Cost-effectiveness analysis and the declining productivity of higher education

by Grace

Higher education productivity, as measured by academic degrees granted by American colleges and universities, is declining….

From “Addressing the Declining Productivity of Higher Education Using Cost-Effectiveness Analysis” by Douglas N. Harris

… Since the early 1990s, real expenditures on higher education have grown by more than 25 percent, now amounting to 2.9 percent of US gross domestic product (GDP)—greater than the percentage of GDP spent on higher education in almost any of the other developed countries. But while the proportion of high-school graduates going on to college has risen dramatically, the percentage of entering college students finishing a bachelor’s degree has at best increased only slightly or, at worst, has declined.


Key points:

 Basic Elements of Cost-Effectiveness

•Using effectiveness-cost ratios (ECRs): The primary metric for understanding the relationship between a program’s cost and its effect is the ECR, which divides effectiveness (“bang”) by costs (“buck”) to give a simple estimate of cost-effectiveness. Generally, larger ECRs imply greater productivity.

•The challenges of ECRs: On the cost side, data on higher education costs are notoriously incomplete. It is also unclear what is meant by a program’s effect. In his analysis, Harris uses reliable data and informed assumptions to determine costs, and defines a program’s effectiveness as increasing degree completion.

Cost-Effectiveness Varies across Policies

•No single strategy stands out, but some appear to be more productive than others: The results vary most within the instructional category (student-faculty ratios, full-time versus adjunct faculty, and remediation), while financial aid programs seemed to generate more consistent but low cost-effectiveness ratios.

What are the Implications for Leaders?

•Collecting better data: Going forward, policymakers and institutional leaders should collect more detailed measurements of what higher education programs cost to better assess cost-effectiveness.

•College leaders have more power than they typically assume: ECRs can be used to make comparisons across programs, so we can say whether one program is more cost-effective than another. This helps leaders allocate limited dollars in ways that are most likely to help students.

•Avoiding rote use of ECRs: Cost-effectiveness analysis cannot and should not replace the judgment of educational leaders, but the information that comes from it can provide useful guidance and perhaps improve the way those decisions are made.



4 Responses to “Cost-effectiveness analysis and the declining productivity of higher education”

  1. While increasing the graduation rate is certainly A Good Thing, though it is a goal fraught with unintended consequences, everyone involved in policy analysis in higher education needs to remember that it is only one measure of productivity in higher education. This paper focused on public higher ed. Public universities, many of which were founded under the various land grant acts or other similar state programs, have multiple missions. Graduating students with bachelors degrees is only one of these missions. Service to the public in the community is a core mission of every land grant institution. States and towns rely on universities as economic engines. Companies rely extensively on nearby universities for all kinds of research and innovation. Farmers rely on public university cooperative extension services. Communities rely on public universities for art and culture, as well as medical care. and often, social services. K12 systems rely on universities not just to produce new teachers, but also to provide ongoing training for working teachers, and to provide consulting services for school districts. Thus, trying to reduce the measure of a university’s productivity to a simple money-in/bachelors-degrees-out is very misleading, except perhaps for small 4 year only colleges (and aren’t most of those private anyway?). This paper, by offering the graph which is reproduced above on its front page, is making this mistake. In order to really measure a university’s productivity, many outputs must be measured. To be fair, the results in the paper seem to be based on cost measures that are specific to particular programs. However, the author tries to use salary data for faculty as a way to measure some interventions (smaller class size for example) but that is not accurate because faculty at public universities are paid for all of the mission components, not just the teaching component.

    This mistake is endemic right now in higher education policy analysis. Obama makes this mistake, Vedder makes this mistake, and the author of the paper cited here certainly is making this mistake with that graph on the front page. State legislatures do this all the time; in fact, I have seen legislators at that level discuss universities only as producers of undergraduate degrees, and then turn around and propose economic development zones tied tightly to a particular public university in their state. With this level of confusion, no wonder it is hard to agree on anything to improve higher education.


  2. You are right — all those other objectives you mention are rarely mentioned as being important. Maybe it’s because families paying tuition don’t consider them important, and/or don’t think their tuition should be paying for many of those other things.


  3. Yes, but at a public university, the state is kicking in significant money. Yes, that share has declined over time, and one might think that the state should expect less as a result, but states don’t see it that way. And there is the question of the land grants – public universities are expected to serve the public of the state in exchange for having been given the land.

    According to this article, in 2006, student tuition covered about half of the cost of instruction

    Perhaps it would have made more sense to have organized higher education differently. One could imagine a system made up of 4 year colleges focused on education only, and separate research institutions that handled graduate and professional education as well as the service and research missions. But that is not how higher education in the US evolved. It would be very difficult to untangle the public higher education system now.



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