What really drives college costs?

Hint: It's not climbing walls

As student loans surpass credit card debt as the largest source of consumer debt in the United States, many higher education institutions face increased public scrutiny around costs. In responding to critics, higher education leaders must not only bust myths about the high cost of campus amenities, but also make clear that the cost of instruction and running a complex business model are the true drivers of college costs.

Detractors have been quick to blame the so-called “amenities arms race” for the ballooning costs of college. In the competition to enroll prospective students, institutions have invested in flashy facilities like lazy rivers and climbing walls. Some critics point to a competition between several Texas universities to build the tallest climbing wall in the state as a prime example of irresponsible spending on luxurious frills.

False claims about college costs

But does this spending really drive up the cost of college? In fact, these types of expenditures account for only a fraction of institutions’ operating budgets. A typical climbing wall costs $100,000, a one-time expense that represents a minuscule .1% increase to a $100 million operating budget. And instead of being funded by tuition, these projects are often funded by fee increases that students themselves elect to pay.

The culprit: Instruction is the main expense for every institution type

In reality, the main driver of college costs is one of higher education’s core functions: teaching students. Institutions spend more per student on instruction than on any other category of expenses. The cost of instruction makes up between one-third and one-half of all spending across institutions of every Carnegie classification.

The cost of instruction has provoked some criticism that faculty are overpaid for their work. But with a median annual salary of $71,000 in 2014, compensation for college faculty members falls well behind that of other highly educated, highly skilled professionals, including lawyers ($115,000), dentists ($154,000), and physicians ($187,000). Faculty ineligible for tenure, who make up two-thirds of the overall faculty work force, make even less money.

Share of Expenditures per FTE Student by Standard Expense Categories, 2011

Instruction the largest expense for every segment

The high cost of increasingly complex operations

In many ways, the facilities and services needed to operate a college campus resemble a small city. Higher education institutions are responsible for an unusually wide array of expenses—from feeding lab rats in the science building to insuring fine art in the museum. Colleges and universities are also vulnerable to fluctuations in the prices of commodities, utilities, and labor. If the cost of heating and cooling a building or of supplying fresh meat and produce to the dining hall increase, school budgets must find a way to accommodate that.

Like running a small city

Colleges and universities must also invest substantial financial and human resources into complying with a growing number of federal and state regulations. A 2014 Boston Consulting Group assessment of compliance costs at Vanderbilt University found that the institution spends $146 million on compliance annually; that amounts to roughly $11,000 per student.

Research universities aren’t the only institutions facing steep compliance costs. Small institutions shoulder a disproportionately large compliance burden, given their smaller operating budgets and lack of specialized staff. When faced with new regulations, many small colleges face the difficult choice between hiring new staff members or assigning additional compliance duties to existing staff, which can stretch human resources thin. A study at Hartwick College, which has 1,600 students, showed that existing staff spend 7,300 hours each year on compliance activities alone—that's the equivalent workload of more than three full-time staff members.

The high price of government funding

What is costing colleges: Low course completion rates

The D grade, fail, and withdraw (DFW) rate at a typical institution is between 15-30%, costing students and institutions money.

Our brief details how to audit your courses to discover those with habitually low completion rates and four strategies to reduce the unproductive credit rate for students.

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