Understanding the Influence of the Financial Context of Institutions on Student Persistence at Four-Year Colleges and Universities

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As the 1990s came to close and the twenty-first century began, college student retention and graduation rates became an increasingly important issue. Policy makers at the federal, state, and campus level continue to focus on retention and graduation rates even though more remains to be learned about how institutions contribute to college student persistence. Examining the financial context in which institutions operate may help us to understand further how institutions affect student persistence. This study is unique in that it uses resource dependency theory to frame an examination of the influence of the financial context of institutions on student persistence at four-year colleges and universities. This research reveals that, after taking student predictors into account, the percent of an institution's revenue derived from tuition positively influences college student persistence while the percent of an institution's expenditures on administration negatively influences it. Student Persistence and the Financial Context of Institutions In an effort to link budget allocations to institutional accountability, a majority of states use graduation or retention rates as one of several indicators of performance for higher education institutions and performance funding or budgeting (Burke & Minassians, 2001). Policy makers at the federal level are considering policy options, associated with the 2003 reauthorization of the Higher Education Act, which include linking institutional eligibility for federal student financial aid programs to institutional graduation rates (Burd, 2003). While policy makers are making an effort to link public funding to institutional persistence rates, the relative importance of public funds as a source of institutional revenue has actually declined (NCES, 2001). Between 1981 and 2000, state appropriations, as a percent of all funds to degree-granting public higher education institutions, fell from 44.0% to 32.3% (NCES, 2003). Over the same period, the percent of revenue derived from tuition increased from 12.9% to 18.5%, while the percent of revenue derived from federal grants and contracts rose from 8.8% to 9.4% (NCES, 2003). This shift in funding sources for degree-granting public higher education institutions occurred as changes in institutional expenditure patterns took place. Between 1981 and 2000, the percent of total education and general expenditures on instruction fell from 35.1% to 31.5%, while the share of expenditures on administration rose from 8.4% to 9.0% (NCES, 2003). Some researchers (e.g., Leslie & Slaughter, 1997) observed that colleges and universities have taken more market-based approaches to increasing their share of revenues from such sources as tuition and competitive grants and contracts, while others (e.g., Francis & Hampton, 1999) showed that research universities have also adjusted their internal allocation of financial resources in response to the relative decline in the importance of public funds as a source of revenues. According to an American Council on Education (ACE) survey (Anderson, 1985), as state appropriations decline and higher education institutions become more dependent on tuition as a source of revenue, colleges and universities tend to increasingly focus on retaining students. Turner (in press) contends there is a need to understand how the financial environment of colleges and universities influence student persistence. Although past research (e.g., Cabrera, Nora, & Casteneda, 1992; Paulsen & St. John, 2002; Perna, 1998) has addressed the relationship between student-level financial variables and student persistence, the influence of the financial context of institutions on persistence has not been systematically explored. Most of the research that addresses the role of finances in persistence, using either single-institution (e.g., Cabrera, Nora, & Casteneda, 1992) or multi-institution data (e. …