US universities have spent decades measuring the cost of instruction. But understanding what it costs to teach a student is not the same as understanding the economics of an academic program.
Cost of Instruction analysis is well established in US higher education. Universities use measures such as faculty cost per student credit hour, teaching load, class size and instructional productivity to understand how efficiently teaching resources are being deployed.
There is good reason for this focus.
Academic salaries are a major component of the direct cost of teaching, and they are also one of the areas where Deans and academic leaders have the greatest influence. Decisions about class sizes, faculty mix, teaching loads, course offerings and the number of sections can have a significant impact on instructional efficiency.
For a Dean asking:
“How efficiently are we delivering our courses?”
Cost of Instruction can provide an excellent answer.
But university leadership increasingly needs to answer a different question:
“What are the full economics of our academic programs?”
From instructional cost to program economics
Consider a program generating $10 million in annual revenue.
A traditional Cost of Instruction analysis might identify $4 million of faculty costs associated with delivering its courses.
That is valuable information—but it doesn’t necessarily mean the program generates a $6 million surplus.
Delivering an academic program consumes resources across the institution.
There may be academic administration, laboratories and equipment, student services, IT, libraries, facilities, school and college administration, central university services and many other costs necessary to support teaching.
The university may also be undertaking research and other activities that need to be understood separately from teaching.
To understand the financial contribution of the program, university leadership needs to move from Cost of Instruction to Full Program Economics.
Two questions. Two different perspectives.
Cost of Instruction and full economic modelling shouldn’t be viewed as competing approaches.
They answer different management questions.
| Cost of Instruction | Full Program Economics |
|---|---|
| What does our teaching workforce cost? | What does the program actually cost the institution? |
| What is faculty cost per credit hour? | What is total cost per student FTE? |
| Are class sizes efficient? | Is the program financially sustainable? |
| How does teaching load compare? | What financial contribution does the program make? |
| Are we deploying faculty efficiently? | Which activities are consuming institutional resources? |
| What can a Dean influence? | What does the CFO need to understand? |
A Dean should absolutely understand the resources they can influence.
But the CFO has to understand the economics of the whole institution.
The course is where the economics begin
There is another complication.
Universities don’t really “teach programs.”
They teach courses (subjects, units).
Faculty teach courses. Students take courses. Rooms and laboratories are scheduled for courses. Different courses have different class sizes, teaching methods, staffing requirements and delivery costs.
Programs are then constructed from combinations of those courses and students from multiple programs can share the same course.
That many-to-many relationship makes university costing considerably more complex than simply dividing the expenditure of a department by its students.
A robust university financial model therefore needs to understand the economics at the course level before aggregating those results into programs.
This is where activity-based modelling becomes particularly powerful.
The Pilbara approach
Pilbara Group models the university as an interconnected economic system.
Our models integrate information from systems including:
Finance, HR and payroll, student management, timetabling and facilities.
Costs are attributed using business rules and cost drivers that reflect how university resources are actually consumed.
The result is a model that can calculate costs and financial contribution from the individual course level through to:
Academic Program → School / Department → Campus → Institution
And because teaching, research and support activities are modelled separately, universities can see not simply what they spend, but why they spend it and which activities consume those resources.
Keep Cost of Instruction – and build on it
Universities don’t need to abandon their existing Cost of Instruction analysis.
Quite the opposite.
Faculty cost, teaching load, class size and cost per student credit hour remain valuable operational measures for academic leaders.
The opportunity is to build on that foundation.
We think of this as a progression, starting with the Cost of Instruction and moving towards a full whole-of-university economic model.
Why this matters now
US universities are facing increasingly difficult decisions about academic portfolios, enrolment, staffing and financial sustainability.
Those decisions become much harder when academic leaders can see instructional efficiency, but institutional leadership cannot see the complete economics behind it.
The One Big Beautiful Bill Act (OBBBA) adds another dimension to these decisions. Changes that took effect on July 2026 include new limits on federal borrowing for graduate and professional students and the elimination of Grad PLUS for new borrowers.
The legislation also introduces program-level accountability based on graduate earnings, with programs that repeatedly fail the applicable earnings test potentially losing eligibility for federal student loans.
These changes potentially put even greater pressure on universities to understand academic programs at a much deeper level. A university may increasingly need to understand not only what a program costs to teach, but its full cost, revenue, financial contribution, student demand and outcomes. Changes to graduate borrowing limits may also force institutions to reconsider the pricing and economics of some programs; the Congressional Research Service specifically notes that reduced access to federal loans may cause institutions to re-examine their program offerings and the prices they charge.
That makes the distinction between Cost of Instruction and Full Program Economics increasingly important. Knowing that a program has a faculty cost of $X per student credit hour is useful. But when decisions may involve pricing, program viability, enrolment targets and financial sustainability, university leaders need to understand the complete economics behind that program.
We will explore the implications of the One Big Beautiful Bill for academic program economics., and the information universities may need to respond, in a separate blog post.
A program can have efficient faculty utilization and still place financial pressure on the institution.
Another may appear expensive to teach but generate sufficient revenue to make a substantial financial contribution.
And a low-enrolment course may appear inefficient in isolation while being essential to several high-performing programs.
Those relationships only become visible when the institution can connect operational activity to its full financial model.
Cost of Instruction answers an important question. It just isn’t the only question.
For decades, Cost of Instruction has helped US universities understand the efficiency of academic delivery.
That capability remains valuable.
But universities now have the data and technology to go further.
Cost of Instruction tells you what it costs to teach.
Full Program Economics tells you how teaching fits into the economics of the university.
For Deans, both perspectives can improve academic decision-making.
For CFOs and institutional leadership, the second perspective is increasingly essential.
At Pilbara Group, our focus is helping universities connect the two.