Is Institutional Spending and Affordability Putting U.S. Higher Ed in Danger? A New ACTA Report Discussion

with host Dr. Drumm McNaughton and guests Drs. Michael Poliakoff and Armand Alacbay | Changing Higher Ed Podcast 095

Table of Contents

Is Institutional Spending and Affordability Putting U.S. Higher Ed in Danger

The American Council of Trustees and Alumni (ACTA), which was founded 26 years ago, has a history of focusing on critical issues facing higher education.  The non-partisan organization began by addressing important topics, such as slipping academic standards, erosion of free expression on campus, and escalation of tuition. In a recent report, they look at the dangers of institutional spending and affordability. 

Sadly, those concerns continue today. The organization wants to help trustees and alumni change this situation for the better by focusing on three A’s – academic excellence, academic freedom, and accountability.

To aid in this effort, ACTA recently published a report called “The Cost of Excess.” This report falls under ACTA’s Project on Administrative Costs, which focuses on long-term trends that are putting the higher education industry in danger. These trends include the near tripling of tuition at public institutions over the past 30 years (which is inflation-adjusted) and the $1.7 trillion in student debt that has been accrued.

Based on these significant issues,  the new ACTA report is asking the critical question about the role of institutional leadership in curbing this problem… Why is this being allowed to happen, especially while higher education faces a fragile economic environment and future demographic decreases that will affect enrollments?

 ACTA’s report attempts to quantify the effect of this institutional spending on affordability – and determine whether it benefits students. The researchers found that higher education spending continued to climb both during and after the Great Recession. Generally, this spending went to non-instructional services, specifically administration and student services. Using this data, ACTA focuses on both challenging and empowering boards of trustees to be more effective in their roles.

The organization created a website called “How Colleges Spend Money” This website compiles U.S. Department of Education data from approximately 1,500 colleges and universities. Website visitors can see how much an institution spends on administration, instruction, and student services. Additionally, the website allows visitors to benchmark this information against peer institutions.

The Value of Student Services

The report defined student services as everything that the Department of Education classifies in this way, including student mental health, student activities, registrar’s office, etc. This area may have grown due to increased regulation, but the authors also looked at how this area has contributed to growth in tuition and affordability. The report’s authors analyzed the relationship between public institutions’ student services offerings and improved graduation rates; they found no statistical correlation between these areas. This is important because institutions spent $112 billion in these student services alone during the timeframe studied.

ACTA recognizes that there have been major changes in the student population and that some of these expenditures are necessary and bring a level of quality to campus life. However, economics is a grim science and forces hard choices. When an institution increases its expenditure, the consequence will be rising tuition. The only quality measure that ACTA uses – graduation rates—will not show that that money has had a good return on investment. In fact, these expenditures will have a damaging effect on diversity because of the increased cost of tuition, which many students from diverse backgrounds and underrepresented populations can’t afford.

High Administrative Costs

Additionally, there’s been a trend toward more expensive administrative staff than more expensive institutional staff. For example, higher education prioritized hiring less expensive and often less credentialed institutional staff, primarily adjunct faculty, from 2012-2018.

ACTA also analyzed the level of state appropriations when looking at spending increases since the Great Recession. While controlling for the institution’s increased spending, increased tuition and declining state appropriations, the average public institution in the study still increased its spending on administration by $49 a year and passed off $19 a year onto tuition, solely because of the decision to increase tuition. This was independent of state appropriations or any other factor.

The report also found that the percent of increased instructional spending at public institutions was twice as effective as increasing administrative spending in improving graduation rates. This means it’s important to invest in areas that improve student education, including instructional design and faculty members. This is the opposite of the trend that has been playing out since the Great Recession.

Asking Hard Questions About Institutional Spending and Affordability

ACTA’s leaders and researchers are asking the hard questions about institutional spending and affordability, and if higher education has hit a point of diminishing returns on some of the expenditures. For example, no one questions whether the College of Education is, on the whole, a very expensive proposition. The question is when does this college become too expensive to be worth it or that too much is being spent in this area?

Additionally, the average private institution in the study that has a modest 2% increase in instructional expenditure increases tuition by $213 per student for every student. The benefit is that six additional students graduate. That begs the question is whether this is worth the trade-off?

This also can be extended to constructing fancy buildings that result in mandatory fees for future classes. These fees often extend out for 10-15 years. The Society for College and University Planning did a series of reports on the building boom. One architect noted that the space for students has tripled since the 1970s. Does this type of fancy building do good on campus – or is it a liability that will keep many students away? Even if there is a fair amount of donor support, the maintenance costs may be high – and become the gift that keeps on taking. Add on the cost for staffing, and these questions take on a new dimension.

These decisions not only add to costs but also cause prospective students to question the worth of the degree. For example, Imperial College of London – which was rated 9th in the world rankings  – had an international tuition of around $30,000 annually – far lower than the vast majority of U.S. colleges and universities. Eventually, the international stakeholders and prospective students will begin to question whether U.S. higher education should remain the envy of the world  – where they want to attend – especially while international institutions of higher learning are being ranked progressively higher each year.

Avoid COVID Funding Blind Spots

The report is based on data that ended with 2018. However, researchers currently have two more years of data, which will bring the data to the beginning of the COVID era. They hope there will be a different story than what has happened since the Great Recession. This information also will be added soon to the “How Colleges Spend Money” website.

ACTA officials hope that the infusion of federal funding will not be an opiate that encourages institutions to not recognize the real warning signs about spending. Higher education has been insulated from previous economic downturns because of the influx of new students, and in this downturn with additional federal funding. However, colleges and universities won’t see that increase moving forward when it comes to additional students, so there is a looming necessity to do something. If they don’t recognize these economic issues, many well-respected higher education institutions may close.

For example, the University of California System’s maximum teaching load for tenured and tenure-track faculty is four courses per year, although some institutions are on a quarter system. This is a very light load. There are about 9,000 of those. By increasing the teaching load by 10 percent – the equivalent of one more course every other year – there would be 900 more faculty members. By combining this with the underutilization of classroom space at these universities, the revenue stream would increase and would also give more opportunities for students. This is a leadership issue and a question of will.

Examples of Institutional Budget Success

Some institutions are finding ways to maintain or rein in costs while also being innovative. Policymakers need to look at outliers, such as Purdue University’s willingness to freeze tuition for the past 10 years while doing many ambitious projects. Another example is Arizona State University, which has recombined departments in a way that has saved the institution approximately $13 million annually without terminating a single faculty member.

The University of Maryland System’s Effectiveness and Efficiency Initiative is also doing a good job in this area. The system has strong quality indicators, which show that institutions can be both efficient and effective at the same. This initiative, which saved $5 million, required tough decisions that included increasing teaching loads by 10% at its research institutions.

Brigham Young Idaho wasn’t in a strong position financially until it became a 12-month-per-year campus. With the cooperation of the faculty and increased compensation, the university has increased its ability to serve students – which also has increased enrollment and brought in more revenue.

And John Brown University, who increased the number of terms during COVID which increased revenues and spread out payments across the year, instead of having them come in twice per year. 

Moving Forward

ACTA has several recommendations to help trustees in their roles:

  • Board members need to be aggressive about saying that they cannot be fiduciaries without being given the necessary information and data to make sound decisions.
  • Data can help trustees and the public compare how an institution is doing in benchmarks against peer institutions.
  • Many board members fear the press. However, it’s important to have split votes when necessary to create dialogue about the institutional future. Everyone needs to act on their conscience and ask the important questions. It’s also important to be proactive.
  • Student debt is not wise in most cases. It also should be a justification for the escalation of tuition that has been seen. Every trustee needs to understand this.
  • ACTA also is putting together a list of skillsets for trustees. This will enable boards to ensure that they have informed fiduciaries who ask appropriate questions. Furthermore, boards need to have a combination of individuals who bring different skillsets to have holistic oversight.
  • Deeper analysis is necessary. For example, before considering new construction boards need to request an analysis of current building utilization that includes how often the building is in use 5-7 days a week for a specific period during the day. Similarly, there needs to be a deep analysis of courses and programs before any additional offerings are added.

Three Recommendations for Higher Education Leaders and Boards

  • Everything that an institution does has to flow from the institutional mission. Most colleges and universities have a phrase that says, “preparing graduates for career and community.” What does that mean? Be laser-focused on defining this statement and ensure that there are meaningful requirements for graduation.
  • Use good data to inform data-driven decision-making and develop policy. This puts the onus on the board as well as every individual trustee as a fiduciary to determine if the institution is part of the problem.
  • Being a trustee involves meaningful service. The idea of looking at institutional spending involves looking at the board’s role in the global economy. These decisions are not made in a vacuum—they affect everyone, including employers, alumni, and the community at large.

Resources

Dr. Drumm McNaughton provides strategic planning and change management consulting for higher ed institutions.

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