Academic journal article AEI Paper & Studies

Linking Costs and Postsecondary Degrees: Key Issues for Policymakers

Academic journal article AEI Paper & Studies

Linking Costs and Postsecondary Degrees: Key Issues for Policymakers

Article excerpt

As one of the largest groups of new governors and legislators in history begins its work this year, many of them share ambitious goals for higher education in their states. Nationally, President Obama has set his sights on eight million additional degrees by 2020. State leaders, regardless of their political leanings, almost all have their own version of the attainment goal. Virginia is targeting 100,000 more degrees by 2025. Tennessee is set on 210,000 more by that time. Kentucky wants to "double the numbers." Indiana aims at 10,000 more degrees awarded per year. Oregon's business leaders seek to have 60 percent of adults with some form of postsecondary credential.

With state revenues drastically curtailed, such visionary goals raise serious questions about cost. What will it take to reach these goals? What does a postsecondary degree in this country actually cost taxpayers and students? It is a reasonable question, and one that can be answered, provided that the purposes and policy issues underlying it are clearly understood. It is one thing to say how much has been spent in the past, for example, but quite different to project what graduating more students might cost. And while elaborate accounting systems and student databases can tease out the cost differences between a history degree and a chemistry degree, it does not follow that channeling more or less money to different departments will yield commensurate changes in the proportions of students graduating in each field, or that the money spent on some degrees could be banked just by closing a program.

To make well-informed policy and budget decisions, policymakers and higher education leaders need clear and appropriate information about costs. Unfortunately, such information can be difficult to come by. (1) The simplest types of cost data available can be misleading, and more complex calculations of cost are subject to error or intentional distortion. There are easy ways to inflate costs to make a program, institution, state, or an entire sector of higher education appear wasteful. There are equally easy ways to minimize costs or to manipulate results to favor one institution over another. Undergraduate education at research universities, for example, is either a hopeless money pit or a model of organizational efficiency--depending on how analysts account for the costs and overhead associated with graduate education and research. Community colleges are either a huge bargain for their low cost per credit hour or terribly wasteful and inefficient on a cost per degree basis.

Rather than provide an all-purpose formula to resolve these issues, this paper outlines four concepts that will help guide policymakers in thinking about costs of higher education, whether the question is as broad as "What might it cost to reach President Obama's goal?" or as narrow as "Which of these two physics departments educates students more efficiently?" First, not all credit hours or degrees are equal; degree level and academic disciplines are big factors in determining higher education costs. Second, the cost of instruction is not the same as the cost of completed instruction, and there are several ways to calculate a "cost per degree." Third, past performance does not guarantee future results. The marginal future cost of adding students or degrees may have little to do with the current average cost. And last, when comparing different institutions or different modes of delivering higher education, the hidden costs and subsidies in higher education need to be considered even when they are difficult to estimate precisely.

The Simple Approach

Perhaps the easiest way to calculate the cost of a college degree nationally is simply to combine numbers from the Digest of Education Statistics. (2) Table 1 summarizes expenditure data from the Digest, showing $273 billion in total higher education expenditures at public higher education institutions in 2008-09. …

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