With frequent media reports about highly paid presidents and expensive college sports
programs,1 observers have good reason to
wonder: Are these colleges putting sufficient resources into
educating students? Tools already exist for prospective college students and
their families to estimate the total costs of attending a school, or how much
financial aid they can expect to receive, and even some information about what
they might expect to earn after graduation. But what about the education
itself? Can a student find out what their tuition dollars actually buy?
To examine that question, The Century Foundation
(TCF) has sought to open up the black box of college spending to see which institutions
are providing their enrollees a better value. As part of this initiative, TCF
has enlisted the aid of an expert on college finances, John Cheslock, an education professor and senior
research associate at the Center for the Study of Higher Education at Penn
State. Specifically, Cheslock has examined data submitted to the
U.S. Department of Education by 5,493 colleges of all
types—community colleges, research universities, for-profit trade
schools, small liberal arts colleges, and the rest—looking for the best
indicator of a high-value program. His work (available here) explains the advantages and disadvantages
of the various measures, and suggests different calculations that could be
useful, depending on the question being asked.
Attempting to assess the value of a college
education by looking at each school’s spending habits can produce inaccuracy,
if one is not careful. Cheslock warns, for example, that combining multiple
categories of a college’s expenditures to yield an overall measure of spending
on “education” can be misleading, due to categories that are not defined well
enough to be sure that extraneous items such as marketing or executive salaries
are not included. But one category of spending that is clearly educational, and
definitely important for student success, is the money that a college spends on
instruction: paying the teachers who interact with the students.
This report examines the results of Cheslock’s
study and explores their implications for students and for policymakers alike.
It begins with a look at just which types of colleges are most likely to spend
a high portion of their tuition revenues directly on instruction. It then
discusses how other expenditures may matter for student success, such as
spending on support services, but that this can be problematic to use as a
measure of educational value. The report then focuses on the spending patterns
of the for-profit and online education sector in particular, where large
expenditures on advertising and marketing are paired with low levels of
instructional spending. The report concludes with some lessons and
recommendations for policymakers on how best to use and improve on this type of
data reporting, to make higher education more transparent and more valuable to
students and taxpayers alike.
Public colleges and universities are, overall,
the best value from a teaching-per-tuition-dollar perspective.
The Schools that Spend
the Most on Instruction
Instructional expenditures are a useful
first-blush indicator of how much of the tuition paid by a student—or paid on
their behalf by a parent, lender, or scholarship provider—is going to
education. This spending category captures a college’s investment in the formal
instruction program: the faculty and other resources required for offering
coursework. While other activities that colleges spend money on are important
for student success—think career counseling, student activities, and cultural
programming—instructional spending points clearly to an institution’s intention
to provide an education. Looking at the instructional spending amounts and
ratios at the largest colleges reveals some patterns (see Figure 1).
·
Schools that answer to
owners and investors—for-profit institutions—as a group, spend the least on
instruction, generally less than half of the tuition revenue they receive from
students.
·
Public colleges and
universities are, overall, the best value from a teaching-per-tuition-dollar
perspective. Their support from state and local taxpayers frequently allows public
institutions to spend more on instruction—sometimes much more—than they
received in tuition revenue.
·
Instructional spending
by nonprofit colleges varies enormously, with many spending more than $20,000
per student on instruction—even when they charge some students less than that
in tuition—because of access to donated funds and other revenue. At the same
time, many more-tuition-dependent institutions spend less in absolute dollars
than some public institutions, and less as a proportion of tuition revenue.
While a prospective student seeking the best
value may be interested in what portion of his or her tuition bill is spent on
instruction, a policymaker or taxpayer may want to understand what happens
after state operating subsidies are included in that amount. As Figure 2 shows,
even after accounting for that support, the vast majority of public colleges
still spend more than half of their combined tuition and taxpayer support on
instruction. This high-value spending pattern occurs at institutions enrolling
nine out of every ten public college students.
FIGURE
1
FIGURE
2
Not All College Spending
Improves Student Success
Two categories of expenditures are the most
important in promoting student success in college: spending on instruction,
and spending on academic support.2 These research findings hold
true across a range of types of
institutions, and the link is the strongest at
open-access and other less-selective colleges. In addition to contributing to
lower dropout rates, spending in these categories is also associated with
higher post-graduation earnings and lower student loan defaults.3 It makes sense: more faculty
allows for smaller class sizes and more attention to individual students’
needs, as well as more course offerings that prevent students from languishing
on waitlists.
Instructional spending at its base involves
employing more faculty or reducing teaching loads and class sizes. It follows
that high faculty–student ratios are linked to higher
graduation rates and higher-paying jobs after college.4 The well-coordinated use of
resources for instruction and student support can improve graduation and
transfer rates, and even lower the overall cost of each degree
conferred by a college.5
So if academic and other student supports can be
as important as instruction as a college expenditure, why not include them in
TCF’s recommended tuition-dollar measure? The reason is that, while the amount
schools spend on instruction is pretty clearly an investment in students’
education, the same cannot be said for the other spending that colleges report
in the same categories. Even though expenditures on academic and other support
services are critical to student success—tutoring and financial aid advising,
health care and mental health care services, the information technology
infrastructure for communicating with students, career services and other
outreach to employers and the community, and much of the administrative systems
for managing the whole enterprise—there are costs that colleges report in these
categories that do not help students succeed at all. And because current data
sources are severely limited, they do not allow for these elements to be analyzed
separately.
In particular, the figures reported to the
Department of Education as being for student support services can include
amounts—sometimes very large amounts—dedicated not to education, but to
marketing and recruiting. And those amounts have been growing, particularly
among the for-profit higher education sector.
If you watch television at home on any given
night, you may see commercials selling you confidence through
a Strayer University degree, empowering yourself with
Southern New Hampshire University’s flexible options, or, if you’re a single
mom, convincing you that
an IT degree from the University of Phoenix will save your career.6 Advertising by colleges
reportedly reached an all-time high in 2016,
at $1.65 billion, an increase of 18.5 percent that occurred despite declines in
the for-profit sector.7
Online ads are the largest single component of college
advertising expenses. Between August 2016 and January 2017 alone, the University of Phoenix
spent $27 million just to get clicks when people search for
colleges in online searches.8 The list of top online
search advertisers is dominated by for-profit colleges, but includes some of
the major online nonprofit and public institutions.
TABLE
1
|
Top Ten
Education Advertisers Online, and Their Instructional Spending
|
|
Institution
|
Amount spent
August 2016–January 2017
|
Average
clickthrough rate
|
Average cost
per click
|
Percent of
tuition spent on instruction
|
|
University of
Phoenix
|
$27,000,00
|
5.7%
|
$14.98
|
21%
|
|
Capella
University
|
$13,800,000
|
5.5%
|
$11.72
|
10%
|
|
DeVry
University
|
$13,500,000
|
4.7%
|
$13.98
|
24%
|
|
Southern New
Hampshire University
|
$11,700,000
|
5.7%
|
$22.07
|
18%
|
|
Ashford
University
|
$11,000,000
|
4.6%
|
$21.57
|
19%
|
|
Walden
University
|
$8,100,000
|
5.2%
|
$13.08
|
31%
|
|
Purdue
University Global
|
$8,100,000
|
4.2%
|
$16.47
|
18%
|
|
American
Public University System
|
$4,700,000
|
4.2%
|
$16.40
|
27%
|
|
South
University
|
$4,200,000
|
5.0%
|
$14.87
|
28%
|
|
Liberty
University
|
$4,100,000
|
4.2%
|
$16.53
|
24%
|
|
Source:
Online advertising data from Kantar Media; John Cheslock’s analysis of IPEDS
Finance Survey data.
|
These online ads are only the tip of the
iceberg, it seems. After a prospect clicks on an ad, the college incurs
additional marketing expenses; some colleges employ hundreds of recruiters who
contact prospective students as quickly as possible after a click, with the
goal of converting them to “starts.”9While college admissions staff at
nonprofit and public colleges see their role as providing students with
information for them to compare their options and choose the college that best
fits their interests and needs, the recruitment approach at growth-focused
schools is frequently very different. There, the admissions representatives are
really more like salespeople, attempting to usher a prospect along from their
web site click to enrolling, usually with federal grants and loans that
eliminate the need to discuss the tuition price and how it might compare to
other options.10 An investigation last year
by ProPublica revealed an aggressive approach to student recruitment at Liberty
University, which even has a subset of recruiters dedicated to enrolling prospective
students who are members of the military—a subgroup of students with access to
a rich pipeline of federal funds for education assistance.11 Diane Auer Jones, U.S.
deputy undersecretary of education, said in January that “the biggest consumer
protection issue” in higher education is marketing and advertising: “these
aggressive marketing techniques are a problem, and we need to investigate
them.”12
Both instructional expenses and student supports
are important. But the inclusion of advertising and marketing expenditures
among student support categories in the data sources for analyzing spending
makes it impossible, without more detailed information from colleges, to
determine how much schools are spending to support the education of enrolled
students. That makes instructional spending the best proxy currently available
across all schools.
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·
·
At Online Schools,
Instructional Spending Tends to Be Low
Some of the lowest instructional spending levels
can be found at colleges with large online enrollments. Of the twelve colleges
in the United States with 70 percent or more online students and total
enrollments of 20,000 or more students in 2014–15, Colorado Technical
University spends the smallest proportion of its tuition money, 9 percent,
educating students, followed by online graduate school Capella University, at
10 percent.
TABLE
2
|
Top Twelve
Online Educators, and Their Instructional Spending
|
|
Institution
|
Enrollment
(FTE)
|
Students
enrolled exclusively online
|
Percent of
tuition spent on instruction
|
Amount spent
per student
|
|
University of
Phoenix–Arizona
|
169,921
|
78%
|
21%
|
$2,381
|
|
Kaplan
University–Davenport Campus (now Purdue University Global)
|
73,901
|
97%
|
18%
|
$1,425
|
|
Liberty
University
|
66,478
|
83%
|
24%
|
$2,431
|
|
Walden
University
|
60,970
|
100%
|
31%
|
$3,022
|
|
Grand Canyon
University
|
57,483
|
80%
|
17%
|
$1,864
|
|
Ashford
University
|
51,967
|
99%
|
19%
|
$2,178
|
|
Western
Governors University
|
49,566
|
100%
|
38%
|
$2,596
|
|
American
Public University System
|
40,875
|
100%
|
27%
|
$2,087
|
|
Southern New
Hampshire University
|
33,790
|
83%
|
18%
|
$2,258
|
|
University of
Maryland–University College
|
27,461
|
82%
|
32%
|
$3,330
|
|
Colorado
Technical University–Colorado Springs
|
24,258
|
93%
|
9%
|
$1,338
|
|
Capella
University
|
22,833
|
100%
|
10%
|
$1,801
|
|
Source:
Author compilation from IPEDS and John Cheslock’s analysis of IPEDS Finance
Survey data.
|
Why is instructional spending low at online
colleges? The most charitable explanation, which is likely at least partly
true, is that while online education has the potential to create efficiencies
in instruction, it also requires more spending on information systems and other
forms of student support. The less charitable explanation, which is also likely
at least partly true, is that the faculty labor used in online education is
largely a contingent and/or part-time workforce, and therefore costs less. And a
third explanation—also likely true at some or even many schools—is that
low-spending, high-tuition online education is a cash cow, with large chunks of
tuition going not for education, but instead being used for:
·
subsidizing intensive
marketing for growth,
·
high levels of profit
for investors and owners at for-profit institutions, or
·
at public and nonprofit
schools, funds redirected to other parts of the university or set aside for the
future.
Online providers interviewed regarding these
figures urge caution in interpreting them.13 They argue that it may be
that some instructional spending is being reported in other categories because
of the different way that online instruction is organized. For example, course
development that would be a professor’s job at a traditional university might
be categorized as institutional support at an online institution because it is
separated from the instructors’ role. There is evidence this may be the case at
some institutions based on financial reports that sometimes separate marketing
expenses from other educational spending. For example, Capella Education
reported that in 2014 it spent 44 percent of its revenue on instructional costs
and services excluding marketing.14 This is in contrast to its
instruction-only spending in 2014–15, which came to 10 percent of revenue (see
Table 2).
Officials at online schools also acknowledged
that their use of adjuncts reduces salary expenses and avoids the cost of
benefits as well.15 While this strategy would
reduce instructional expenses, it also should lead to lower tuition, which
would bring the instructional spending ratio up. Instead, it may be that many
institutions are capturing that cost reduction and using it for marketing,
profit, or subsidies of other programs.
Online education certainly can reduce costs by
way of less overhead for facilities and maintenance, and ideally, these cost
savings could be passed on to the student, or, importantly for students with
more needs, used to improve the quality of the offering.16 Many online colleges target
students with weaker academic backgrounds—precisely the type of student who
needs attentive, high-quality teachers the most17—and the online education model
has the potential to serve these students well. An institution that saves on
overhead for facilities could hire more full-time faculty and reduce
student-faculty ratios so that the students are set up for success.
Policymakers Should Use
the Data—and Improve It
Spending on instruction and student support is
critical for outcomes such as college completion, career success, and student
loan repayment. Colleges that spend more on instruction and student support can
have smaller class sizes, offer more and a greater variety of courses, and
provide students with advisors and other assistance throughout the college
experience. Research that specifies the link and effect of spending on student
success have found that the greater the resources per student at a school, the
more likely the student is to complete college, and to do so within a shorter
period of time.18
As financial aid and government-sponsored
student loan debt has grown, lawmakers have grown concerned about how that
money is being used by colleges. In 2018, two bills were introduced in Congress
that would specifically prohibit the use of federal funds on marketing, with
one of the bills focusing the ban on institutions that fail to spend at least
half of tuition revenue on instruction.19 Governor Andrew Cuomo
similarly announced a plan at the beginning of 2019 that requires for-profit
colleges in New York to shift their spending or tuition so that at least half
goes to instruction.20
Quality educational outcomes are the result of
the student engagement that comes from quality interactions with expert
instructors.
The available data on college spending should be
used to provide prospective students with information about what their tuition
buys, and to give taxpayers assurance that their investment is not being
wasted. Quality educational outcomes are the result of the student engagement
that comes from quality interactions with expert instructors.
One immediate use of available data is as a
consumer information tool: instructional spending levels should be freely
available and searchable by college name to inform students. TCF will soon be
launching an interactive tool for the public to review the instructional
spending of any school.
Other recommended uses of available
instructional and support spending data include:
·
creating a taxpayer
accountability tool, through which the general public can see where their tax
dollars are well spent;
·
federal and state
lawmakers setting a threshold spending level that, if exceeded, would trigger
the application of requirements for institutions to reveal additional
expenditure information;
·
applying additional or
tiered levels of oversight to schools below particular spending levels in
certain categories; and
·
determining eligibility
in funding programs based in part on spending levels or ratios.
The use of spending data for accountability
would be new , however, so colleges would need to be given time to be able to
address any errors in reporting. Lawmakers should therefore delay
implementation of any actions based on a new measure for a period to allow for
those adjustments. An additional measure that might be considered is to use
multiple years of data, such as a three-year rolling average, to avoid any
single-year aberrations in revenue or spending or changes in internal
expenditure classification systems.21
In addition, policymakers should also take steps
to improve the data reporting by colleges so that it better track students
supports separately from marketing and recruitment expenses. One lawmaker, in
fact, has already taken action: Representative Mark Takano (D-CA), the chair of
the House Veterans Affairs Committee, asked the director of the finance survey
that colleges complete to ensure that marketing and recruitment expenses are
reported separately from the student services category.22 While a prior panel had
decided against this approach, out of concerns about how best to define
marketing,23 one way to address
potential gaming of a definition would be to confine the non-marketing category
to spending on students who have enrolled and started classes.
The data collected by the U.S. Department of
Education is always evolving out of need. For example, in 2017, the agency
revised the survey to expand the types of students on which it collects data,
as well new data on graduation and outcomes measures. This move now gives
researchers a clearer picture of student and institution performance by
providing them with data on part-time and non-first-time students at every
college receiving federal financial aid.24 The finance portion of the
survey has been updated seven times since 1987, all in efforts to accommodate
the nature of and to better align comparability across the different sectors
within higher education.25
The public has never been more frustrated with
rising college tuitions, nor more concerned about ballooning student loan debt,
and so it has a right to understand better the value of a college education
from any particular institution. Transparency and accountability for the way
that colleges spend consumer dollars and taxpayer-financed loans and grants can
help students make better choices and hopefully steer funding in the directions
that is most beneficial to students and the public—actual teaching—and to
provide an incentive for colleges to reduce other expenses that are
contributing to higher tuition.
Acknowledgements
Thank you to Fernando Furquim, PhD candidate at
the University of Michigan Center for the Study of Higher and Postsecondary
Education, for contributing background research to this report.
Stephanie Hall is a fellow at The Century Foundation where she works on higher education policy with a focus on accountability and quality. She is an expert on international higher education policy, teacher policy, and trends in the privatization of public education.
