August 2009

IZA DP No. 4345: Do Expenditures Other Than Instructional Expenditures Affect Graduation and Persistence Rates in American Higher Education?

published in: Economics of Education Review, 2010, 29 (6), 947-958

Median instructional spending per full-time equivalent (FTE) student at American colleges and universities has grown at a slower rate the median spending per FTE in a number of other expenditure categories during the last two decades. We use institutional level panel data and a variety of econometric approaches, including unconditional quantile regression models, to analyze whether noninstructional expenditure categories influence first year persistence and graduation rates of American undergraduate students. Our most important finding is that student service expenditures influence graduation and persistence rates and their marginal effects are larger for students at institutions with lower entrance test scores and more lower income students. Put another way, their effects are largest at institutions that have lower current persistence and graduation rates. Simulations suggest that reallocating some funding from instruction to student services may enhance persistence and graduation rates at those institutions whose rates are currently below the medians in the sample.