EPAA Vol. 12 No. 19 Hamrick, Schuh & Shelley: Higher Education Institutional Characterist...

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Volume 12 Number 19 May 4, 2004 ISSN 1068-2341

Predicting Higher Education Graduation Rates from

Institutional Characteristics and Resource Allocation

Florence A. Hamrick
Iowa State University

John H. Schuh
Iowa State University

Mack C. Shelley, II
Iowa State University
Citation: Hamrick, F. A., Schuh, J. H., & Shelley, M. C. (2004, May 4). Predicting higher education
graduation rates from institutional characteristics and resource allocation. Education Policy Analysis
Archives, 12, 19. Retrieved [Date] from [Link]

Abstract
This study incorporated institutional characteristics (e.g., Carnegie
type, selectivity) and resource allocations (e.g., instructional
expenditures, student affairs expenditures) into a statistical model
to predict undergraduate graduation rates. Instructional
expenditures, library expenditures, and a number of institutional

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classification variables were significant predictors of graduation

rates. Based on these results, recommendations as well as
warranted cautions are included about allocating academic
financial resources to optimize graduation rates

Introduction and Conceptual Framework

The deployment of financial resources for institutions of higher education is a crucial

aspect of institutional management. Balderston (1995, p. 6), for example, concluded,
“Efforts toward more effective use of resources and a fine instinct for the inevitable
trade-offs will be important and will even tend to dominate the institutional scene.
Therefore, increasing weight is now given to explicit decisions about the allocation of
resources.” How institutions spend their financial resources tends to reflect their
priorities, although Hansen and Stampen (1996, p. 295) point out that “overall
expenditure data are not particularly helpful in understanding the impact of changes
on the quality of higher education,” since such expenditure totals include
expenditures not related to instructional activities, and include public service,
research, and auxiliary enterprises.

The conceptual framework guiding this study is to link institutional planning with the
successful retention of undergraduate students to graduation, through implementing a
careful fiscal strategy. While a fiscal strategy, by definition, is to establish “the basis
upon which allocations are to be made” (Brinkman & Morgan, 1997, p. 291), fiscal
strategies often are not integrated into the institutional planning processes that
specify desired goals and outcomes (Peterson, 1999). Retention and graduation rates
are central indicators of success for institutions of higher education, and a variety of
negative consequences for undergraduate students are related to attrition (Tinto,
1987). However, it not clear whether, and, if so, how, institutional resource allocation
decisions are linked to student graduation rates. Our approach to the study of this
important problem in higher education policy is to develop a statistical model that
explores resource allocation decisions as predictors of student graduation rates,
together with other measures of institutional type and selected institutional traits that
are suggested in the research literature and are available in a national database. If
the efficacy of such a model can be demonstrated empirically, leaders of higher
education institutions may be able to make more strategic resource allocation
decisions in pursuit of the goal of improved graduation rates. The results of this study
are intended to help promote data-driven approaches to strategic resource allocation
by institutions of higher education.

Support for students is perceived in some quarters as an essential ingredient of

program quality (Haworth & Conrad, 1997). They (1997, p. 143) concluded:
“Throughout our study, support for students repeatedly surfaced as an important
feature of high-quality programs.” Yet, during the most recent 15-year period when
higher education expenditures have been tracked by the National Center for
Education Statistics (2000), the percentage of budget dedicated by four-year public
institutions to instruction and libraries, principal consumers of the budget on many
campuses, has declined.

Cost escalation is of considerable concern to the higher education community. Rising

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tuition charges is a particular concern. Clotfelter (1996, p. 1) concluded, “Tuition

charges rose sharply as well, making the rate of inflation in private college tuition
even worse than the much-heralded run-up in medical costs.” One of the ways
institutions have addressed revenue problems has been to try to improve retention of
students. Indeed, how institutions of higher education deploy their resources to
influence students may be an important thrust of research in the future. Pascarella
and Terenzini (1998, p. 158), for example, noted that “future research on the impact
of college will not be able to avoid coming to terms with issues of cost effectiveness.
Examination of benefits in relation to costs will be particularly important for college
impact research designed to inform policy.”

Various strategies can be used to improve retention rates (e.g., Astin, 1997; Elkins,
Braxton, & James, 2000; McLaughlin, Brozovsky, & McLaughlin, 1998; Murtaugh,
Burns, & Schuster, 1999). In a classic report, Tinto (1987) pointed out that as
students are more likely to be integrated socially and academically in their institutions,
the more likely it is that they would be retained. Berger and Braxton (1998, p. 116)
studied students at a private institution and concluded that “organizational attributes
play an important role not only as a source of social integration, but in the first year
persistence process in general at this institution.” Murtaugh, Burns, and Schuster
(1999) analyzed retention at Oregon State University, and identified several steps
that the university could take to improve retention, including pointing out that out-of-
state students were at greater risk than are in-state students.

In the two reports identified above, students were studied at single institutions and
recommendations, consistent with Tinto’s model, were made to improve the
institution’s retention rates. While such studies can be particularly useful to the
institutions studied, and may have applicability at other institutions, large-scale
studies of multiple institutions that focus on how institutional resource allocations
influence graduation rates are rare. This study was intended to fill that void; more
specifically, it was undertaken to determine how institutional resource allocations
influence graduation rates at over 400 public four-year institutions of higher
education.

Data and Methods

This study explored the extent to which institutional characteristics and decisions
about institutional resources could be used to predict undergraduate graduation
rates—a common indicator of undergraduate student success. Our analysis is based
on variables derived primarily from the Integrated Postsecondary Education Data
System (IPEDS) data, obtained from the National Center for Education Statistics
(NCES). Institutions of higher education are required by law to participate in IPEDS
annual surveys conducted by NCES (National Center for Education Statistics, 1998).
Copies of these surveys are available at the following World Wide Web site:
[Link]/ipeds. In addition, institutions may choose to participate in annual
surveys conducted by publications such as U.S. News & World Report magazine; the
results from those surveys are published at the Website [Link]. Variables
from the IPEDS plus a measure of admissions selectivity from U.S. News & World
Report were utilized in the multiple regression statistical model.

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Most of the data for this study came from the IPEDS relational data base, including
enrollment information, financial information, and graduation rates. The Survey Year
that was chosen for enrollment and financial information was 1998, since that Survey
Year bridged the available years for graduation rates and selectivity rates. Graduation
rates were drawn from 1997, the most current data available at the time the study
was conducted. The IPEDS data set served as the primary source of cases and data
for this study for a number of reasons. First, institutions of higher education receiving
Title IV funding are required by law to participate in annual surveys such as IPEDS
that are conducted by NCES. Second, all but one of the variables of interest was
contained in the IPEDS data. Third, IPEDS data were easily accessible to the
researchers via the World Wide Web.

All 513 accredited public institutions that grant at least a baccalaureate degree were
selected for this study, but a number of institutions containing missing data on key
variables were eliminated from this study, as were several other observations with
“outlier” values on one or more variables that were markedly different from the data
for the remaining observations and that threatened the assumption of normality. As a
consequence, the final sample size comprised n = 444 public institutions with
complete data on all variables of interest. Variables selected from the IPEDS
relational database included enrollment information, financial information, and
graduation rates. Graduation rates for 1997 (the most recent available) were used. All
other institution-level data were from 1998 (the most recent available at the time of
the study). Additionally, 1998 most closely matched the year for which institutional
selectivity data were available (1999). The selectivity rates of undergraduate
admissions were drawn from the annual data published by U.S. News & World
Report.

The variables employed in the study are described in detail in the following section.
We have endeavored to use least squares statistical models to provide a
comprehensive look at the factors that help in understanding the effects that higher
education expenditure patterns and other institutional characteristics have on student
success, measured as undergraduate student graduation rates. The variables
employed in this analysis include: undergraduate graduation rate (the dependent
variable); Carnegie classification; U.S. region; degree of urbanization; presence of a
medical, dental, veterinary, or related program; selectivity; institutional financial aid;
and number of dollars allocated to each of the following categories of expenditures:
student affairs, instruction, library, physical plant, institutional support, academic
support minus library, and total education and general (E & G).1

We have chosen to predict graduation rates from a combination of institutional

characteristics, some of which, such as expenditure patterns, are more or less within
the discretionary control of institutional leadership, and some of which, such as region
or historically black college or university (HBCU) status, are beyond reasonable
control by institutional decisionmakers. Arguably, other characteristics, such as
Carnegie classification (the data were collected under the pre-1999 revised Carnegie
rating system), to some degree may be influenced through the decisions taken by the
senior administrators of higher education institutions, but remain relatively immutable
without major commitments of effort and resources. Prior to data analysis, institutional
allocation categories (e.g., instructional expenditures) were transformed into “per

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student” dollar equivalents by dividing each expenditure category by the institution’s

headcount enrollment. Due to its non-normal distribution, the institutional financial aid
per headcount variable was transformed into a low-to-high quintile ordered
categorical variable.

We believe this mix of institutional traits provides a set of perspectives that promise to
facilitate the understanding of what makes for a more successful academic institution,
measured in terms of one of its ultimate products¾its graduates. In these results
there is information that may be of great use to those who plan and administer the
process of higher education. Which is better, for the goal of improving graduation
rates: increase spending by $100 per student headcount for library expenditures, or
increase spending by $10 per student headcount on student affairs? Does the
presence of a medical school improve an institution’s undergraduate graduation rate?
How much does the degree of selectivity of admissions decisions influence the rate at
which students successfully complete their studies? How are these, and other,
considerations related to each other, and what tradeoffs among these alternatives are
important to know about? These are among the questions that are addressed in the
results discussed below.

Results

Full-Model Multiple Regression

In a full-model multiple regression, graduation rate (GRAD) was predicted by a

combination of categorical and continuous predictors. The categorical predictors
include: Carnegie classification (CARNEGIE), region (REGION), the presence (coded
1) or absence (coded 0) of a medical, dental, veterinary, or other similar school
(MEDICAL), whether the institution is (coded 1) or is not (coded 0) an historically
black college or university (HBCU), and quintiles of institutional financial assistance
(IFA5). The model also incorporates interactions between MEDICAL and URBAN and
between REGION and MEDICAL. The continuous predictors include degree of
urbanization (URBAN), selectivity of admissions (SELECT), expenditures on student
affairs per student headcount (SAFEXP), instructional expenditures per student
headcount (INSTEXP), library expenditures per student headcount (LIBEXP),
expenditures on physical plant per student headcount (PPLEXP), institutional support
per student (INSTIEXP), total education and general expenditures per headcount
(EGEXP), and academic support minus library expenditures per student headcount
(NOTLIB).

In subsequent tables, the predictive validity of models overall is evaluated by: the
value of the coefficient of determination (R2), which measures the proportion of total
variation in the dependent variable associated with, or “explained by,” variation in the
complete set of predictor variables; adjusted R2, an index of the proportion of
dependent variable variance explained relative to the mean squared error and the
number of degrees of freedom for model and error, which may assume a negative
value for ill-fit models; and the F-value formed from the ratio of estimated model
variance to estimated error variance, where a larger F-ratio implies a “stronger”
model, and its associated p-value. The validity of the separate predictor variables
included in each model is ascertained from: a partial F statistic and its associated p-

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value; eta-squared, (eta)2, which is the proportion of the total variability in the
dependent variable accounted for by that independent variable; and by observed
power, or the probability of correctly determining that there is a real effect attributable
to that model component. Larger values of eta-squared indicate stronger model
predictors, but often are modest (less than .10). Larger values of power (maximum of
one) indicate a greater likelihood of that particular predictor having a genuine effect
on the dependent variable.

The assumption of equal error variances is satisfied, as measured by Levene’s test (F

= .966, df1 = 175, df2 = 268, p = .596). The model provides a reasonably strong fit to
the data, as measured by the coefficient of determination (R2 = .588) and the
adjusted coefficient of determination (adjusted R2 = .550). As shown in Table 1, the
following full-model effects were significant: CARNEGIE (F = 5.765, p < .001, (eta)2
= .090, power = .999), MEDICAL (F = 5.793, p = .017, (eta)2 = .014, power = .670),
HBCU (F = 18.663, p < .001, (eta)2 = .044, power = .991), IFA5 (F = 4.588, p = .001,
(eta)2 = .043, power = .945), URBAN (F = 22.266, p < .001, (eta)2 = .052, power
= .997), SELECT (F = 15.911, p < .001, (eta)2 = .038, power = .978), INSTEXP (F =
5.867, p = .016, (eta)2 = .014, power = .676), LIBEXP (F = 26.523, p < .001, (eta)2
= .061, power = .999), NOTLIB (F = 4.844, p = .028, (eta)2 = .012, power = .593), and
the MEDICAL*URBAN interaction (F = 4.905, p = .027, (eta)2 = .012, power = .593).
The assumption of normality in the dependent variable also is satisfied following
deletion of outliers identified by model residuals.

Table 1
Full Model Multiple Regression Tests of Between-Subjects Effects for
Predicting Graduation Rates

Source Type III df Mean Observed p > F (eta) Power

Sum Square F 2
of Squares
Corrected Model 64384.510 37 1740.122 15.662 <.001 .588 1.000
Intercept 3133.171 1 3133.171 28.200 <.001 .065 1.000
CARNEGIE 4483.756 7 640.537 5.765 <.001 .090 .999
REGION 614.927 7 87.847 .791 .595 .013 .342
MEDICAL 643.589 1 643.589 5.793 .017 .014 .670
HBCU 2073.618 1 2073.618 18.663 <.001 .044 .991
IFA5 2039.159 4 509.790 4.588 .001 .043 .945
URBAN 2473.897 1 2473.897 22.266 <.001 .052 .997
SELECT 1767.816 1 1767.816 15.911 <.001 .038 .978
SAFEXP 12.268 1 12.268 .110 .740 <.001 .063

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INSTEXP 651.886 1 651.886 5.867 .016 .014 .676

LIBEXP 2946.915 1 2946.915 26.523 <.001 .061 .999
PPLEXP 286.785 1 286.785 2.581 .109 .006 .361
INSTIEXP 11.977 1 11.977 .108 .743 <.001 .062
EGEXP 89.049 1 89.049 .801 .371 .002 .145
NOTLIB 538.148 1 538.148 4.844 .028 .012 .593
MEDICAL*URBAN 544.985 1 544.985 4.905 .027 .012 .599
REGION*MEDICAL 1217.596 7 173.942 1.566 .144 .026 .653
Error 45109.257 406 111.107
Total 889697.070 444
Corrected Total 109493.767 443

The adjusted, or estimated, marginal means for institutions at different levels of the
Carnegie classification scale (CARNEGIE) are presented in Table 2. These results
adjust for region, presence of a medical or related component, whether the institution
is an HBCU, institutional student financial support, urbanization, selectivity, and the
indicated measures of expenditures, as well as the interactions of MEDICAL*URBAN
and REGION*MEDICAL. There is a general, and nearly monotonic, decline in mean
graduation rates as Carnegie classification varies from Research I (the most
prestigious by that measure of external research funding acquired) to Bachelor’s II,
although there is little difference between Research II and Doctoral I mean graduation
rates and little difference in the mean graduation rates for Doctoral II, Master’s I, and
Master’s II institutions.

Table 2
Estimated Marginal Mean Graduation Rates by Carnegie Classification
(CARNEGIE) from Full Model Multiple Regression

95% Confidence Interval

Carnegie Standard Lower Upper
Classification Mean Error Bound Bound
Research I 49.227 2.930 43.467 54.987
Research II 42.005 2.705 36.686 47.323
Doctoral I 41.948 2.802 36.440 47.455
Doctoral II 35.683 2.517 30.734 40.632
Master’s I 36.751 1.886 33.043 40.458
Master’s II 36.039 3.133 29.880 42.199
Bachelor’s I 32.759 5.083 22.766 42.752

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Bachelor’s II 26.812 2.708 21.488 32.136

Note: The marginal means reported here are evaluated at the means of the following
covariates that appeared in the model: URBAN (degree of urbanization) = 3.45,
SELECT (selectivity = percentage of admissions applications accepted/applications
received) = 75.187, SAFEXP (student affairs expenditures per student headcount) =
728.2527, INSTEXP (instructional expenditures per student headcount) = 4282.9243,
LIBEXP (library expenditures per student headcount) = 360.4734, PPLEXP (physical
plant expenditures per student headcount) = 925.9977, INSTIEXP (institutional
support per student headcount = 1156.2228, EGEXP (educational and general
expenditures per student headcount) = 11556.6124, NOTLIB (academic support
minus library expenses, per student headcount) = 707.3338.

Pairwise multiple comparisons (using Fisher’s Least Significant Difference method

(Howell, 2002) confirm that the estimated mean graduation rate for the most
prestigious institutions, measured by the Carnegie classification (Research I), is
significantly greater than the estimated mean graduation rates for the institutions in
each of the other Carnegie classifications. Similarly, the multiple comparison results
demonstrate that the estimated mean graduation rate for the least prestigious
Carnegie classification institutions (Bachelor’s II) is significantly lower than the
estimated mean graduation rates for all other categories of institutions other than
those at the Bachelor’s I level. Other pairwise differences in estimated mean
graduation rates are found for Carnegie classification as expected from the rankings
of the group means.

Estimated marginal mean graduation rates by region are shown in Table 3. Although
there is no significant effect of regional variation in the model, it is noteworthy that
estimated mean graduation rates are highest in New England (44.086%) and the Mid-
East (41.005%) and lowest in the Plains (34.679%) and Rockies (35.021%). Pairwise
multiple comparisons of regions show no significant differences, consistent with the
finding of no overall effect of region in the full regression model including interactions.
(Note 2)

Table 3
Estimated Marginal Mean Graduation Rates by Region (REGION) from
Full-Model Multiple Regression

95% Confidence Interval

Standard Lower Upper
Region of U.S. Mean Error Bound Bound
New England 44.086 5.904 32/479 55.693
Mid-East 41.005 3.023 35.062 46.949
Great Lakes 36.626 2.251 32.201 41.052
Plains 34.679 2.531 29.703 39.656

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Southeast 36.853 1.820 33.275 40.431

Rockies 35.021 4.303 26.562 43.481
Southwest 37.560 3.227 31.216 43.904
West Coast 35.392 2.894 29.704 41.080

Note: The marginal means reported here are evaluated at the means of the following
covariates that appeared in the model: URBAN (degree of urbanization) = 3.45,
SELECT (selectivity = percentage of admissions applications accepted/applications
received) = 75.187, SAFEXP (student affairs expenditures per student headcount) =
728.2527, INSTEXP (instructional expenditures per student headcount) = 4282.9243,
LIBEXP (library expenditures per student headcount) = 360.4734, PPLEXP (physical
plant expenditures per student headcount) = 925.9977, INSTIEXP (institutional
support per student headcount = 1156.2228, EGEXP (educational and general
expenditures per student headcount) = 11556.6124, and NOTLIB (academic support
minus library expenses, per student headcount) = 707.3338.

In the full model including interactions, institutions with a medical, dental, veterinary,
or similar component had a significantly lower estimated mean graduation rate
(37.065%) than did institutions without such a component (38.241%). HBCUs had an
estimated mean graduation rate of 32.877%, significantly less than the 42.429%
result for non-HBCUs. The statistically significant differences in estimated mean
graduation rates among quintiles of institutional financial assistance (IFA) range from
42.740% for the top quintile (level 5) to 33.665% for level 2, with intermediate values
for level 1 (38.223%), level 4 (37.636%), and level 3 (36.001%). The significant
interaction between MEDICAL and REGION is amplified by the range in estimated
mean graduation rates from a low of just 31.708% for institutions with medical
schools or similar components in the Plains to a high of 47.374% for New England
institutions with medical schools or similar components.

Independent Bivariate Regression Results

The results reported above are based on the full multiple regression model.
Determining how the independent variables employed in the full model play out on
their own is important, because the chief consequence of including a large number of
independent variables in a prediction model is to enhance the likelihood that the
effect of each predictor may be masked (either enhanced or attenuated) by
intercorrelations with other predictors. By examining the individual effects of each
predictor within the overall analysis we can look for inconsistencies that might
confound interpretations based on the full model.

IFA5 has a significant individual effect on graduation rates (F = 3.288, p = .011),

although the proportion of variance explained is modest (R2 = .029). Mean graduation
rates are 43.103% for level 1, 37.740% for level 2, 39.900% for level 3, 44.097% for
level 4, and 44.769% for level 5.

The independent effect of REGION is significant (F = 6.247, p < .001, R2 = .091).

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Mean graduation rates were 44.369% for New England, 48.626% in the Mid-East,
42.887% in the Great Lakes, 40.074% for the Plains, 40.056% in the Southeast,
36.618% for the Rockies, 32.134% for the Southwest, and 47.712% on the West
Coast.

Urbanization (URBAN) alone does not have any independent relationship with
graduation rates (F = 0.035, p = .808, R2 < .001).

Separately, MEDICAL is a significant independent predictor of graduation rates (F =

52.459, p < .001, (eta)2 = .106), although not a particularly good predictor (R2 = .106).
Institutions without a medical, dental, veterinary, or similar component had a
markedly lower mean graduation rate (39.878%), compared to institutions with such a
component (54.736%).

By itself, the fact that an institution is an HBCU has a statistically significant effect on
graduation rates (F = 18.231, p < .001), although the effect size is relatively modest
(R2 = .040). The mean graduation rate for students at a non-HBCU (42.848%) is over
10 percentage points greater than the corresponding result for students attending
HBCUs (31.397%). This comparison is confounded by the fact that HBCUs are not
found at all Carnegie levels for the institutions studied in this analysis, so we also
compared only those HBCU and non-HBCU institutions that share the same Carnegie
rating, to provide a fairer and more nuanced appreciation of the role played by
HBCUs in higher education. This refined analysis again demonstrates a significant
difference in mean graduation rates between HBCU and non-HBCU institutions at
comparable Carnegie levels (F = 9.101, p = .003). However, the magnitude of this
effect (R2 = .027) is less than for comparing HBCUs against all non-HBCU
institutions, and is substantially less than the effect size for other elements of the
model. There is about a 7-percentage-point advantage in mean graduation rates for
students not attending an HBCU (38.440%, compared to 31.397% for students
attending an HBCU).

Institutional selectivity in undergraduate admissions (SELECT) is significantly related

to graduation rates (F = 43.825, p < .001, R2 = .090). However, the less than
overwhelming effect of admissions selectivity on graduation success is shown by the
finding that admitting one percentage point more of those who apply for
undergraduate admission results, on average, in a decline of .295 percentage point in
graduation rates. Presumably, greater selectivity is associated with institutions having
more rigorous standards that students find difficult to negotiate; similarly, the
incremental students admitted under less restrictive criteria are likely to be more
marginal academically and thus less likely to graduate.

By itself, Carnegie classification level (CARNEGIE) has a very pronounced (F =

24.905, p < .001, R2 = .286) effect on graduation rates. Not considering the effects of
any other variables employed in the full regression model, the institutions at each
Carnegie classification have the mean graduation rates shown in Table 4. Comparing
unadjusted (Table 4) and adjusted means (Table 2) shows the sensitivity of our
estimates to the specification of the model and to the effects of the other predictor
variables. The effect of the other predictors in the model is evident for the institutions

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at higher Carnegie classification levels. For example, the unadjusted mean

graduation rate for Research I institutions (60.247%) is much lower (49.227%) after
adjusting for the other circumstances measured in our model, and so is the
unadjusted marginal mean graduation rate (52.567%) much higher than the adjusted
(32.759%) mean for Bachelor’s I institutions. Similarly, the unadjusted rate of
52.465% for Research II institutions is lowered to 42.005% by controlling for the other
predictors. Less dramatic reductions occur in adjusted, compared to unadjusted,
graduation rates for Doctoral I (from 47.115% to 41.948%), Doctoral II (from 38.997%
to 35.683%), Master’s I (from 38.348% to 36.751%), Master’s II (from 39.241% to
36.039%), and Bachelor’s II (from 32.384% to 26.812%) institutions. The differentially
higher actual (unadjusted) compared to adjusted graduation rates are most evident
for relatively more prestigious institutions (that is, Carnegie Research I and Research
II classifications), moderated greatly for Doctoral I, Doctoral II, and Master’s I
classifications, dramatically higher for Bachelor’s I institutions, and again moderated
for Bachelor’s II institutions.

Table 4
Mean Graduation Rates by Carnegie Classification (CARNEGIE),
Unadjusted for Other Predictors

Carnegie Standard Number of

Classification Institutions
Mean Deviation
Research I 60.247 14.249 55
Research II 52.465 12.241 26
Doctoral I 47.115 15.881 27
Doctoral II 38.997 13.323 35
Master’s I 38.348 12.995 220
Master’s II 39.241 14.395 17
Bachelor’s I 52.567 12.121 6
Bachelor’s II 32.384 13.168 58
Total 41.919 15.721 444

INSTEXP, instructional expenditures, have a pronounced effect on graduation rates

(F = 207.616,p < .000), and substantial explanatory power (R2 = .320, adjusted R2
= .318). An increase of 10% in mean instructional expenditures (i.e., an additional
$428.29) per student headcount, on average, leads to an increase of 1.99 percentage
points in graduation rates, assuming a linear relationship. Expenditures on physical
plant per student headcount (PPLEXP) also are significantly related to graduation
rates (F = 58.778, p < .001), but this variable independently contributes modestly to
explained variance in graduation rates (R2 = .117). On average, an increase of 10%
in mean per student headcount spending on physical plant (an additional $92.60)
“buys” 1.07 percentage points of higher graduation rates. INSTIEXP, institutional

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support, similarly has a significant (F = 38.437, p < .001), but not very potent (R2
= .080) independent impact on graduation rates. An increase of 10% in mean
institutional support per student headcount ($115.62) results in an increase, on
average, of 0.83 percentage points in graduation rates. The level of student affairs
expenditures (SAFEXP) is a significant independent predictor of graduation rate (F =
29.828, p < .001), with rather modest explanatory power (R2 = .063). On average,
each additional 10% per student headcount spent on student affairs ($72.83) results
in an increase in graduation rates of about 0.89 percentage points. Library
expenditures (LIBEXP) provide a very robust and statistically significant explanation
of graduation rates (F = 230.422, p < .001, R2 = .343). Every 10% per student
headcount increase in library expenditures ($36.05) results, on average, in an
additional 1.77 percentage points of graduation rates. Total education and general
expenditures (EGEXP) has a potent independent impact on graduation rates (F =
186.535, p < .001, R2 = .297). On average, an additional 10% in mean EGEXP
($115.66) is associated with an extra 0.16 percentage point in graduation rates.
Finally, NOTLIB, academic support minus library expenditures per student
headcount, is a reasonably good independent predictor of graduation rates (F =
115.490, p < .001, R2 = .207). Higher values of NOTLIB are significantly more likely
than lower values of NOTLIB to result in higher graduation rates. On average, an
extra $100 of spending on non-library academic support expenditures per student is
associated with a 0.98 percentage point increase in graduation rates.

Based on these results, the best “payoffs” in higher graduation rates from strategically
targeted institutional budgetary enhancements would seem to come from increasing
per student expenditures for instruction (+1.99 percentage points), followed closely by
library (+1.77) and more distantly by physical plant (+1.07) and nonlibrary academic
(+0.98). In a lower tier of impact are student affairs (+0.89) and institutional support
(+0.83). Lagging far behind is education and general (+.16). However, these findings
do not control for the simultaneous effects of changes in each expenditure category
(and the often high correlation of any one budget category with another, leading to
collinearity among the budgetary predictors and attenuated partial regression
coefficients) together with other effects that are captured in the full model. In the full
model, for the same benchmark 10% per student headcount increase in any one
expenditure category, the net effects of greater spending on physical plant (-0.28)
and education and general (-0.36) actually are negative, and the greatest “payoff” is
attributable to enhanced expenditures on library (+0.92) and instruction (+0.80), with
only modest contributions from increased nonlibrary academic (+0.27) expenditures
and very minimal improvements from heightened spending for institutional support
(+0.05) and student affairs (+0.05).

Hierarchical Models

A further check on the validity of our results is provided by analyzing the patterns of
relationships between the predictor variables and graduation rates in hierarchical
stages of model building. Stage 1 estimates graduation rates from three institutional
“demographic” variables (REGION, HBCU, and URBAN) that are historically-
determined traits beyond the control of current higher education decisionmakers. For
Stage 2, to these three predictors are added institutional characteristics that are more

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likely to be controlled by longer-range actions taken by the institution’s

decisionmakers (CARNEGIE, MEDICAL, IFA5, and SELECT) with the interactions of
MEDICAL with URBAN and of REGION with MEDICAL. Finally, Stage 3 adds the set
of expenditure variables that more proximally are under the control of institutional
leaders as they set annual budget and policy priorities: SAFEXP, INSTEXP, LIBEXP,
PPLEXP, INSTIEXP, EGEXP, and NOTLIB. The Stage 3 results are the same as
those for the full multiple regression model shown in Table 1. Table 5 summarizes the
fit of each stage of the model, showing the partial F statistic and accompanying p-
value (p > F) testing the significance of each predictor, (eta)2, and the power of each
parameter estimate, as well as overall model F statistics, p-values, R2, and adjusted
R2.

Table 5
Summary of Hierarchical Multiple Regression Model Results

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The results in Table 5 provide evidence of the predictive validity of each stage, or set,
of predictors. The three Stage 1 institutional demographic variables collectively are
significant predictors, accounting overall for 13.3% of the variation in graduation
rates, and both REGION and HBCU are significant individually. The Stage 2
combination of institutional traits with the Stage 1 predictors are significant
collectively, accounting for a combined 52.3% of the variation in graduation rates,
with REGION, HBCU, URBAN, CARNEGIE, IFA5, and SELECT significant
individually. A partial F-test demonstrates that the added institutional characteristic
predictors contribute significantly (F = 9.29, p < .01) to explaining graduation rates
beyond what is accounted for by the Stage 1 variables. Adding the financial variables
in Stage 3 to the previous sets of predictors results in greater explanatory power (R2
= .588), which is a significant improvement over both the Stage 1 (partial F = 8.14; p
< .01) and the Stage 2 (partialF = 8.09, p < .01) sets of predictors. That is to say, the
institutional financial information makes a major contribution to our understanding of
what drives graduation rates beyond what we know from institutional demographics
and other institutional characteristics. Table 5 also shows that the institutional
characteristics variables added in Stage 2 are by themselves (without interactions,
which cannot be estimated separately here because they require the URBAN and
REGION variables in Stage 1) significant predictors of graduation rates (F = 21.493, p
< .001), as are the financial variables added in Stage 3 (F = 38.702, p < .001). In

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addition, the explanatory power of the financial variables alone (R2 = .383, adj R2
= .373) roughly equals that of the institutional characteristics variables alone (R2
= .394, adj R2 = .376). Each of these additional sets of predictors considerably
outweighs the explanatory power of the institutional demographics from Stage 1 (R2
= .133, adj R2 = .115).

Limitations

Several limitations to this study must be acknowledged. First, the study was framed
with reference to public accountability for resources and student success.
Consequently, data were analyzed from public higher education institutions only.
While this decision allowed us to examine characteristic patterns of these institutions
more closely by focusing the analysis and interpretation, the important private sector
of higher education in the United States nonetheless was omitted from this analysis.
The conclusions and recommendations therefore are applicable only to public
colleges and universities. It is unclear whether or how these findings would apply to
private institutions of higher education.

Second, although this study focuses on student success in terms of graduation rates,
it is important to note that this study reveals little about the qualities of student-level
experiences (Tinto, 1998) that also certainly influence graduation rates. Numerous
other considerations, such as the nature of educational environments, the quality of
student/instructor interactions, and students’ use of available resources, reveal the
more subtle finer points of successful educational experiences. This study addresses
these issues only obliquely, through its focus on the deployment and allocation of
institutional financial resources that enable provision and/or enhancement of the
educational experience.

Third, institutional expenditure categories were compared across institutions, and

expenditure categories were aggregated broadly in the original IPEDS data set.
Although the outcome variable here is undergraduate graduation rates, it was not
possible to distinguish amounts expended on graduate programs and graduate
students from those related to undergraduate programs and undergraduate students.
Incorporating Carnegie classification into the analysis represented a partial control for
this lacuna since the Carnegie classification system is based partly on the existence
and scope of graduate programs, but the internal allocations of institutions for
undergraduate and graduate purposes were not available.

A related limitation is the inability to disaggregate financial aid data into separate
expenditures on undergraduate and graduate/professional education using the
IPEDS database. Consequently, it is impossible to determine the extent to which
financial aid is awarded to undergraduate or graduate students. Presumably,
institutional financial aid awarded to undergraduate students could be “merit-based,”
meaning that it is used to encourage enrollment by rewarding talent and therefore is
seen as a way of positively connecting students to their college or university (see
Astin, 1993). Graduate student aid could include fee remissions or other forms of aid
that presumably have different purposes, but it is not possible to disaggregate the
IPEDS financial aid data in this manner.

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Finally, cross-sectional data from one year (1997-98) were used in this analysis. This
study thus provides a snapshot of a single year’s allocations and expenditures across
a large number of institutions. Although revenues and allocations generally remain
constant with the exceptions of incremental adjustments¾a common form of
budgeting (Dickmeyer, 1996; Woodard & von Destinon, 2000)¾a longitudinal design
would be needed to account for multiple-year trends or changes in expenditure
patterns, to test the long-range applicability and stability of this model over a period
greater than one year.

Discussion, Conclusions, and Implications

As is clear from the findings above, not all categories of variables affect graduation
rates equally. The institutional demographic variables contributing to a prediction of
higher graduation rates were: higher status within the Carnegie classification system;
the presence of a medical, dental, or veterinary program; a more urbanized location;
and a lower percentage of applicants admitted. The MEDICAL and URBAN variables
combined to produce an interactive effect on graduation rates. However, many of
these variables represent characteristics or conditions over which institutions have
little to no control.

Characteristics such as regional location are more or less fixed features of an

institution. Mission (e.g., inclusion of a medical, dental, or veterinary program;
admissions selectivity) and Carnegie classification represent characteristics that
could be affected (and likely have been affected, as many of these institutions have
“climbed” the Carnegie “ladder”) through institutional and political processes.
However, these characteristics are not highly or readily malleable. Additional
variables in the model, however, represent decision points that are more readily
subject to policy discussions and institutional decisionmaking, and may represent
promising levers for institutional decisionmakers or external policymakers. There are
important differences among public institutions at different Carnegie levels (Winston,
Carbone, & Lewis, 1998, pp. 21-22) in their ability to accommodate the recent trend
of privatizing public sector education through the withdrawal of public support in the
face of growing enrollments:

The strongest schools were apparently able both to discourage

enrollments, husbanding their subsidy resources, and to raise net tuitions,
increasing their share of costs borne by their students’ tuition income. The
poorest schools were protected, in contrast, by a public policy that
maintained their subsidies, allowing them to get by with modest sticker
price increases that they used largely to increase financial aid. Relative
prices changed to make the poorer schools—the Two-year Colleges
prominent among them—a lot better bargain. The middling schools—the
public Comprehensive Universities and Liberal Arts Colleges—were
caught, absorbing large increases in enrollments with large reductions in
subsidy resources so that their efforts to shift costs to their students
weren’t enough to prevent large reductions in educational quality.

For example, the provision of institutional financial aid was a statistically significant
component of the model and modestly affected graduation rates. However, the

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relationship was not linear since higher graduation rates were associated with the
lowest and with the two highest quintile measures of financial aid (a marginal mean
graduation rate of 38.026% for the first—that is, lowest—quintile, with per student
headcount support of $54 or less; and 37.354% for the fourth, and 42.521% for the
fifth—highest—quintile, or a range of over $378 per student headcount). Institutions
that can do so may wish to consider investing additional institutional monies in
student financial support, but modest amounts of student financial support for
institutional dollars are not associated with higher graduation rates.

Of the institutional expenditure categories included in the model, instructional, library,

and academic support minus library expenditures were significantly related to
graduation rates in the full model. These variables also had the greatest independent
effects on graduation, and each explained between 21% and 34% of the variance in
graduation rates when analyzed as sole predictors. The robustness of these variables
singly as well as in the broader model supports the importance of funding instruction
and academic support budgets. It is important to note, however, that the ultimate
nature of the expenditures and any separate impacts remain unclear.

For example, the largest proportion of instructional expenditures clearly is salaries

and benefits for instructional personnel. Due to the aggregate nature of the data, it is
not possible to comment on relationships between various levels of instructional
personnel and graduation rates. Furthermore, such an analysis would have to be
planned carefully to incorporate the levels of courses and students typically taught by,
say, full professors versus adjunct instructors.

As another example, library resource allocations may be expended disproportionately

on digital technology and information retrieval systems rather than on periodical
subscriptions and book purchases. In such cases, it is not possible to separate the
effects of traditional library resources on graduation rates from the effects of
advanced technological resources that libraries on many campuses increasingly
house. Nonetheless, higher library allocations and instructional expenditures are
associated strongly with higher student graduation rates. As mentioned in the
discussion of independent effects above, expenditures on student affairs is a
significant independent predictor of graduation rates, but its effects are negligible
when analyzed as one variable within the context of the full model.

One issue that arose in the course of our data analysis is related to the higher
graduation rates among undergraduates at institutions representing higher Carnegie
classification levels. It is somewhat puzzling that undergraduate students succeeded
at higher rates at research-oriented institutions than at colleges and universities with
prevailing emphases on undergraduate education, as indicated by institutional
mission and espoused purpose. Graduation rate is not the sole outcome indicator of
students’ success; stopping in and out to take coursework that satisfies individual
students’ needs also constitutes a successful educational experience for many
undergraduates. Additionally, however, among input characteristics, more selective
admissions is associated with higher Carnegie ratings, suggesting that academically
better-prepared students are more likely to attend research, rather than
baccalaureate, institutions. It also may be the case that research-oriented institutions
are better positioned financially to offer resource-rich environments that foster

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higher—or at least more timely—graduation rates.

Recommendations for Further Research

In addition to contributing empirical findings, this study provides a framework for

institutional planners and representatives of state systems of higher education for
incorporating questions of resource allocation into strategic thinking about
undergraduate persistence to degree attainment. Institutional planners, as well as
various campus units, can use these findings to support their cases for dedicated or
increased funding. For example, an institution’s declining rank on a national survey of
libraries may be seen mostly as an unfortunate condition, but evidence of a predictive
relationship between library allocations and undergraduate graduation rates can help
connect the need for increased library funding with an institution-wide goal of student
retention. When significant new monies are not likely to be realized from state
appropriations, this study also can provide guidance for fund-raising priorities and
targeted capital campaigns. Conversely, however, the results from this model also
may provide guidance for strategic budget reductions, as institutional planners will be
better able to determine the implications for graduation rates of selective allocation
reductions.

Institutional planners wishing to implement insights from this research are not likely to
have infusions of new monies with which to do so. It may be decided instead to load
dollars disproportionately into strategically defined categories, but this represents a
balancing of resource allocations among several categories; gains and losses affect
other categories as allocations are shifted and redistributed. It is not clear how shifts
and reallocations in some categories will affect student graduation rates, nor whether
there perhaps is a marginal or threshold proportion of funding that, if not realized or
exceeded, is necessary for budgetary categories unrelated to graduation rates.
Further research can pursue these questions and provide more targeted guidance to
institutional planners and to policy and budget analysts. In general, better information
for planners will make them more likely to attain benchmarks through thinking
strategically about obtaining and spending funds. In this context, it is appropriate to
consider that, based on analysis of IPEDS data, economic disparities among
institutions and their students are increasing (Winston, 2000).

Finally, this study can provide useful guidance for interpreting academic work to
various publics, such as legislative bodies or media representatives. It can be unclear
whether or how an institution’s financial decisions are related to desirable outcomes
such as graduation rates. This study can assist, by demonstrating connections
between institutions’ accountability for their stewardship of public resources and the
larger good that is served by strategic allocation of resources to support the goal of
student graduation and other aspects of the institution’s mission. Institutional
decisionmakers may be better able to decide where to make budget cuts and to make
more finely-tuned determinations of the tradeoffs and other consequences of such
budgetary reallocations across areas of university activity (e.g., Kissler, 1997).

Further research can focus on examining private colleges and universities or

incorporating additional variables that will enable reasonable comparisons between
public and private higher education institutions. Additional research also will be

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necessary to see whether the revised Carnegie classification system is similarly

useful, in conjunction with other variables, in examining student graduation rates.
Longitudinal research also is warranted to test this analysis across time. This study
combined data from two sources to analyze one year’s worth of data, but it remains
unclear how patterns of resource allocation decisions spanning a number of years
may affect graduation rates or provide additional insights into how such decisions
relate to student graduation. Finally, HBCU status and admissions selectivity warrant
much more study. Each of these variables presented much more complexity than was
expected initially, and the role that each plays in graduation rates is accounted for
only partly in this model in conjunction with the other variables that were selected.

Additional variables that were not available for the data set employed in this analysis
may be useful in future research. Disaggregating institutional expenditure and
financial aid data into separate undergraduate and graduate components would be
extremely useful for predicting undergraduate graduation rates. Also, it remains to be
seen what differences in ability to predict graduation rates will emerge from any
further revisions in the Carnegie classification system. Furthermore, within the current
Carnegie classification system, it would be informative to include private institutions,
to assess whether these findings are unique to public institutions. We have no direct
measures of socioeconomic status at the institutional level, although future research
may find it productive to employ measures of student eligibility for financial aid such
as percentage of students eligible for Pell grants. In addition, a measure of the extent
to which a campus is residential would be informative, particularly regarding the
allocation of institutional costs for on-campus student support.

Future research may be guided, too, by the reality that many of the significant
predictors in this analysis involved variables that were not directly controllable by
institutional administrators. Institutional location and type are not changed easily, if at
all, and selectivity is difficult to change in the short run particularly in public institutions
owing to legal requirements to admit a wide range of in-state high school graduates.
Nonetheless, our results suggest that controllable variables such as student financial
aid, instructional expenditures, library expenditures, and nonlibrary academic support
expenditures exert major influence over graduation rate outcomes. An elaboration of
these controllable aspects of institutional realities, perhaps fortified by exemplary
case studies, would provide valuable additional perspectives on what institutional
officers and public decisionmakers can do to influence the rate at which students
successfully complete their undergraduate studies.

Notes

The authors wish to thank Professors Don Hossler and George Kuh for their
thoughtful reviews of an earlier draft of this manuscript.

1. The categories listed preceding E&G are included within the E&G total, but E&G
also contains other categories of expenditures (such as auxiliary enterprises) that
were not included in this analysis. Thus, including E&G in our model does not
produce exact collinearities with its constituent variables that are included in the same
model.

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2. It is important to note that, although the effect of REGION is not significant in this
full model, there are significant differences in estimated mean graduation rates
attributable to REGION (F = 5.134, p < .001, (eta)2 = .080, power = .998) when the
two interactions are removed from the full model. Clearly, the effect of REGION in the
full model containing interactions is attenuated in particular by the interaction with
MEDICAL. In the alternative non-interaction model, URBAN is significant (F = 25.782,
p < .001, (eta)2 = .059, power = .999). There are no other major changes between the
interaction model results shown in Table 1 and the alternative model without
interactions (R2 = .571, adjusted R2 = .541; see Table 5). For the model lacking
interaction effects, the estimated marginal means are also highest for the Mid-East
(43.632%) and New England (38.898%), followed by the Great Lakes (36.995%),
Southeast (36.057%), West Coast (35.400%), Plains (35.232%), Rockies (32.790%),
and Southwest (30.530%).

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About the Authors

Florence A. Hamrick Department of Educational Leadership and Policy Studies

N232 Lagomarcino Hall

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EPAA Vol. 12 No. 19 Hamrick, Schuh & Shelley: Higher Education Institutional Character... Page 22 of 24

Iowa State University

Email: fhamrick@[Link]

John H. Schuh
Department of Educational Leadership and Policy Studies
N243 Lagomarcino Hall
Iowa State University
Email: jschuh@[Link]

Mack C. Shelley, II
Department of Statistics and Department of Educational Leadership and Policy
Studies
323 Snedecor Hall
Iowa State University
Email: mshelley@[Link]

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