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It is important to be clear about what we mean by costs of education (for a parallel exercise for costing out prevention programs, see Foster, Porter, Ayers, Kaplan, & Sandler, 2007). Strictly speaking, in economics the term cost refers to “cost per unit of output,” for example, cost per car manufactured, cost per 1,000 computers produced, or cost per medical consultation. With this definition, an enterprise that has a lower cost per unit of output is more cost-effective (efficient) than one with a higher cost. This definition corresponds directly to the terminology of a standard economics textbook: Total cost is the cost to produce a given quantity of output, average cost is the cost per individual unit of output, and marginal cost is the cost per additional unit of output. These definitions work well for production decisions.

For educational services, the term cost is slightly different. It refers to the value of all the resources needed to deliver the intervention to the intended population. The cost term is therefore cost per participant, per cohort, or per class. It is helpful to always think about adding the word per after cost to clarify what is meant. This definition is more apt because we typically do not know how effective the intervention is (strictly speaking, the intervention’s output). Number of students served—the cost per student—is unlikely to be a satisfactory measure of effectiveness. Lower cost per student is likely to be associated with lower quality and hence lower effectiveness. Indeed, effectiveness is what the analyst is often seeking to identify in relation to costs as an explicit cost-effectiveness (CE) analysis. Importantly, in the cost analysis framework, total cost is the cost for the entire population served by the program or education (e.g., a school of 1,000 students), average cost is the cost per unit of education provided (e.g., each student within the school), and marginal cost is the cost per extra unit provided (e.g., from the 999th to the 1,000th student). When referring to costs of education, it is typically cost of provision that is intended.

The terms costs and expenditures should be distinguished: They are not interchangeable. Expenditures typically refer only to dollar outlays by a specific group. For example, commentators often refer to increases in the “cost of college” when they actually mean the “price of college paid by enrollees” or “what students spent on college.” Tuition prices paid by students are not the cost of college. The cost includes all the resources used to provide college and, because of public subsidies and charitable support, student tuition fees do not pay for all these resources (Desrochers & Hurlburt, 2016). In cost analysis, we are explicitly interested in all resources, regardless of where the dollars come from or if any money was transacted. In fact, cost analysis explicitly distinguishes between costs and financing—that is, between resources used and who pays for them.

An important cost concept for educational evaluation is incremental cost. As discussed in Chapter 2, CE and benefit-cost (BC) analyses evaluate programs relative to baseline, counterfactual, or business-as-usual conditions. Incremental cost refers to the relative difference in costs (Gray, Clarke, Wolstenholme, & Wordsworth, 2011, p. 13). (Incremental cost is not the same as marginal cost because we do not know how output has expanded.) In many cases, an intervention might be a supplement or add-on to regular schooling or college programs; incremental costs are then the costs of the program. But there are other cases. One is where the intervention involves a redistribution of resources such that intervention students get extra lessons in writing but fewer lessons in math; incremental costs might be very low in this case or even negative (if writing classes cost less than math classes). Another case is where students receive progressively more intensive interventions. So, if the analyst estimates the cost of a mentoring program at $1,000 per student and an after-school program with a similar objective at $1,500 per student, the incremental cost of the after-school program is $500. Note that in each case, we assume that each student receives some regular schooling, so the cost is genuinely incremental over regular schooling. Later on, we compare incremental costs with effects to derive an incremental cost-effectiveness ratio (ICER).

Sometimes, the term cost is used to describe economic losses or burdens. For example, a policy discussion might draw attention to the “cost of school failure” or the “cost of juvenile delinquency.” This usage may be confusing. These are not costs in the sense of resources expended to provide an educational intervention. Instead, they are burdens or losses caused by not implementing effective educational interventions. The so-called cost of juvenile delinquency is what is spent on the juvenile justice system, not what is spent on educational programs to reduce delinquency. As such, this “cost” is better understood as the economic benefits from overcoming school failure or reducing juvenile delinquency. (Even then, it is sometimes an inaccurate measure of benefits because it includes both preventive and remedial expenditures; see the discussion of defensive expenditures in Chapter 9.)