Study: Regulatory Compliance Costs Higher Ed $27B Per Year

Quick Takeaways:

  • The cost of compliance with federal regulations at institutions is between 3 percent and 11 percent of total non-hospital operating expenditures.
  • Of the estimated $27 billion cost of federal compliance for the entire higher education sector, an estimated $17 billion goes toward higher education (including financial aid) and all-sector compliance, with the remaining $10 billion going to research-related compliance.
  • When broken down by sector, community colleges were estimated to rack up $6 billion in compliance costs and for-profit institutions were estimated to incur $1 billion, with four-year, non-profit institutions incurring the remaining balance.

By Brittany Hackett, Communications Staff

Remaining in compliance with federal regulations costs the U.S. higher education sector an estimated $27 billion per year, or between 3 percent and 11 percent of an institution’s operating expenditures in fiscal year 2014, according to a new study from Vanderbilt University.

The study aims to determine the “true cost” of federal regulatory compliance across the higher education sector based on a sample of 13 institutions from around the country*. Compliance costs were divided into three areas: research, higher education (including financial aid), and all-sector.

The study showed that the cost of compliance with federal regulations at each institution was between 3 percent and 11 percent of total nonhospital operating expenditures. Research-related compliance cost the institutions between 11 percent and 25 percent of research expenditures. Compliance with higher-education specific regulations and all-sector regulations cost institutions between 2 percent and 8 percent of non-research expenditures.

Of the estimated $27 billion cost for the entire higher education sector, an estimated $17 billion can be contributed to higher education and all-sector compliance, with the remaining $10 billion going to research-related compliance. When broken down by sector, community colleges were estimated to rack up $6 billion in compliance costs and for-profit institutions were estimated to have paid $1 billion, with the remaining balance being spend by four-year non-profit institutions.

Vanderbilt’s study provides another glimpse into the burden placed on institutions by federal regulations. A NASFAA survey on administrative burden released earlier this year found that nearly half of financial aid offices reported a moderate to severe shortage in resources needed to do their jobs due to increased work complying with federal regulations, many of which have questionable value for students or taxpayers.

Nearly 70 percent said face-to-face counseling was greatly affected as a result. Coupled with the 91 percent who reported that the typical student’s financial literacy understanding is “limited” or “very limited,” it’s clear that, in addition to being costly to institutions, compliance-related administrative burdens on financial aid offices are taking time away from students who desperately need it.

To help reverse the trend and free up more time for counseling, NASFAA recommended:

  • Using prior-prior year (PPY) income data to determine student aid eligibility to lengthen the time to complete applications, a move which President Obama has since announced will be put into effect beginning with the 2017-18 FAFSA.
  • Providing aid administrators the authority to limit loan amounts for certain broad categories of students and require - as needed - additional loan counseling. 
  • Eliminating all non-financial aid related questions from the application process.
  • Mandating a federal early commitment program for the federal student aid programs.
  • Reviewing, consolidating, and streamlining consumer information requirements to make disclosures more targeted, meaningful, and effective.
  • Simplifying the return of Title IV funds (R2T4) process when a student withdraws. 
  • Revamping and make more transparent the process for estimating the burden of new regulations.
  • Including burden estimates in the negotiated rulemaking process.
  • Developing a threshold for the amount of burden the Department of Education can impose.

*The 13 institutions sampled for Vanderbilt’s study include:

  • Belmont University (Nashville, Tennessee); 
  • De Anza College (Cupertino, California); 
  • Hartwick College (Oneonta, New York); 
  • North Carolina Central University (Durham, North Carolina); 
  • Rasmussen College (Bloomington, Minnesota); 
  • Rice University (Houston, Texas);
  • University of California, Berkeley (Berkeley, California); 
  • University of California, San Diego (La Jolla, California); 
  • University of Maryland University College (Adelphi, Maryland); 
  • University of North Carolina at Chapel Hill (Chapel Hill, North Carolina); 
  • University of North Carolina at Charlotte (Charlotte, North Carolina); and 
  • University of Tennessee, Knoxville (Knoxville, Tennessee).

 

Publication Date: 10/21/2015


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