Greg Beato has a great article in the February 2011 issue of Reason on how government funds are spent in higher education. As Beato points out, there is increasing scrutiny of how federal funds are utilized by for-profit institutions. But such funds represent a minority of overall federal funds to colleges and universities. So, how are the rest of those funds used? Often times the money goes to projects outside of the classroom:

But while it may be an American tradition to pay for the nuts and bolts of higher education – the salaries of instructors, the construction of libraries and classrooms – is it really a national priority to ensure every 19-year-old has equal access to luxury dorm rooms and top-notch diversity coordinators?

In a 1992 essay for Commentary, the economist Thomas Sowell identified a disturbing trend: The cost of college was going up not because the cost of teaching students was going up but rather because “colleges and universities [had] been greatly expanding what they do.” Between 1975 and 1985, Sowell noted, college professional support staffs increased by more than 60 percent. Universities were opening campuses in Europe, building costly research facilities that had nothing to do with educating students, and paying for chauffeur services and wedding receptions for administrative bigwigs. “The availability of federal grants and loans to help students meet rising tuition costs,” Sowell wrote, “virtually ensures that those costs will rise.”

In the face of the Internet and other technologies that have made information and instruction cheaper and more accessible than ever, you might have predicted that the ever-expanding multiversities of the 1980s and 1990s would suffer the same fate as the music industry and the newspaper business. Instead, scope creep has functioned as an ingenious survival mechanism. In August 2010 the Goldwater Institute, an Arizona-based think tank that monitors government spending, released a report titled Administrative Bloat at American Universities. At the 198 colleges and universities included in the study, the number of full-time administrators per 100 students increased by 39 percent from 1993 to 2007, while the number of professors and researchers increased by only 18 percent. During this time, Wake Forest increased its spending on administrators by 600 percent, while Harvard increased its spending by 300 percent.

More here.