CHAPTER 1

The Cost/Attainment Problem
America’s public and private nonprofit colleges and universities face a stark reality, called on to simultaneously expand access to higher education and increase student success in a period of declining resources. To return to a position of international leadership in higher education attainment by the year 2020—the goal set by President Obama—our country will need to raise its rates of postsecondary attainment¹ to around 55 percent of the young adult population—a figure significantly above our current level of 45 percent. To achieve this goal by 2020, we need to be increasing the proportion of adults with baccalaureate degrees by about 2 percent per year. Those increases need to happen at the same time that the pool of recent high school graduates is beginning to decline, and the majority of new students coming to college will be coming from low-income and minority populations who historically have been underserved in higher education (WICHE 2013; Wellman 2011). The educational challenge is daunting, requiring major improvements in preparation for college success at the K-12 level for historically underserved populations—the factor researchers have found to be the single most important predictor of college attendance and success (Adelman 1999; Bound et al. 2009).

In the last decade, we have in fact made progress toward that goal, and college-going rates are going up, as are graduation rates. In 2012, our national attainment levels² are higher than they have ever been, and much of that progress has occurred among Latino and immigrant populations (Fry 2012), but the rate of increase has been closer to a half percent per year. And while baccalaureate completion rates are increasing, most of the absolute increases in “postsecondary attainment” have been in sub-baccalaureate programs less than one year in length. While these short courses may help students to get entry-level jobs, labor market research suggests that they aren’t the types of jobs that help students to advance in the workforce (Carnevale 2011). Nor do these programs focus on the learning outcomes that employers say are necessary for career success (Hart Research Associates 2013; 2010). To really turn the dial up on baccalaureate attainment, we need to be getting historically underserved students both to and through our colleges and universities, in much greater numbers than ever before, and we need to ensure that they are achieving the learning outcomes they will need to succeed in the twenty-first century.

Figure 1
The Unsustainable Cost Model: Gaps in Tuition Revenue vs. Spending, Public Community Colleges, 2000–2010
(Figures are in 2010 dollars, per FTE student)

Declining revenues and the “broken cost” model
The educational challenge is compounded exponentially when resources are brought into the picture. Historically, higher educational institutions have required around 3.5 percent per year in base funding increases just to keep pace with the steadily rising costs of labor, employee benefits, and the high costs of specialized facilities and scientific equipment.³ In the past decade, real increases in revenues have been closer to 1 percent per year in the public research universities, and we have witnessed absolute declines in funding for public master’s institutions and community colleges (Delta Project on Postsecondary Costs 2012). State and local appropriations for public institutions have been reduced an average of 30 percent per student over the last twenty-five years, with most of those reductions coming in the last decade alone (Finance 2013). Tuitions and fees have increased, but tuition revenues are only a fraction of the lost state revenues, so costs are being cut even as tuitions are going up (Wellman 2012). The “cost/price” gap is biggest in the community colleges: prices are up almost 40 percent at the same time that spending has been cut by nearly 10 percent (see fig. 1). While the price/cost gaps are less dramatic in the private nonprofit sector, the majority of these institutions are feeling the squeeze because growing tuition discounting means that net revenues from tuition are declining even though sticker prices are going up. One upshot is that Moody’s, the major bond rating agency for higher education, in 2012 issued a “negative outlook” for the entire postsecondary sector for the first time in history (Moody’s Investors Services 2013).

The consequence of these funding reductions can be seen in data about spending patterns in both public and private institutions. Throughout the last decade, the proportion of unrestricted funding going to pay for instruction has stayed steady or declined; meanwhile, spending has slightly but consistently increased in administrative areas. Full-time faculty are declining as a percentage of the workforce in almost all types of institutions—including private baccalaureate institutions, the presumed core of our nation’s liberal arts institutions (see fig. 2).

Figure 2
Change in the Percentage of Workforce by Job Category and Sector, 2000–2010

Source: Delta Cost Project IPEDS Data base, http://nces.ed.gov/ipeds/deltacostproject/

Spending is going up in some areas of higher education, but most of the increases are in auxiliary enterprises (dormitories, hospitals, and food services) or sponsored research, not in the core instructional program.⁴ Within the core program, the largest single area of increased spending has been employee benefits—going up by an average of 6 percent per year, against flat or declining salaries. One of the biggest growing expenses is for health care benefits to current retirees, a new and growing spending problem in many institutions. Between spending reductions that erode the academic program, and spending increases that advantage fixed costs over instruction and student services, the path we are on is obviously not one that can be continued for long in institutions whose primary mission is teaching and learning.

A number of analysts and many in the public policy world believe that the long-term solution to the higher education funding problem is technology, which will expand access and drive down costs (Immawahr 2004). But few would seriously argue that massive open online courses (MOOCs) or other types of technology-enabled instruction will generate enough revenue to allow us to avoid cost reduction elsewhere in our institutions. And even as distance-mediated instruction comes to play a more prominent role in educational delivery—and it will—we cannot be content to let distance delivery be the default option for low-income and underrepresented students,⁵ while students coming from families of means remain in institutions with lots of money to spend to ensure their success. That route will only exacerbate what is one of our biggest problems in postsecondary education—the enormous stratification of institutions and the students they serve. This stratification has always been present in American higher education, but it has become much more pronounced in the last decade, as spending per student has continuously increased at the wealthiest institutions, in sharp contrast to the absolute reductions in spending at public community colleges (for more information on discrepancies in spending by sector, see fig. 3 and fig. 4).

Figure 3
Spending per Student vs. Enrollment by Sector, AY 2010

Figure 4
Change in Enrollment vs. Change in Spending, AY 2000–2010

Finding ways to increase allocations of resources to poor institutions requires changes in public policy, something that is hard for institutional leaders to influence. But campus leaders can learn to change the allocation habits within their own institutions, to put the scarce resources they have into high-impact practices that will make a difference in student success.

1. By international norms, postsecondary attainment is defined as the proportion of the population with some type of a post high-school credential. This includes certificates, associate degrees, and baccalaureate degrees.
2. Here, “attainment” refers to a measure, generated by the US Census Bureau, of the proportion of the population that has had some postsecondary education.
3. This is an average across all public and nonprofit institutions; base funding increases tend to be higher in research universities and in high-cost disciplines such as the health sciences. Calculations were prepared by the National Center for Higher Education Management (NCHEMS) in conjunction with the Delta Cost Project for the Lumina foundation’s conference on productivity (NCHEMS and Delta Cost 2011).
4. Details about spending patterns by revenue source and sector may be found in the analyses of the Delta Cost Project, available from http://www.deltacostproject.org.  
5. Community College Research Center studies drawing on data from community college systems in Virginia and Washington State have found that while all students had slightly lower grades and persistence rates in online courses compared with face-to-face courses, the gap was much greater for students of color and students with less academic preparation (Xu and Jaggars 2011, 2013).