As institutional budgets come under pressure nationwide, many college leaders are seeking answers to a deceptively simple question: What are the costs and benefits of running their academic programs?
The question is straightforward, but the answer is often complex, subjective and fraught with human and educational consequences for every given program. It becomes even more fraught when leaders use those financial metrics to make decisions about which programs to keep or kill in these times of budget constraints. Whether officials use the best numbers or whether those numbers answer the right questions are often contested issues.
Take the University of Nebraska-Lincoln. The flagship went through a bruising process last year of evaluating programs, which ultimately resulted in a decision to cut four. Many faculty decried the program evaluation metrics as deeply flawed and opaque, and they ultimately passed a no-confidence vote in the university's then-chancellor.
Financial metrics are “hugely problematic at the program level,” said Bonnie Fox Garrity, a recently retired D’Youville University business professor who has reviewed institutions’ finances on behalf of faculty, including at UNL. “Any measure that an institution tries to use will be picked apart.”
UNL is by no means alone. Scores of colleges are taking hard looks at their offerings and the costs behind them as they try to manage budget pressures. And some states are mandating that colleges cut programs based purely on metrics such as enrollment — without any accounting for their costs or benefits.
But determining program costs is more complicated than simply adding up expenses, given how interconnected college operations are. Moreover, expenses and tuition revenue may vary widely among courses taught within a given program, raising questions about whether programs are even the right level at which to examine costs. Looking down to the course level, for example, could provide more nuanced insight. Meanwhile, many program costs are often shared by departments.
And that’s to say nothing of broader philosophical issues like an institution’s mission and a community or region’s needs.
“One blunder is to look at just financial data,” said Christopher Newfield, an English professor emeritus at the University of California, Santa Barbara and author of several books on U.S. higher education. “Another is to compare just potential return on investment among different disciplines. The thing they all have in common is not situating the data in context of mission.”
As colleges and universities look to programmatic metrics to make consequential decisions, those metrics are drawing scrutiny for what they can — and cannot — tell institutional leaders about their campuses and their finances.
Adding up costs: ‘It’s not a science’
Measuring the costs of operating programs can bring numerous complexities and vagaries, and it raises many questions about what and how to count that have no hard answers.
“The biggest wrong way to do it is to believe it's science,” said Larry Ladd, a higher ed consultant and one-time budget director at Harvard University. “It's a useful exercise — costing — but it is not a science. It brings out areas you should explore more thoroughly. It calls to your attention areas that you should look at.”
Even expenses as seemingly simple as faculty salary and benefits can be difficult to parse, given the breadth of professors’ responsibilities. They teach classes, conduct research and contribute services to their institutions and fields such as advising and serving on committees and professional organizations. Some might have reduced teaching loads as they work on grant-based projects.
It's a useful exercise — costing — but it is not a science. It brings out areas you should explore more thoroughly."
Larry Ladd
Higher ed consultant
In fact, failing to account for work on grant-based projects was one of the litany of criticisms over UNL’s approach to program evaluation — which included measures of research and teaching productivity.
And then what about wider university services and resources that a given class, program or department might use? How do those get divvied up? Should they be divided up at all, or should accountants focus solely on a program's direct costs?
“We have direct expenses, right? We have faculty salaries, the cost of the classrooms or the research labs, or whatever it is you need for your department, your program,” Garrity said. “But then we have a lot of operations and maintenance. It becomes this very strange way of trying to break down what really is a holistic number.”
Direct and indirect accounting methods present their own solutions, and they also produce different results.
Fully accounting for indirect costs may provide a more nuanced picture, but it can also create its own distortions in the decision-making, according to Ladd.
“You say, ‘Well, there's a dean who has to spend time on the classics department,’” said Ladd. “And you ask the dean, ‘How much time do you spend on the classic department?’ ‘About 5% of my time.’ So you take 5% of the dean's salary and assign it as an indirect cost to the classics department.”
But, Ladd pointed out, the dean of the larger unit, such as a university’s liberal arts and sciences school, would still have that job even if the classics department didn’t exist.
“So when you fully cost the classics department, it looks more expensive,” he added. “You might say, ‘Oh, we should eliminate it, because we'll save all this money.’ But you won't save that incremental cost. You'll only save the direct cost.”
And then there is all the university space and activity devoted to research.
“The elephant in the room is research costs,” Newfield said.
He noted that universities trying to increase their prestige might invest money in their research offices and grant preparation. And many institutions win grants with terms that include cost-sharing with the issuer, meaning colleges have to self-fund a portion of those projects. Often, Newfield said, those funds come from revenue generated by classroom instruction.
“What that means is you're milking instruction,” he said. “Not that high a share of money that seems to go to instruction actually winds up in instruction at research universities. It goes to subsidizing a whole bunch of activities.”
When counting revenue, bad data = bad decisions
Revenue can be just as tricky to parse, but accounting for costs without doing the same for money generated by academic units can create huge financial blind spots.
Many of the same questions that arise with costs crop up when analyzing revenue.
“Do you attach tuition to the student by major or to each course they take? So even who gets credit for the tuition is a strange measure,” Garrity said. “And what about the departments that don't generate tuition, such as the library or the academic advisors?”
As Ladd points out, the tuition dollars students pay per course support more than just the activities tied to the course itself. Moreover, that revenue is complicated by tuition discounting, which can vary widely by student, especially at private colleges.
The analytics firm Gray Decision Intelligence helps colleges break down costs and revenues at the course and program level. They look at the net tuition paid by each student, but pulling and analyzing that data takes months, said Robert Atkins, the firm's founder and CEO.
Without a full account of both costs and revenue — and the difference between the two — administrators and stakeholders can’t get a complete financial picture of what’s happening inside a university.
That was also among the complaints lodged against UNL leaders by faculty over the metric-based analysis of the university’s offerings.
Top margin contributors at private colleges
Biggest money-losers at private colleges
A UNL academic committee that consulted with leadership on the cuts — and opposed most of them — pointed to concerns about lost revenue from cutting programs.
In urging UNL leadership to change course, the committee told UNL leadership that faculty from multiple units said that programs were revenue-positive, meaning the university would losemore revenue than it saved in expenses. Despite those concerns, UNL’s chancellor issued a final plan to cut four programs, which was ultimately approved by the university’s governing board.
Atkins argues that looking at revenue, costs and margins at the curricular level is key to financial health.
“People often make the mistake of thinking they can improve the economics of the academic side of the house by cutting programs,” Atkins said. “That's mostly a bad mistake, because most programs, even most small programs, are contribution-positive. So cut a program, you lose the revenue, and you're usually worse off financially than you were before.”
As an illustration, Atkins points to a college his firm worked with that offered a master’s in math instruction that had just a handful of students in the program. Atkins initially advocated for cutting the program because its enrollment was so low.
“They said, ‘Look, Bob, there is no cost for us to teach this program,’” Atkins said. In that case, math instruction master’s students took classes from the math and education departments that were also required for other majors. By cutting the math instruction master’s, it would have eliminated a reason for those students to enroll in the college at all.
“None of those courses are offered specifically for those students,” Atkins added. “So if we get rid of the students, all we do is lose the revenue. The courses all stay.”
Drilling down to the curricular level gives a more nuanced picture of a college’s finances. Many introductory-level liberal arts courses that may fulfill general education requirements yield quite a bit of revenue and have wide margins because they are larger. That changes as students move through a program, where higher-level courses for majors have fewer students and may generate losses, Atkins said.
Even so, a program overall may be revenue-positive when all the accounting is done. “People haven't counted this way before,” Atkins said. “And so bad data leads to bad decisions.”
An ‘educational disaster’
The varying costs of research, labs, technology and salaries add another layer to all of this. While many students, politicians and institutions put more focus on applied and technology-focused degrees, they are emphasizing programs that can be much more expensive to operate than what Garrity described as “chalk and talk” disciplines, such as the humanities.
Because tuition typically differs little at the undergraduate level among departments, the cheaper programs often end up contributing to an institution’s margin.
Newfield described this process as using instruction to “cross-subsidize departments that aren't big enough or where the instruction is more expensive.” Often, it’s the liberal arts subsidizing programs such as engineering, which can cost more to operate.
Many programs maligned as impractical have healthy margins, Atkins said, citing his firm’s data from working with colleges. Those programs include religious studies, creative writing, global studies and history.
"It’s an educational disaster to delete whole areas of knowledge and research and study on the basis of shorter- or even medium-term financial or enrollment issues."
Christopher Newfield
Author, professor emeritus at the University of California, Santa Barbara
Yet some states are making existential decisions about their public college programs without applying any financial data at all. Last year, for example, Ohio and Indiana both enacted laws mandating cuts for programs that don’t meet thresholds for producing enough graduates over a certain time frame.
In both cases, colleges can request exceptions. Still, the laws have already put scores of programs on the chopping block. At the University of Indiana Bloomington, for instance, cuts fell heavily on programs in education, humanities and foreign languages.
Looking purely at enrollment and graduation numbers could hurt financially.
“The liberal arts have low enrollment and numbers of graduates, and they can be very easy to target,” Atkins said.
But, he added, “You may not save any money by cutting. Take English or history. People are generally required to take English and history, so you still need the professor, right? All you did was lose the revenue from those four or five people" who majored in the subject.
Plenty of philosophical issues with enrollment-based metrics arise as well. Garrity pointed out that the formula places the fate of entire programs — a matter historically guarded by faculty as being largely under their purview — in the hands of students, who frequently enter college not knowing what they want to study.
“It's really hard to say, ‘OK, the young people of our state get to decide what programs we’re going to have — instead of saying what would be best for our state, what would be best for our economy,” she said.
Newfield put the issue in even starker terms.
“It’s an educational disaster to delete whole areas of knowledge and research and study on the basis of shorter- or even medium-term financial or enrollment issues,” he said. “But it seems to be happening without much hesitation. For a state to do it to a university is really the destruction of the autonomy of the institution that has been the foundation of the quality of U.S. higher education.”
