Colleges: Where Does the Money Come From, What Does It Pay For

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Trends in College Spending: Where does the money come from? Where does it go? What does it buy?

The Delta Cost Project on Postsecondary Education Costs, Productivity, and Accountability

This report by the Delta Cost Project on Postsecondary Education Costs, Productivity and Accountability looks at how college costs have increased from 1999 through 2009, where the money comes from and what that money has produced in terms of certificates and degrees earned. It’s the fourth in a series of reports on college and university spending from the Delta Cost Project, which is supported by the Lumina Foundation for Education.

The report was developed using information drawn from the Integrated Postsecondary Education Data System, maintained by the Education Department, which consists of publicly available data reported to the federal government through an annual series of surveys on higher education, finance, enrollments, completions, staffing and student aid. Two-thousand two- and four-year institutions were studied between 1999 and 2009 to yield the results.

Student enrollment across all institution types increased a 5 percent between 2008 and 2009, the largest increase in the 10 year period, much of the increase coming at community colleges. As enrollments increased, there was also a change in market share and an increase in diversity among the students at the institutions. 

The study analyzed revenue patterns and trends to show where colleges and universities obtain the money they spend.  Revenue sources include net tuition revenue, state and local appropriations, private gifts, investment returns, endowment income, state and local grants and contracts, federal appropriations, federal grants and contracts, auxiliary enterprises and revenue generated by hospitals and independent operations associated to the college or university that is separate from instruction, research or public services.  A portion of the revenue comes from miscellaneous sources such as educational sales and services.

Public community colleges were the most negatively affected by the early recession in 2009, causing them to see the largest declines in revenues per student.  Both public and non-profit four-year institutions sharply increased student tuition revenues in 2009, using the revenue to offset state budget cuts and to provide student aid.  The percentage of their education being paid by students has risen sharply,  especially at public institutions.

The report also identified where the money goes, information that was determined from overall national spending patterns.  The standard expense categories include instruction, research, public service, student services, academic support, institutional support, scholarships and fellowships net of allowances, plant operation and maintenance, auxiliary enterprises, and expenses covering hospitals and clinics, and independent and other operations.

The Delta Cost Project related the costs of the various institutions to student performance by taking into considerations the number of total degrees awarded by level and type of institution, degree and completion ratios that compare the number of degrees or completions (total awards) to student enrollments, and how they have changed over time, cost per degree completion, which looks at education and related expenses through the lens of student outcomes rather than enrollments and the number of credit hours on average per completion. It shows that most student take many more credit hours than are needed for graduation.

 For-profit institutions tripled the number of awarded degrees from 1999 to 2009, even though community colleges saw the greatest increase in students.  Overall, U.S. postsecondary institutions granted more than 3.2 million degrees in 2009, 38 percent more than in 1999.  Private non-profit research and master’s institutions have the highest degree productivity, which is determined by comparing degrees awards to enrollments.  All sectors increased in productivity from 1999 to 2009. In all sectors but comprehensive and community colleges, cost per degree rose in 2009.  Community colleges were the only institutions to spend less per degree in 2009 compared to 1999.  The study also found that institutions with the highest enrollments spent the least on their education.

To read a free copy of the report, click here.