Institutional Expenditures and State Economic Factors Influencing 2012-2014 Public University Graduation Rates

American higher education has seen public postsecondary funding sharply decline over the past couple of decades and has now fallen behind other countries in being the world leader in college degree production. Many U.S. states have begun to place more accountability on their public institutions to prove they are using appropriations as effectively and efficiently as possible. State financial support is increasingly being appropriated on the basis of performance – i.e. student outcomes, primarily measured by student graduation rates. The better an institution can use its financial resources to increase its graduation rates, the more state financial support it will likely receive. Yet, even as tracking graduation rates has grown in importance, linkages between graduation rates and institutional spending has not been extensively researched in public higher education.

The purpose of this study was to analyze the relationship between institutional expenditures and graduation rates in public higher education institutions – when accounting for both institutional and state level differences. Results of this research may inform methods for adjusting institutional expenses to optimally affect undergraduate student graduation rates. The study examined institutional and state economic characteristics during the first academic years of the 2012, 2013, and 2014 six-year graduating cohorts. Thus, 2006-2008 data were obtained from IPEDS for 560 public institutions, including the input variables of institutional expenditures, student enrollment demographics, ACT scores, and Carnegie classifications, as well as the study’s dependent variable: 2012-2014 six-year graduation rates. State economic indicators of average household income and unemployment rates for the 2006-2008 time frame were obtained from U.S. Bureau of Labor Statistics. Multilevel modeling regression statistics were used to find any significant effects on graduation rates from these institutional and state-level data.

The study revealed that instructional expenditures per student FTE had a significant effect on graduation rates, when controlling for other institutional and state level factors. Institutional characteristics, such as enrollment intensity, proportion of minority students, and ACT scores, had significant associations with graduation rates. To a lesser extent, state level economic factors were also found to have associations, particularly average household income, and, interestingly, higher education spending per capita.