a college degree depends upon a universal commitment to lowering costs, maintaining a rigorous curriculum, and vigilantly monitoring non-instructional expenditures,” ACTA authors said.

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