Why college is so expensive Part 2: It's the lazy rivers right? I knew it was the lazy rivers

Expenditures by category from 2001-2022

When people wonder why the cost of college has increased so much, they usually talk about one of four things:

1. Increasing regulatory requirements and social needs that require more staff (administrators say this)

2. Increasing number of executives and executive pay (faculty say this)

3. The "lazy river” or “cruise ship" element of college (the public and especially faculty really go on about this)

4. Baumol's cost disease (nerds say this)

It’s difficult to tease out which of these factors is most important to the story of rising college costs because they’re probably all partly true. But I’m going to spend the next several posts trying.

To start, let’s look at how colleges are spending their money now and how that spending has changed over time. More specifically, let’s look at the expenditure categories delineated in the finance survey of the IPEDS data.

The Department of Education asks schools to divide all of their expenditures into 11 categories: instruction, research, academic support, student services, auxiliary (mostly dorms and food), institutional support, public service, independent operations, hospital services, and other. I’ve provided more details about exactly what’s in each category in a footnote here.¹

So, how have colleges spent their money over the last 20 years, dividing expenditures up across these categories?

We see in this figure something we’ve seen before: higher ranked liberal arts colleges spend more per student than do lower ranked schools. We’re also seeing something new: schools are distributing those expenditures in more or less the same way. Let’s look at it in percentage terms to make this point even easier to see.

Across the ranking spectrum in 2022, schools are spending their money in basically the same ways: 34-37% on instruction, 1-3% on research, 9-12% on academic support, 15-18% on student services, 13-16% on auxiliary, 18-20% on institutional support, 0-2% on public service, and essentially nothing on independent operations. Moreover, these percentages have not changed much from 2001.

---

Let’s get back to those hypotheses about why college costs have increased:

If Hypothesis 1: Regulatory Burden were the overwhelming driver of increasing college costs, I would expect the Institutional Support and/or Student Services categories of spending to be exploding. They aren’t.

If Hypothesis 2: Executive Pay were the main thing, I would again expect Institutional Support to be taking over. Again, it isn’t.

If Hypothesis 3: The Cruise Ship were the bulk of cost increases, I would expect to see two things: a) an increasing share spent on student services and auxiliary, b) larger increases in the shares of these categories at highly ranked schools compared to lower ranked schools, or alternatively schools that feel like they have to compete intensely compared to those that kinda just get along. I don’t see either pattern strongly in these figures.

Which brings us to Hypothesis 4: Baumol’s Cost Disease. If you’re not an econ nerd, you’ve probably never heard of this. It’s ok. I am an econ nerd and I hadn’t heard of this until I started looking into the economics of higher education. Basically the idea is that because class sizes aren’t getting any larger, professors can’t get more productive, but we do have to pay professors more because their peers outside of academia are getting paid more and we don’t want professors to quit teaching, therefore sectors like education will get more expensive over time.

If Hypothesis 4: Baumol’s Cost Disease were the main driver of rising college costs, I would expect to see increasing shares of expenditures for categories that can’t get more efficient or productive over time. Most salient for liberal arts colleges, instruction. I do not see the share of expenditures spent on instruction increasing over time in these figures.

Where does this leave us? Puzzled. For now. But there’s a lot more data to look at. Subscribe now for more later.

---

Why do you think college costs are increasing? What hypotheses would you like me to take to the data? I’d love to hear what you think in the comments!

1. Instruction means what you think it means. It includes professors, classrooms, and the IT needed for teaching. It excludes people and spaces that are primarily occupied by non-teaching activities, even if they can support a little bit of teaching (e.g. Deans even if they teach one class a year; center ice at the hockey arena, which at my school you can actually book for your class but no one does).

Research also means basically what you think it means. Reagents for chemistry experiments, payments for social science research participants, etc. People are generally categorized by their primary occupation, and because most professors and lab techs at liberal arts colleges are primarily occupied by interactions with students, there aren’t many people who are categorized as research expenses at SLACs. The same is true for space. At R1s I’m sure they put lots of lab space in the primarily-research category. At SLACs, we almost always have students using our lab spaces too, at least as summer research assistants, so I suspect that this category doesn’t include much physical space at SLACs. The only exception I can think of at my school is our Director of Sponsored Research & Research Compliance Officer. I bet she and her office are in this category.

Academic support includes the academic administration (i.e. the faculty Deans and Deanlets), the library, the writing center, the quantitative resource center, the teaching and learning center, essentially anything that is close to teaching but is not teaching. As with the other categories, it includes the physical maintenance of space and IT needed to support these activities.

Student services includes old-timey college things like the registrar and admissions and financial aid, as well as what some might put under the heading of “cruise ship elements of college”: wellness centers, student activities and organizations, accessibility office, and athletics, I think including the gym. I’m not sure, but I bet the Dean of Students and their office is often categorized here.

Auxiliary is room and board; dorms and food. This category can also include sports programs and student health centers that are self-supporting. I don’t know how common that is at SLACs, but I suspect not very.

Institutional support is basically the non-academic administration. The President, Chief of Staff, the CFO, lawyers, HR, fundraising, investment management, all of those people and their offices are in this category.

Public service includes any non-teaching community service for people who don’t work for or go to the college. There are a few schools that do quite a bit of public service, but for most SLACs this category is small. The same goes for Independent Operations. This would be “a major federally funded research and development center.” SLACs don’t tend to have those. Also true for Hospital Services. SLACs don’t run hospitals.

You can find the official definitions of these variables in the IPEDS Glossary for the Finance survey here.