Dive Brief:

• Public colleges tend to spend the largest share of their tuition revenue on instruction, compared to private nonprofit and for-profit institutions, according to a new report by The Century Foundation. That's because government support often allows them to spend more on instruction than they receive in tuition dollars.
• Instructional spending varies widely among nonprofit colleges. Those that benefit from sizable donations often spend upward of $20,000 per student, while schools that rely more on tuition may devote a smaller a share of their revenue.
• For-profit colleges usually spend less than half of their tuition revenue on student instruction — the smallest share of all institution types. Lower levels of instructional spending often come hand-in-hand with large budgets for marketing and advertising, the report notes. 

Dive Insight:

Years of tuition hikes have prompted students and their families to ask what, exactly, their money is buying. And while public colleges appear to give them the best value, state funding cuts have driven down the amount they can devote to instruction for each student.

Since the Great Recession, states have slashed an inflation-adjusted $7 billion from their higher ed budgets. In response, colleges have pared back course offerings, cut staff and faculty, and lowered the amount they spend on students.

In New England, for instance, every $1 dollar cut from higher ed leads to 30-cent drop in instructional spending at public doctoral colleges and a 56-cent decline at community colleges, according to a recent report from the Federal Reserve Bank of Boston. That can have far-reaching implications for students, as instruction spending has a big impact on graduation and retention rates.

Even so, public colleges seem to be the best bet for students hoping to get their money's worth, while those "in the for-profit and online education sector are being sold lemons left and right," Stephanie Hall, a fellow at The Century Foundation, said in an announcement about the report. 

The report notes that online colleges in the for-profit and nonprofit sectors tend to have lower levels of instructional spending.

For example, for-profits Colorado Technical University and Capella University, which each enroll more than 20,000 students online, spent 10% or less of their tuition revenue on instruction in the 2014-15 academic year, the report notes. Meanwhile, Walden University devoted 31% of its tuition revenue to instruction.

The report offers several theories on why this may be the case. For one, online education requires more spending in other areas, such as on information systems. Another likely contributing factor, however, is that online colleges allocate a substantial amount of tuition revenue to marketing and growth. Using more part-time or contingent faculty also contributes to lower costs.

Online ads make up the largest share of colleges' advertising expenses, according to the report. The University of Phoenix spent $27 million on paid search advertising just from August 2016 to January 2017, according to Kantar Media.

Nine other colleges also paid $4.1 million or more for online ads during that period, including DeVry University, Liberty University, Southern New Hampshire University and Purdue University Global (then Kaplan University). Yet none of those colleges spent more than one-third of their tuition revenue on instruction.

Some lawmakers have moved to limit the amount colleges can spend on marketing. New York Gov. Andrew Cuomo, for instance, has proposed a new law that would require the state's for-profits to spend at least half of their revenue on instruction.

In its report, The Century Foundation recommends the creation of a public database for prospective students to search how much institutions devote to instruction, which it says it is doing, as well as more federal and state oversight on college spending.