The Cost-Effectiveness of Undergraduate Education at Private Nondoctoral Colleges and Universities

Cost-Effectiveness report cover

​The diverse U.S. higher education sector includes more than 700 private nonprofit colleges and universities that focus primarily on baccalaureate education. These are commonly termed private nondoctoral (PND) colleges, and they enroll close to 1.6 million students across the country, granting nearly 150,000 degrees annually. In sheer numerical terms they represent a significant resource in support of the nation’s current college completion agenda. Less well known is that these colleges “punch above their weight” by producing bachelor’s degrees, including degrees in science, technology, engineering, and mathematics (STEM) and health fields, more effectively and at much lower taxpayer cost than comparable public institutions. At a time when more college degrees are needed but public resources are tightly constrained, this cost-effectiveness is worth policymakers’ attention.

This study examines key aspects of the cost-effectiveness of PND colleges as providers of baccalaureate degrees and explores how states might feasibly make better use of these colleges to produce more degrees efficiently. The study looks at degree production and cost in the PND sector relative to other higher education sectors, focusing on the most comparable public institutions. PND colleges and universities have a 22 percentage point edge over comparable public institutions in four-year graduation rates and a nearly 12 point advantage in six-year graduation rates, and they hold a significant advantage for all subgroups. Moreover, PND colleges retain students initially interested in STEM and health to degrees in those majors at rates (41 percent) approaching twice the rates of public doctoral and nondoctoral institutions (24 and 23 percent, respectively).

The study compares costs of PND degrees to degrees from comparable public institutions from several perspectives: those of taxpayers, of students and families, and of society as a whole. Using federal Integrated Postsecondary Education Data System data spanning 2005–2012, the study shows that PND degrees are less costly for society overall by an estimated 9 percent. This difference rises to nearly 30 percent when the additional social opportunity cost of the longer average time students spend in public institutions is taken into account. The advantage of PND degrees in terms of comparative costs to taxpayers is substantially greater since the public bears a larger share of the costs of education in public institutions. We estimate costs (over the period 2005–2012 and excluding capital costs) to state governments of each PND degree at $7,200 (mostly from state student aid grants), compared to $46,401 for a bachelor’s degree from our matched sample of public colleges. The public sector degree is 6.4 times as costly to state taxpayers. Adding in costs to the federal government, which are very similar across sectors, the total average cost to taxpayers of a PND degree is $27,585, versus $67,126 for a public sector degree.

Students and their families do pay more in out-ofpocket costs and loans for bachelor’s degrees from PND schools relative to comparable public institutions, as would be expected. We estimate that, on average, students and families pay $62,566 for a PND degree, after all aid grants are considered, versus $23,253 for a degree from a comparable public institution (with the latter figure averaged over state residents and out-of-state students). For the 28 percent of public sector students in the out-of-state category, the total estimated personal cost per degree is close to the PND cost, at $57,428. PND students borrow more for their undergraduate education, $25,506 on average compared to $20,619 for students at comparable public institutions, but they also are more likely to graduate and less likely to default on their loans (by 21 percent).

In order to explore the realistic possibilities for cost savings to states and direct benefit to individual citizens from redirecting some future students from public to PND colleges, we selected five states and simulated the effects of plausible increases ($1,000 and $2,000) in annual state student aid grants to aid-eligible students who choose a private college. Representing a range of contextual conditions, the five states are California, Georgia, Kansas, Pennsylvania, and Virginia. All have long-standing student aid programs in place for which private college students are eligible.

We find that these modest grant increases could shift significant but not dramatically large numbers of students from public to private colleges. Such a shift could, in principle, save states on operating appropriations to public institutions and on student aid grants in states where these grants currently go primarily to public college students. The most expansive assumptions of student response to the grants yield estimates of students diverted to the private sector on the order of 1,000 per year and net annual state operating savings as large as $10–12 million (with considerable variation by state). There is the potential for additional savings through reduced capital expenditures in states that are likely to see increased demand; we estimate a one-time savings of $100–300 million in Georgia and Virginia and $20–60 million in Kansas. In states where the PND colleges have higher graduation rates than their public counterparts—as is the case nationally—the shift also should increase degree productivity modestly and could increase retention in STEM and health fields, although we lack state level data to estimate the latter.

These capital cost savings estimates, in addition to the evidence presented here about differences in graduation and STEM retention rates, might well make the idea of diverting some enrollment growth to private institutions particularly attractive to policy makers in states facing significant enrollment increases.

In sum, the findings of this study demonstrate that private nondoctoral colleges and universities are not only more efficient producers of baccalaureate degrees than their public counterparts, but they consume substantially fewer taxpayer resources in the process. As policy makers seek to make wise investments in higher education in the context of constrained resources, the PND sector merits particular consideration.

​Council of Independent Colleges
By William Zumeta and Nick Huntington-Klein
September 2015