American colleges and universities have long been viewed as the best in the world. Compared with other countries, the United States stands near the top in its nationwide percentage of college-educated adults. Our research universities dominate international rankings. Talented scholars and students from all corners of the globe come to study and teach on American campuses. By most accounts, our commitment to higher education access and excellence has been a key driver of our economic success.

Beneath this impressive exterior, however, some significant cracks are evident. Our youngest workers rank a disappointing 15th out of 34 industrialized countries in the percentage with a college diploma. Although the United States has been successful at getting more young people to start college, far too few finish a degree: 70% of our high school graduates now move on to some form of postsecondary education, but fewer than half of those who enroll finish a degree or certificate within six years. Graduation rates for black and Latino students are even worse. And there is growing skepticism about whether those lucky enough to graduate have acquired the skills and knowledge necessary for success in the 21st century economy.

Skyrocketing prices haven’t added to the appeal of U.S. colleges. Tuition rates have grown at three times the rate of inflation in recent decades, with the most dramatic increases occurring over the past four years. Students who enrolled in public colleges three years ago now face tuition as much as 50% to 80% higher in some states. To be sure, cuts to state funding for higher education have accelerated these tuition increases, and in some cases higher tuition has been offset by increased student aid. But higher prices also reflect a model of postsecondary education that is expensive, inefficient, and slow to change.

Students, taxpayers, business leaders, and policymakers have real reason for concern. Projections of labor market demand show that two-thirds of all jobs will require some postsecondary education by 2018. However, given today’s disappointing levels of higher education productivity, labor economists estimate that the United States will fall 3 million degrees short.

This education deficit greatly worries the business community—including the U.S. Chamber of Commerce. Businesspeople have a first-hand understanding of the ways in which building a skilled workforce is vital for innovation and economic growth. They are also well aware that postsecondary education is valuable for other reasons: graduates of high-quality degree programs have better critical thinking skills than their peers, are more engaged citizens, and are less likely to be unemployed.

But to reap these benefits fully, the nation clearly has a long way to go. Producing the additional degrees the United States needs would be a challenge in flush economic times; doing so in the current fiscal environment will require significant and difficult modifications. State budget cuts have led to tuition increases, reduced offerings, and fewer seats—problems that, realistically, can be remedied only with significantly improved productivity. No wonder a majority of Americans have come to question whether a college education is worth the price of attendance. Political leaders from the state house to the White House have echoed these concerns, telling colleges and universities that they must learn to do more with less and that they will be held accountable when they do not. The drumbeat for a more efficient and effective postsecondary system has become steadily louder; it is being heard across party lines and is mobilizing support from leading philanthropists. After a half-century of devoting significant resources to expanding college access and then, in essence, hoping for the best when it came to education outcomes, leaders are now demanding a better return on our higher education investment.

But sustained higher education reform will require more than just stump speeches and bully pulpit rhetoric. It will require state systems and colleges themselves to take a hard look at how they spend public money, how to measure the quality of the education they provide, and how to promote student success in the absence of additional funding. Luckily, some states are leading the way on these fronts, and there is much to learn from their experiences. But it is equally important to recognize where states are falling short so that stakeholders can demand better.

Identifying the best performers and those who have fallen behind—the leaders and laggards—requires comprehensive data and careful evaluation. This report aims to provide such an analysis, gathering extensive data, some of it previously unpublished, in order to examine postsecondary performance and policy across the states. It builds on the considerable success of the U.S. Chamber’s Leaders and Laggards series, which compared states on a host of measures of effectiveness, efficiency, and innovation in K–12 education. Just as those earlier reports concentrated on public schools, this edition focuses on the performance of the institutions over which state governments have the most influence: public colleges and universities. Though private colleges play an important role in higher education policy, we chose to focus on the institutions that enroll nearly three-quarters of American college students.

The framework we used to analyze states’ performance reflects what we believe is an important shift in today’s discussion of higher education policy—away from a heavy focus on inputs such as spending and toward an emphasis on student outcomes, return on public investment, and transparency. Against a backdrop of constrained public budgets and growing expectations for student access and success, concerns about productivity and quality will shape higher education policy in the decades to come. Evaluating the success of postsecondary institutions is notoriously challenging, for reasons ranging from poor data quality to lack of transparency. Nevertheless, enough information is now available to offer an analysis that, we hope, can advance the higher education debate in important ways. To create this report, we gathered the best available indicators of the performance of state higher education institutions. In an effort to systematically measure the most important factors being watched by policymakers, business leaders, and concerned citizens, we graded state performance and policy in the following six areas:

1. Student Access & Success: Do state institutions retain and graduate a high percentage of their students within a reasonable amount of time? Do they ensure access for low-income students?

2. Efficiency & Cost-Effectiveness: How much money do public institutions spend on education and related expenses per degree produced? How much does it cost, in state and local spending, to produce degrees?

3. Meeting Labor Market Demand: How much better do college graduates fare than their less-educated peers in terms of employment and wages?

4. Transparency & Accountability: Do states measure learning and labor market outcomes? Do they routinely make information on the performance of the higher education system available to the public?

5. Policy Environment: Do states have policies in place that provide incentives to promote degree completion and allow students to transfer course credits freely within the system?

6. Innovation: Have states made efforts to embrace innovative ways of delivering college instruction? Do states encourage innovative providers to serve nontraditional students who may be underserved by the existing system?

The results were sobering. Outside the top three states, in which about 70% of first-time freshmen finish a degree in six years, statewide completion rates at four-year public colleges typically hover around 50%. In 17 states, less than half of all first-time, bachelor’s degree–seeking students complete a degree within six years. Completion rates for two-year colleges are even worse; just one state has a statewide graduation rate greater than 50%. Thirty-three states have two-year completion rates at or below 25%; in 13 states, less than 15% of students who start at two-year colleges graduated within 150% of normal time to degree.

All of this attrition is costly at a time when public and private resources are scarce. Thirty-three states spend more than $50,000 in education and related expenses to produce a credential at a two-year college; 13 spend more than $65,000. Although tuition remains low at most two- year colleges, this low sticker price masks considerable state and local spending per degree.

And while the need for skilled workers with high-quality postsecondary training has never been higher, most states have not yet developed adequate means to measure the quality of their postsecondary programs. We found that just 22 states have developed the ability to track the success of graduates once they enter the labor force and make those data public. Just four states allow prospective students and taxpayers to compare labor market outcomes across both institutions and programs. Measurement of student learning is even farther off the mark: only four states measure and publicly report how much college students learn in a way that allows outcomes to be compared across states. Without these measures of quality, states will be hard-pressed to ensure that their investments in postsecondary education are paying off. Prospective students will continue to choose colleges without much information about whether the education they are investing in is likely to lead to appealing job opportunities and manageable debt.

Last, we found that too few states are implementing public policies designed to create more efficient and effective systems of higher education. Nineteen states have some form of outcomes-based funding; only a fraction of those have developed systems that reward colleges for educating low-income or underrepresented students. Eleven states have created common course numbering systems that facilitate the transfer of credit from one institution to the other. And while the vast majority of states have set goals for their higher education systems, just 16 have cast these goals in terms of concrete targets on measures such as educational attainment, student success, and the efficient use of public dollars.

The news is not all troubling, however. The laggards have a lot to learn from the states that have emerged as national leaders on certain measures. What’s more, this is not just a story of the “best” higher education systems getting better. Some of the most innovative policy agendas have developed in states with low rates of student success, which is heartening evidence that policymakers and postsecondary leaders are actively and intentionally confronting the challenges they face.

As we formulated our research agenda, prepared our findings, and drew up our recommendations, we received valuable assistance from an advisory board of experts in postsecondary education: Tom Bailey, George and Abby O’Neill professor of economics and education, Columbia University; Kevin Carey, policy director, Education Sector; Peter Ewell, vice president, National Center for Higher Education Management Systems; Bridget Terry Long, professor of education and economics, Harvard University Graduate School of Education; Charles Miller, former chairman, The Secretary of Education’s Commission on the Future of Higher Education and University of Texas Board of Regents; and Jane Wellman, executive director, National Association of System Heads. The group reviewed our approach and provided thoughtful suggestions. However, its members were under no obligation to endorse the final report; our research team takes full responsibility for the methodology and resulting grades.

Overall, our objective is to arm readers with information that gives them a clear-eyed view of how state systems of higher education compare with one another on a host of outcome, efficiency, and policy measures. We want to highlight promising directions for higher education reform. But we do not believe that there is one right way to proceed. Rather, we believe there are important principles that should guide leaders as they attempt to reform their public systems of higher education. Increased attention to productivity, cost-effectiveness, transparency, and innovation will help state-level decision makers understand where their state excels and where it may fall short.

Our hope is that state leaders can use this information to craft a reform agenda that best fits their needs and aspirations. At the same time, we recognize that a top- down approach to reform will not carry states very far. States must also craft policies that foster a healthier higher education market. Improved transparency and measurement of student outcomes can equip prospective students and their families to make more informed decisions about where to invest their time and money, rewarding institutions that provide a high return on investment and putting pressure on others to improve.

The business community has much at stake in this process, and not simply because of its need for better- trained employees. In the 21st century, a well-educated population is the cornerstone of a healthy society for all. While pushing for a range of higher education reforms, business leaders must work particularly closely with policymakers to demand better data on the performance of postsecondary institutions. Moreover, they must ensure that new information on the effectiveness of colleges and universities is brought to the public’s attention. For its part, the U.S. Chamber intends to do whatever it can to advance the reform agenda outlined in these pages. Better information is the prerequisite for productive change. We recognize, like many others, that such change in postsecondary education is long overdue.