Institutions of higher education, including community colleges are subject to increased pressure to reduce their costs. The purpose of this study is to determine what factors relate to community college costs, to determine if community colleges experience economies of scale, and how both costs and economies of scale are related to the 2005 Carnegie classifications.

The data used in this study was derived from the National Center for Education Statistics (NCES) Integrated Post Secondary Data System (IPEDS). Data was selected for odd years from the 1987 through 2003 data sets. Average cost-per-student FTE acted as the dependent variable for the study for a quadratic cost function. A total of 15 independent variables were examined including: six variables related to services provided by the institution; four variables representing the outputs of community colleges; and five variables representing the inputs. Dummy variables were created for the Carnegie classifications. A series of fixed effects and ordinary least squares (OLS) regressions were run to examine the relationship between the independent variables and average cost-per-student FTE. The existence of economies of scale was examined as was how these relationships are influenced by Carnegie classification.

The relationship between institutional characteristics and costs was found to vary based on Carnegie classification. Further, the choice of data and regression selected (fixed effects or OLS) also impacted the results. Results indicated a range of from two to ten significant variables based on Carnegie classification, data and regression type. The institutional size associated with the lowest average cost-per-student FTE was found to be related to Carnegie classification. The point at which institutions cease to experience economies of scale ranged from 6,445 to 47,346 with the medium rural institution classification being associated with lowest values. In all but one instance, the point at which institutions cease experiencing economies of scale is higher than the largest institution in the classification. This implies that all institutions are capable of growing while still experiencing a decreasing average-cost-per-student FTE. In terms of average-cost-per-student FTE, branch campuses of four-year institutions have the lowest average-cost-per-student while urban-multi-campus institutions have the highest average-cost-per-student FTE.