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Can an Investment in Instruction Improve a College’s Bottom Line?

Colleges and universities are under increasing pressure to simultaneously cut costs and improve student learning outcomes. There is a perceived tension between these goals: the conventional wisdom is that increasing instructional quality is not possible without increasing expenditures, but colleges and universities have limited resources to spend on improving instructional quality.

But what if the relationship between institutional finances and instructional quality were more complex than that?

In Instructional Quality, Student Outcomes, and Institutional Finances, a new white paper commissioned by the American Council on Education, Jessie Brown and I explore the question of whether improvements in instructional quality can actually increase a postsecondary institution’s net revenue. We lay out a conceptual framework in which improvement in instruction leads to better student outcomes such as increased retention rates, decreased repetition of courses, and faster time to degree. These improvements in student outcomes can, in turn, lead to increases in marginal revenue that are larger than the marginal costs of improving instruction and of serving a larger student population. Surveying the literature, we find some evidence supporting this hypothesis, though no previous study has explored it directly.

The conventional view is that increases in instructional quality require increased instructional expenditures, and have only non-pecuniary returns. This view misses the possibility of a feedback loop mediated by increased student success: Instructional improvement can improve student outcomes, which can in turn increase revenue or decrease expenditures by an amount that exceeds the cost of instructional improvement.

What are some examples of such a feedback loop? If they improve student retention, instructional interventions can avoid revenue gaps and inefficiencies related to attrition, such as lost tuition, fees, and other purchases until a replacement student enrolls. Recruiting a new student can cost three to five times as much as retaining a student who is already enrolled. Attrition can also lead to staffing and facilities inefficiencies. One estimate puts the cost of attrition at about $10 million per year for the average four-year institution. Other examples of mechanisms by which improvement in instructional quality could increase net revenue are by reducing the number of sections needed to accommodate students retaking courses or by increasing institutions’ draw in performance-based funding.

While there is no single study covering the whole chain of causation in this conceptual model, the white paper reviews literature that supports each link. It also briefly profiles the experiences of four institutions—California State University, Los Angeles; Mount Holyoke College; the University of Central Florida; and Valencia College—that have invested in instructional improvement.

Increasingly, researchers are focusing their attention on the cost per degree of various programs and interventions, which is an important advance. However, these analyses rarely extend to actual cost savings or revenue generation. While cost per degree may be the most important metric from a societal perspective, for institutional leaders with a budget, the impact of a program on net revenue is also important. This white paper lays out a framework for beginning to consider those impacts.

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