NCPA - National Center for Policy Analysis

Linking Costs and Postsecondary Degrees

July 27, 2011

With state revenues drastically curtailed, visionary goals of increasing the number of students graduating from state institutions of higher learning raise serious questions about cost.  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, says Nate Johnson of the American Enterprise Institute.

  • Much of the money in higher education is already tied to performance -- institutions receive more tuition (and often more state funding) for getting students into classes, regardless of whether they get out.
  • Successful researchers attract more federal and corporate research funding -- presidents get paid more when they raise funds successfully, football coaches get bonuses for winning bowl games.
  • Sometimes it seems about the only thing that does not come with a financial reward is graduating students.

Just as higher education provides a complex and often hard-to-agree-upon range of benefits, it involves similarly complex tradeoffs in costs.  Those costs need to be presented as frankly and as clearly as possible, with the assumptions stated up front and a clear policy purpose in mind for the data.  There is not a magic formula to arrive at a cost of education that will serve every possible need.  Yet with a few key concepts in mind, and access to accurate and timely information, it is possible for policymakers to make good use of cost data in setting goals, allocating resources, and asking tough questions of higher education leaders.

For policymakers interested in spending higher education dollars more strategically, Johnson offers five simple "rules of the road" that should inform efforts to link finance more tightly to institutional performance:

  • Not all certificates and degrees cost the same or produce the same benefits.
  • Private universities show where growth is (and isn't) possible without massive subsidies.
  • Seek economies of scale where appropriate.
  • Do not confuse enrollments with degrees.
  • Past performance may not indicate future results.

Source:  Nate Johnson, "Linking Costs and Postsecondary Degrees," American Enterprise Institute, July 6, 2011.

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