Setting Minimum Standards for Instructional Spending Can Protect Students’ Tuition Dollars

The cost of college is the highest it has ever been, and lawmakers are eagerly looking for ways to make college more affordable. In reckoning with today’s high-tuition, high-aid financing structure, among the most popular measures under consideration by lawmakers and student advocates has been to use tuition caps as a way to rein in runaway college costs. Tuition caps are policies that limit the amount that institutions can charge or how much institutions can raise tuition each year. For example, some states have instituted policies freezing tuition at public colleges for a set amount of time.

There are, however, alternative, and complementary, to approaches that can be used to similar ends. Instructional spending requirements are especially worthy of consideration. This policy can function as a type of tuition cap by imposing downward pressure on tuition. Instructional spending requirements differ from straightforward tuition caps in that they do not directly limit tuition: rather, they impose minimum standards for the amount that institutions are required to invest in student instruction. In this way, instructional spending requirements keep the cost of college down while also protecting students’ investment in their education.

Ensuring the best use of tuition dollars is especially critical today given the new federal student loan limits set to go into effect in July 2026. Proposed limits from Congress’s budget reconciliation bill, HR 1, will place new annual and aggregate caps on the amount of Grad PLUS loans available to graduate students and Parent PLUS Loans available to parents of undergraduate students.¹ These caps will undoubtedly push many families into the private loan market. Let’s take a look at how instructional spending requirements can help keep students out of the red and on track to their educational and professional goals.

What Are Instructional Spending Requirements?

Instructional spending requirements, also referred to as instructional spending standards, can help protect students in the face of these upcoming changes. Instructional spending is a measure of the amount of tuition and fee revenue that institutions spend on student instruction. Requiring that institutions devote adequate amounts of students’ tuition to instruction helps protect students’ investment in their education by ensuring that a reasonable proportion of their tuition and fees is directed to the cost of the instruction. When institutions direct revenue towards instruction, students benefit from improvements such as smaller class sizes, increased student–instructor interaction, higher quality of education, higher retention and graduation rates, and better labor market outcomes. In short, instructional spending requirements ensure that students get what they pay for when they pay for higher education. Investing more tuition dollars directly back into students also has higher returns for the institution in the form of higher completion rates. 

Instructional spending requirements can also help ensure that public investment in higher education supports student learning, rather than funding advertising costs or the bottom lines of for-profit college owners and investors. Siphons and diversions such as these remain a concern. While the amount schools spend on marketing overall has decreased, some schools still devote a significant amount of revenue to advertising. One of the most recent analyses found that for-profit colleges spent an average of $1.25 million on advertising in 2017, and that these expenditures made up over 40 percent of these institutions’ reported “student services” spending. In contrast, public schools spent $171,000, on average, for advertising. Put another way, while for-profit institutions spent about $400 per student on advertising, non-profits spent $48, and public schools only $14 per student. An instructional spending requirement could help rein in advertising spending, particularly at for-profit schools, and could lead to lower tuition prices. 

With new federal loan limits imminent and college costs on the rise, instructional spending standards could help hold institutions accountable for putting resources into their core educational mission: educating students.

Breaking Down the Math: How Do Instructional Spending Requirements Work?

Instructional spending is a measure of how much an institution spends on the instruction a student receives. The Century Foundation previously published an in-depth report detailing the various ways that instructional spending can be measured using the Integrated Postsecondary Education Data System (IPEDS) data collected by the federal government. Below, we’ll look at an abbreviated version of that report’s breakdown of the formulae.

There are a few different ways to calculate instructional spending. Below, Figure 1 outlines two of those options. Option A calculates instructional spending by using the amount an institution spends on instructional programs divided by the tuition and fee revenue collected from students. Option B includes spending on all student-related expenses that support student learning and development divided by the total tuition and fees collected from students.

Figure 1

Option A only includes instructional spending in the numerator, which means that it only allows schools to include the amount spent directly on instruction as part of their investment in students. Option B includes both instructional spending and student services in its numerator, meaning that schools can include spending on instruction and all other services that support student learning and development in the amount of tuition they invest in students. In this way, both options allow for some flexibility based on preference and necessity within the guardrails they establish.

While in theory it makes sense to allow schools to include both amounts as part of their investment in students, the student services data that are collected by the U.S. Department of Education are an imperfect measure, because the department’s current collection process allows institutions to include any spending on student admissions activities, including advertising and recruiting, in the amount spent on student services. Data analysis reveals that variation in the student services spending category by sector is likely driven by variation in marketing and advertising spending by for-profit institutions, as well as by those with large online enrollments that engage heavily in marketing.²

Including marketing and recruiting expenses in the “student support” category limits the data’s usefulness for determining the amount the institution allocates for direct support of students. Until data reporting requirements are changed to permit disaggregating such spending, lawmakers should use measures of instructional spending that only include spending on instruction, rather than spending on instruction and student services.

When Schools Allocate Revenues to Instruction, Students Benefit

Instructional spending standards advance accountability and affordability goals that are popular on both sides of the aisle, and for good reason: they hold schools accountable for their choices and protect students’ and the public’s investment in higher education. Instructional spending reporting requirements can also boost transparency for students, providing information about how tuition dollars are spent. Students are ultimately consumers of higher education, and they should know what they are paying for and where their tuition dollars are going. 

When schools devote more resources to the instruction students receive, students are more likely to experience smaller class sizes, increased student–instructor interaction, and an overall higher quality of education.

Instructional spending standards could also lead schools to invest higher proportions of revenues into instruction, causing a cascade of benefits to students, including improvements in student outcomes such as college retention, college completion, and labor market outcomes. These benefits extend to students across different backgrounds, including those of different races and genders and those who are veterans. When schools devote more resources to the instruction students receive, students are more likely to experience smaller class sizes, increased student–instructor interaction, and an overall higher quality of education. Studies have also linked increased instructional spending to better labor market outcomes.

Instructional spending standards also create incentives for for-profit institutions to allocate more of tuition to instruction and less to advertising, recruiting, and owner and investor wealth. These requirements could also create downward pressure on tuition and fees at such institutions, leading to cost savings for students. This may be especially true for schools that are currently spending the lowest amounts on instruction and thus being the least efficient with their students’ and the public’s investment in higher education.

Policymakers at the State Level Are Already Considering Instructional Spending Legislation

This policy approach is already gaining traction across the country. As shown below in Table 1, instructional spending legislation has been successfully enacted in one state and has been introduced in several states.

Table 1

Across all instructional spending legislation described above, there is a clear appetite for setting thresholds for spending on instruction.

How Much Schools Are Spending on Instruction Today

Table 2 below presents a breakdown of instructional spending at U.S. institutions by sector, using the Option A formula from Figure 1. For-profit schools spend the smallest proportion of tuition and fee revenue on instruction: the median for-profit school spends about 36 percent of tuition revenue on instruction, while the median public institution spends over 200  percent of tuition revenue on instruction, and the median private nonprofit school spends about 68 percent. 

Table 2

How Lawmakers Should Structure Their Instructional Spending Requirements

At both the federal and state level, lawmakers should advance instructional spending legislation that does the following:

1. Set minimums for instructional spending for schools that receive federal or state financial aid funding. For example, legislation could require schools to spend a predetermined percentage of tuition and fees on instruction.
2. Require schools to report marketing and advertising spending separately from spending on student support services. This will allow government agencies to collect the data they need to determine how much is being spent on instruction, student support, and marketing in a disaggregated manner. 
3. Set a floor for what percentage of tuition revenue should be spent on instructional spending and student support, without marketing. These minimums can be implemented after data on each of these spending metrics have been collected in a disaggregated manner for a number of years. 
4. Impose meaningful consequences on institutions that do not meet instructional spending minimums, such as the following:
   1. Require failing schools to disclose their failure to prospective students. Students are consumers of higher education and should know whether their tuition dollars are being spent on serving their educational needs. 
   2. Require failing schools to issue rebates to students. A school that fails to meet a statutory instructional spending metric could be required to provide tuition rebates to students equivalent to the gap between the tuition dollars used for instruction and the set benchmark.³
   3. Tie eligibility for state financial aid funding to compliance with instructional spending requirements. Schools that repeatedly fail to meet instructional spending benchmarks could lose eligibility to participate in state financial aid funding.

Implementing instructional spending standards will help protect students’ investment in higher education, encourage schools to spend more efficiently, provide an incentive for schools to lower tuition, protect against the waste of public investment in higher education, provide transparency for student consumers, and improve student outcomes. Instructional spending requirements are an innovative tool that lawmakers can use to hold schools accountable for efficient use of resources and to help make college more affordable.

1. A limited number of graduate programs designated as “professional” degree programs will have higher loan limits.
2. See Table 5 of the analysis in the TCF report cited above.
3. In some cases, health insurance companies that fail to meet statutory “loss ratio” requirements are required to rebate a proportion of consumers’ insurance premiums. Applying the same approach here could be very effective.

Tags: student debt, higher education funding, education programs, college accountability