A note before you begin: This is a detailed article because academic program economics are rarely simple. For readers looking for the central takeaway: A large structural deficit should not automatically become a program closure list. By analyzing revenue, direct instructional costs, and contribution margin at the program, course, and section levels, institutions can often find meaningful savings while protecting enrollment, mission-critical programs, and long-term growth.
A structural budget deficit rarely appears overnight.
It develops gradually as expenses rise, enrollment patterns shift, and academic resources remain tied to a portfolio designed for a different financial reality. By the time the deficit reaches $20 million or more, institutional leaders may face intense pressure from boards, accreditors, and other stakeholders to act quickly.
That is when across-the-board reductions, hiring freezes, and program cuts often enter the conversation.
But urgent decisions made without detailed program economics can create a second problem: Institutions may eliminate programs that generate a positive contribution margin while overlooking less visible opportunities to improve efficiency.
As Bob Atkins, CEO of Gray Decision Intelligence, explains:
“When a college faces a large structural deficit, the instinct is often to start making a list of programs to cut. But a list of small programs is not the same thing as a list of savings opportunities. You need to understand the economics before you make the decision.”
A better approach starts before the crisis.
By analyzing revenue, instructional cost, and margin across the academic portfolio, colleges and universities can identify savings opportunities earlier, protect programs that contribute to the institution, and make more deliberate choices about where to invest, redesign, or reduce spending.
Budget Problems Require More Than Department-Level Data
Most institutional budgets are organized by department, school, or administrative unit. That structure is useful for accounting, but it does not always reveal the true economics of an academic program.
Students do not take every course within their home department. A biology major may take courses in chemistry, mathematics, English, and other areas. Faculty may teach students from several programs. Courses may serve majors, nonmajors, and general education requirements simultaneously.
As a result, department-level reports may not clearly show:
- How much net revenue a program generates
- What it costs to deliver the courses that its students take
- Which courses and sections are operating efficiently
- Whether a small program contributes more revenue than it costs to teach
- Where instructional resources exceed current student demand
- How a proposed change would affect the total institutional margin
Without this level of detail, leaders may rely on enrollment totals, averages, or broad cost allocations as substitutes for economic analysis.
That can be dangerous.
A program with low enrollment is not automatically losing money. In many cases, small programs use faculty and courses that the institution already supports. Eliminating the program may reduce some expenses, but it may also cause the institution to lose tuition revenue faster than it can remove costs.
Gray DI’s analysis has found that up to 91 percent of programs in the smallest quartile of an institution’s portfolio may still generate a positive contribution margin.
Low enrollment deserves attention, but it should prompt analysis rather than an automatic decision to close the program.
Look for Hidden Inefficiencies, Not Just “Underperforming” Programs
When an institution needs to close a substantial structural deficit, the instinct may be to rank programs by enrollment and begin cutting from the bottom.
However, the largest savings opportunities are not always found by closing entire programs.
They may be hidden in how the curriculum is delivered.
For example, an institution may be able to improve its margin by:
- Consolidating unnecessarily small course sections
- Adjusting the frequency of low-demand electives
- Reducing excess course requirements
- Rebalancing faculty teaching assignments
- Increasing the use of shared courses across related programs
- Aligning course capacity more closely with actual enrollment
- Redesigning programs with high instructional costs
- Redirecting resources from declining areas to stronger opportunities
These changes can produce meaningful savings while preserving more of the academic portfolio.
They can also be less disruptive than eliminating programs, particularly when a program supports the institution’s mission, contributes to general education, or supplies students to courses in other departments.
Atkins puts it this way:
“The goal is not to protect every program or cut every small program. The goal is to find the specific changes that will strengthen the institution financially while preserving its mission and the academic experiences students value.”
The most useful question is not simply, “Which programs can we cut?”
It is, “Which changes will improve institutional margin without causing avoidable losses in enrollment, revenue, or academic value?”
Measure Economics at the Program, Course, and Section Levels
Gray DI’s Economics and Outcomes is designed to show how academic resources flow through the institution.
Using an institution’s actual enrollment, activity, instructional cost, and revenue data, the analysis calculates economics at multiple levels, including:
- Department
- Academic program
- Course
- Section
This allows leaders to move beyond reviewing just a single average cost per student or credit hour.
Instead, they can examine the revenue associated with students in each program, the direct instructional cost of delivering their courses, and the contribution margin that remains.
Contribution margin is not the same as institutional profit. It represents net revenue minus direct instructional costs and helps leaders understand which program decisions are most likely to strengthen or weaken the institution’s financial position.
This distinction matters because not every reported cost will disappear when a program is changed or closed.
Buildings, technology, administrative services, and portions of faculty compensation may remain. A program may appear expensive after broad overhead allocations, yet still generate revenue that supports the institution’s shared infrastructure.
A useful economic model focuses on the revenue and costs that a particular decision can realistically change.
Understand What Happens After a Program Closes
A program closure does not automatically turn its reported costs into savings.
Before closing a program, leaders need to understand what will happen to its students, courses, faculty workload, and revenue.
Questions should include:
- Will current and prospective students move to another program at the institution?
- Will they choose a competing institution instead?
- Which courses and sections can actually be eliminated?
- Will tenured or continuing faculty remain employed?
- Are the program’s courses required by other majors?
- Does the program support general education?
- How much net tuition revenue will disappear?
- How long will it take for the savings to materialize?
This analysis may still support closure. Some programs no longer align with institutional strategy, attract sufficient student demand, or justify their instructional costs.
But the decision should be based on the likely financial outcome, not just the program’s size.
As Atkins notes:
“A program can look expensive on a report, but that does not mean those expenses disappear when the program closes. Institutions need to distinguish accounting allocations from costs they can actually remove.”
Use Portfolio Analysis to Ask Better Questions
Accurate program economics should not produce an automatic list of programs to eliminate.
It should help institutional leaders, finance teams, and faculty ask better questions.
1. What Is the Program’s Current Contribution Margin?
Does the program generate more net revenue than its direct instructional costs?
A small program can still contribute positively, while a large program may have inefficient delivery costs that limit its margin.
2. What Is Driving Its Cost Structure?
Are costs associated with required courses, small sections, specialized instruction, faculty release time or an unusually large number of credits?
The source of the cost often determines whether the program should be redesigned, consolidated or considered for closure.
3. What Revenue Would Be at Risk?
Would students choose another program at the institution, or enroll elsewhere?
Assuming that all students will remain at the institution can significantly overstate the financial benefit of closing a program.
4. Which Costs Could Actually Be Removed?
Would a program change reduce faculty expense, adjunct spending, course sections, or other direct costs?
Savings should be based on expenses that can realistically be eliminated, not simply reassigned.
5. Can the Program Be Redesigned?
Could the institution retain the program while reducing required credits, sharing courses, consolidating sections, or changing course frequency?
Redesign can sometimes produce a stronger financial result than closure.
6. Does the Program Support Other Priorities?
Does it serve general education, provide courses to other majors, support the institution’s mission or strengthen the broader student experience?
Program economics should inform institutional judgment, not replace it.
7. Is There an Opportunity to Grow?
Could improvements in positioning, curriculum, scheduling or recruitment make the program financially stronger?
Programs with weak current performance may still represent viable growth opportunities when student demand, market conditions, and institutional capabilities align.
This is the difference between conducting a portfolio review and simply compiling a closure list.
Elizabethtown College Found $2.3 Million in Savings While Growing Enrollment
Elizabethtown College provides a practical example of how proactive portfolio analysis can work.
The college needed to evaluate the financial performance of its academic programs and identify opportunities to strengthen its portfolio. Like many institutions, it lacked a system that made it easy to review program-level economics across the college.
Gray DI first facilitated a portfolio workshop involving faculty and administrative leaders. The institution considered existing and potential programs using mission, academic factors, student demand, regional competition, and employment opportunities.
Gray DI then configured its program economics platform using Elizabethtown’s actual activity, instructional cost, and revenue data.
The resulting analysis allowed the college to examine program and departmental economics in greater depth and identify opportunities to improve efficiency.
Elizabethtown ultimately reported $2.3 million in faculty salary and benefit savings while maintaining most of its programs and growing enrollment. Rather than relying primarily on indiscriminate program elimination, the college found ways to deliver its portfolio at a lower cost and improve program margins.
The lesson is important: Cost reduction and enrollment growth do not have to be opposing strategies.
With the right analysis, institutions can reduce unnecessary spending while protecting the programs and academic capacity that attract and retain students.
Replace Reactive Cuts With a Repeatable Process
A portfolio review should not begin only after the board demands an immediate solution to a multimillion-dollar deficit.
Program economics can be integrated into the institution’s regular planning cycle.
Leaders can use it to:
- Review changes in program revenue, cost, and margin
- Identify emerging inefficiencies before they become structural
- Evaluate the economic impact of proposed curriculum changes
- Model the consequences of adding or removing courses
- Inform faculty hiring and workload decisions
- Prioritize programs for investment, redesign or closer review
- Track whether approved changes deliver the expected results
This creates a shared evidence base for discussions among faculty, deans, finance leaders, provosts, and presidents.
The data does not make the decision. Mission, academic quality, student outcomes, and institutional priorities must remain central to the process.
But without reliable economic information, leaders cannot clearly see the financial tradeoffs associated with their choices.
Find the Savings Before the Crisis Finds You
When an institution is already facing a $20 million structural deficit, every decision becomes more difficult.
Time is limited. Stakeholder anxiety rises. Options narrow. Programs may be evaluated under pressure rather than through a thoughtful, collaborative process.
Institutions that understand their program economics before reaching that point have more room to act.
They can find instructional efficiencies earlier, strengthen contribution margin, redirect resources to priority areas, and avoid cuts that save less than expected.
The most effective portfolio strategy is not to wait for a budget crisis and ask, “What can we eliminate?”
It is to continuously ask:
Where are our resources creating the most value, where are they being used inefficiently, and what changes will strengthen our mission and financial future?
The answers may already be hidden within the academic portfolio. Institutions simply need the right level of economic analysis to find them.
