Addressing the Declining Productivity of Higher Education Using Cost-Effectiveness Analysis

A new report from AEI’s Stretching the Higher Education Dollar initiative demonstrates how cost-effectiveness analysis (comparing the costs and outcomes of two or more options) might be applied to a variety of popular higher education policies and programs. The report’s author argues that higher education leaders and policymakers can have a greater impact on productivity than is popularly believed. The paper provides a framework to determine which policies and practices are the most cost-effective for degree completion and offers illustrative examples of how such a framework might be applied to analyze the cost effectiveness of student-faculty ratios, full-time faculty and adjuncts, college access programs, financial aid programs, student services, and remediation.

Among the report’s findings:

• Degree productivity (measured as the ratio of degrees granted to total expenditures in public colleges) is less than half of what it was 40 years ago.
  • While productivity has fallen, spending in higher education has increased. Higher education spending has grown by more than 25%, amounting to nearly 3% of U.S. gross domestic product since the early 1990s.
• The report’s author argues that by using an analysis with effectiveness-cost ratios (ECR) to determine which programs, policies, and resource decisions are most cost-effective, policymakers and college leaders can have a real impact on degree productivity and college completion.
  • This type of analysis, and the ability to identify programs that are extremely expensive but fail to justify high costs with results, contradicts the inevitability of “cost disease” in higher education. While some in higher education posit that the rising costs of college are uncontrollable, this report argues that productivity improvements are possible.
• Given the increasing pressure to improve student outcomes with fewer funds, college leaders are likely to find a cost-effectiveness approach necessary.