1

Understanding and CommunicatingCost Drivers in Postsecondary

Education

SHEEO Professional Development

Boston, Massachusetts August 16, 2007

Jane Wellman, Delta Project on Postsecondary Costs

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Understanding Cost “drivers”

• Need to look at ‘Brand’ cost determinants (mission, sector, revenue), versus inflationary pressures on elements of spending over time (cost shifting)

• Major brand determinants:– Revenue availability– Discipline mix– Mission – research, service – Curriculum/course enrollment patterns – Student economic circumstances– Admission selectivity

Public

Private NFP

Specialty

Associates

Baccalaureate

Doctoral

Research

Specialty

Associates

Baccalaureate

Doctoral

Research

FTE: Bottom Third FTE: Middle Third FTE: Top Third

Bottom Third | Middle Third | Top Third Bottom Third | Middle Third | Top Third Bottom Third | Middle Third | Top Third

FTE Expenditure

Matched Sample Institutional Counts by Primary Segmentation

Public

Private NFP

Associates

Baccalaureate

Doctoral

Research

Associates

Baccalaureate

Doctoral

Research

FTE: Bottom Third FTE: Middle Third FTE: Top Third

Bottom Third | Middle Third | Top Third Bottom Third | Middle Third | Top Third Bottom Third | Middle Third | Top Third

FTE Expenditure

FY 2005 Average Expenditure per FTE by Primary Segmentation

Public

Private NFP

Specialty

Associates

Baccalaureate

Doctoral

Research

Specialty

Associates

Baccalaureate

Doctoral

Research

FTE: Bottom Third FTE: Middle Third FTE: Top Third

Bottom Third | Middle Third | Top Third Bottom Third | Middle Third | Top Third Bottom Third | Middle Third | Top Third

FTE Expenditure

FY 2000 to FY 2005 Average Net Change in Expenditure per FTE by Primary Segmentation

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Cost of the “brand” - Public Institutional Spending-2005

Median Spending/FTE by Function

0

5000

10000

15000

20000

25000

Research Comp 2-Year

Public Institutions

$/S

tude

nt/M

edia

n O&M

Institutional Support

Student Services

Academic Support

Public Service

Research

Instruction

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Changes in Total E&G Spending/FTE Student* 1987 2005

Average Annual % change , 1987-2005

Public 4-year Mean 7298 14483 +5.5%

Median 4652 9293 +5.5%Private 4-year Mean 8045 20935 +8.9%

Median 5835 15965 +9.5%2-year Mean 3929 7675 +5.2%

Median 3542 7008 +5.4%

Access to Capital (average spending/fte) mean private/public 4 1.1 1.45 +32%median private/public 4 1.25 1.72 +38%

Educational Spending (All Revenue Sources) Per Student – 1987 – 2005 (current dollars)

IPEDS preliminary analysis; “Educational spending” =direct spending/FTE for instruction+student services, plus instructional share of remaining categories less auxiliaries and hospitals.

Research Private

Research Public

Master’s Public

Master’s Private

Bachelor’s Private

Bachelor’s Public

Cumulative Growth in Educational Cost per Degree Conferred by Broad Carnegie Classification and Control – in 2005 CPI Adjusted Dollars

Inflationary pressures on costs

• Competition

• Administration

• Cost of Capital

• Benefits

• Student/academic support (co-curriculum) including technology

• Student financial aid

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Composite Average Annual Percent Change – FTE Median

Composite Average Annual Percent Change – FTE Mean

Composite Average Annual CPI Adjusted Percent Change in FTE Expenditures by Broad Carnegie Classification and Control: Fiscal Years 1993-96, 1998-01 and 2002-05

Composite Average Annual Percent Change – FTE Median

Composite Average Annual Percent Change – FTE Mean

Composite Average Annual CPI Adjusted Percent Change in FTE Expenditures by Broad Carnegie Classification and Control: Fiscal Years 1993-96, 1998-01 and 2002-05

Composite Average Annual Percent Change – FTE Median

Composite Average Annual Percent Change – FTE Mean

Composite Average Annual CPI Adjusted Percent Change in FTE Expenditures by Broad Carnegie Classification and Control: Fiscal Years 1993-96, 1998-01 and 2002-05

Evidence of cost cutting? • Instruction –

– Growing use of part-time faculty– Marginal costs lower in times of growth– Growing use of technology v. personnel

• Energy efficiency/utilities costs

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Institutional Solutions• Core instructional program

– Faculty renewal and reinvestment– Curriculum management

• Student-centered investments– Reduce freshmen attrition– Increase success in ‘killer courses’– Invest in student success (first-year programs; bridge programs;

learning communities)• Reduce overhead • Improve institutional efficiency

– Energy efficiency– Reduce cost of capital– Distance learning

• Improve management and oversight of costs: data; accountability strategies; governing board roles

Suggestions for SHEEOS

• Look at ways that state policies can support institutional solutions

• Benchmark costs – develop better cost data, and use it– Faculty salary comparisons – split compensation

and benefits– Cost per degree, not just cost per input– Look at core unrestricted revenues; educational

costs per students • Engage governing boards – piloting better use

of cost indicators to focus conversations• Look at outcomes and access - and cost per • Promote best practices to increase productivity