I’ll Take US Higher Education for $400, Alex

By Watson Scott Swail, President & Senior Research Scholar, Educational Policy Institute

Alex: Well, we have a barn burner today, folks. Scott, you’re still in command of the board and close to clinching, so go ahead and make a selection.

Scott: Thanks, Alex, let’s go “US Higher Education for $400,” please.

Alex: Well, its today’s Daily Double. [crowd goes crazy]

Scott: I’ll wager $2,000, Alex.

Alex: For $2,000, here is your clue: This item costs four-year institutions over $7 billion a year in the United States. We’ll be right back after these messages.

Over the past couple of weeks, I’ve been playing with a lot of data from the National Center for Education Statistics (NCES). I’ve boasted about their data before. Simply wonderful for us analysts.

Telling the story of higher education is difficult because it is increasingly complex. Ask me about the retention rate at any institution, and I’ll have to query you on the parameters of which you seek. Nothing is simple because the definitions aren’t simple.

I thought today I would throw out a few numbers that readers may find interesting. They aren’t perfect numbers, because the IPEDS database is not so perfect, but they’re pretty good. The IPEDS (Integrated Postsecondary Education Data System) database includes all Title IV institutions in the United States, who are required to submit a number of annual surveys of information to the US Department of Education. Ask any institutional researcher at a college or university and their eyes will surely roll about these surveys because they are an ominous, if not important, process that has to be done from the smallest institution to the largest. If institutions choose not to do it, they forfeit any federal financial aid (e.g., Pell, student loans) for their students. Thus, they all do it. The Title IV status means everything in the United States.

The challenge in IPEDS data is that some data are “missing.” That is, not all institutions provide data for all questions. This makes analysis a tad difficult because you have one of two choices: either you run the analysis on the schools for which you have the requisite data to conduct your query; or you impute values into these missing fields. The latter process is tricky and extensive to do properly, so I am selecting the first manner, understanding that it leaves some data on the floor. In the end, my analysis still accounts for 98 percent of total enrollment at four-year institutions in the US.

Here is what I’ve found.

At public four-year institutions, the average total revenue per FTE student is $24,370, with an average tuition and fee revenue of $7,840[1]. The additional revenues on top of tuition and fee charges include government subsidies, research funding, and other sundry items. At the four-year privates, the numbers are larger: an average of $25,631 for total revenue, of which $16,335 is derived from tuition. Obviously, the private institutions rely much more on tuition and fee charges for their revenue than public institutions, although the gaps are lessening each year.

SOURCE: Author’s calculations using IPEDS data (PowerStats)

Public institutions, on average, admitted 61 percent of their 5.8 million applicants, while private, not-for-profit institutions admitted 50 percent of 4.5 million applicants. However, the actual enrollment of students (those who showed up at school) was far less. At publics, 18 percent of applicants enrolled, compared to 11 percent at privates.

Now, back to Jeopardy.

Alex: Right before the break, Scott wagered $2,000 for this clue: This item costs four-year institutions over $7 billion a year in the United States. What say you, Dr. Swail?

Scott: Alex, What is the cost of student departure from higher education?

Alex: That’s it! And with that, Scott win’s today’s round. He’ll be around tomorrow to play against Watson. See you then. 

And this is true. Together, our four-year public and private not-for-profit institutions lose approximately $7 billion a year in lost revenues from students who chose not to return to their institution from the prior year. This amounts to almost $5 billion for four-year public institutions and $2.0 billion for four-year private, not-for-profit institutions. From tuition and fee revenue alone, publics lose $1.6 billion and privates $1.5 billion.

Regardless of how one counts it, this is a lot of coin.

In truth, it is understood that institutions cannot expect to retain all their freshmen students. However, we lose a significant number of them. As the table above illustrates, one quarter of all four-year students leave their institution after a year. Some institutions do much better than others, but this is the average. This results in significant hemorrhaging on behalf of institutions of higher education, but it has become the status quo modus operandi of the industry. Institutions expect to lose students, so they enroll more students. And it goes on and on and on, with an incredible lack of efficiency. This is the cost of our higher education system.

Important to note that this is only a reflection of the revenues generated by an institution. It doesn’t include the opportunity and actual costs that students and families pay for an squandered education. Some students, of course, transfer to other institutions. But many do not.

What if each institution was able to improve their fall-to-fall retention rates only two percent? Public, four-year institutions, collectively, would retain over $93 million in revenue: $29 million from tuition and fees alone. For the private institutions, retained earnings would total $20 million, of which $12 million are tuition based.

Student departure is costly. Given that our first-to-second year retention rate is but 75 percent at the four-year level, and the costs and prices of higher education continue to climb and climb and climb, we really can’t settle for this anymore. In the end, institutions lose the revenue. But long after leaving higher education, taxpayers and students are paying for the privilege.

By the way, I have these data on every four-year insitution in the US. Email me for details.

[1] Analysis did not include enrollment weighted numbers.