Will High College Overhead Collapse Higher Ed?

The internet has upended the business model of many industries—often in unexpected ways. The higher-education industry is on the verge of such a change.

Industry leaders in other industries like newspapers, telecommunications, and entertainment never saw the changes coming (or committed to huge overhead investments and labor contracts, they chose to ignore the signs) even though such transformations seem to have been inevitable. Leaders in higher education will do well to learn from the past and heed the warning signs. Disenchantment is growing with the quality and value of the traditional college experience.

cost of higher education

The Degree Payoff

For those who seek a certain level of economic security or advancement, a 4-year degree is absolutely necessary. The Bureau of the Census data shows that the income advantage offered by a college degree is nearly double what it was just a generation ago. And it is the full bachelor’s degree that counts (although lifetime incomes vary dramatically between major fields of degree-holders’ study and the reputations of the institutions granting them). Even someone with a 2-year associate degree can expect just 29 percent more in annual income than a person who holds only a high school diploma. Compare that to students from families in the bottom quartile of household income who are now graduating from college at the lowest level in 30 years, with fewer than 10 percent obtaining a degree.

Clearly, this is a situation primed for change not just for individuals, but for our economic recovery and global competitiveness. Completing a certain level of education since the dusk of the Industrial Era and the beginning of the Computer Age has been crucial to securing good employment. The difference is that, just a generation ago, the attainment level needed to assure a reasonable chance at the American Dream was a high school diploma. Today, the high school diploma has been supplanted by the college degree; making it through 4 years of college is now virtually a prerequisite for economic advancement.

The existence of new competition, combined with widespread public frustration, has produced the conditions that may allow for a sweeping makeover of American higher education. Something has to give. Serious alternatives to the status quo are beginning to emerge.

Heavy Heavy Overhead

The traditional college model that requires a classroom, teachers, dorms, and libraries is obsolete. The high cost of a college education at a traditional university is driving opportunities for online learning endeavors that promise to revolutionize the way we learn. Peer-to-peer learning is part of this new trend. Rapid change in technology is giving creative new entrants a growing technological edge—an essential precondition for transformative change.

Online learning enables information to be transferred and student performance to be monitored at a fraction of conventional costs. It changes the entire relationship between student and teacher. Just as blogs, social media, and websites have disrupted traditional media, collaborative learning and peer-to-peer education will disrupt conventional colleges. Online education has the potential to completely upend today’s established universities.

In fact, a recent 12-year study by the U.S. Department of Education finds that people learn better online than in a traditional classroom. In part, this is because students learning online are not faced with an authority figure (“the sage on the stage”) but with their own peers in a collaborative setting. Young adults preparing to enter the workforce are already used to that virtual environment from building relationships on social networking sites and developing collaborative skills on gaming sites. This type of learning experience is already available with sites like eduFire.com, which provides a marketplace for both teachers and students to find one another and connect with the most effective learning tools.

Fewer Faculty: Online’s poised to explode professor productivity

Online education is no longer just a cheap alternative—it’s a force to be reckoned with. It is growing rapidly in both scale and scope. For the past 7 years, online enrollments in the United States have increased much faster than overall university enrollments. According to a survey of more than 2,500 colleges and universities by the Babson Survey Research Group, the proportion of students taking at least one online course grew from 10 percent in 2003 to 25 percent in 2008. And that figure continues to rise: In the fall semester of 2009, the share of students taking at least one online course was up 21.1 percent from the previous year and represented 29.3 percent of total enrollment—an enormous figure when compared to the increase in total post-secondary enrollment, which grew at just 1.2 percent.

To seize the opportunity at hand, new learning models are being introduced and are getting a lot of attention from students, parents, and forward-thinking leaders in higher education.

A new online phenomenon is developing called a MOOC, which stands for massive open online course. Part of what makes this different is that it is a free course that is open to a large number of students. Consider the course Introduction to Artificial Intelligence offered by Stanford University. When the class was introduced, enrollment was planned for 10,000. One hundred sixty thousand enrolled. You might think that “watching a video clip” of a professor is nothing new and adds little educational value. But MOOCs just don’t rely on having students watch recordings of professors. MOOCs provide many benefits, including delivering courses from the best teachers in the field to students who would otherwise not be able to access it. They break up video into 8 to 12-minute segments, followed by on-screen exercises and quizzes to keeps students engaged. MOOCs combine education, entertainment, and social aspects into a highly effective learning experience. And the cost is appealing—free!

Another example of disruptive changes to the traditional college education is the Khan Academy, a free, nonprofit service that now provides more than 2,700 lectures online via YouTube, mainly in the sciences and primarily at the pre-college level. The Khan Academy now offers a sophisticated learning strategy using YouTube that allows students to take graded tests and obtain feedback that steers them in a customized way toward appropriate material.

Disruptive Technology?

The Khan Academy is just one example of the creative use of online instruction and monitoring software that is transforming education and providing better quality at a fraction of the cost. And yet, despite the proliferation of such competitors, the major universities have been complacent in their responses to the challenge of online education. Their reaction has been simply to try to incorporate web-based learning into their traditional business model, rather than to treat it as a fundamentally different approach to learning.

The established universities recognize that they face an unwelcome threat from for-profit schools that aim primarily at working students seeking professional qualifications. These include such competing institutions as the University of Phoenix, which blends online learning with instruction at local campuses across the country, and Kaplan University, which, in its own right, demonstrates how industries are adapting—Kaplan University is owned by a subsidiary of The Washington Post. To date, they are largely dismissive of these for-profit schools. This attitude is eerily reminiscent of the attitude that major newspapers had during the early days of online news, when now-defunct publications believed that their journalistic quality and name brands would protect them from any serious competition.

Tuition Under $6,000—A Year!

But while the emergence of online instruction is sure to drive change in higher education, it is not the whole story. The larger threat to the traditional university system seems more likely to come from institutions that combine online education with new, innovative business models. Consider Western Governors University, a nonprofit created in 1996 by the governors of 19 western states. WGU not only uses online education, but it also shuns curricula and grades, instead identifying the core knowledge needed for competency in a subject area and testing for that knowledge, licensing the necessary study material. Members of WGU’s faculty function as mentors and tutors, assisting students with the material, rather than as formal instructors. WGU has won accreditation, and with its focus on undergraduates and master’s students (rather than PhD students or research programs), the university now has more than 20,000 students nationwide. Perhaps most noteworthy, its annual tuition is below $6,000.

Brigham Young University–Idaho is another intriguing innovator. Created out of Ricks College in 2000, BYU–Idaho does not have a long summer recess or competitive athletics. It supplements regular professors with peer-to-peer instruction. For some students, the school allows technical certifications in core courses before moving on to electives, which means that students acquire official qualifications as they advance toward a bachelor’s degree. If, for any reason, the students do not graduate with a degree, they still have the certifications—unlike many students elsewhere, who may drop out of college with a large debt but no formal qualification of any kind. In some BYU–Idaho programs, students who can avoid room and board costs by living at home are able to complete a 4-year degree for less than $8,000.

The small, private Southern New Hampshire University is yet another example. Now the second largest online education provider in New England, SNHU’s 7,000 web-based students outnumber the on-campus student body. At the university, “course authors” with a strong understanding of online education develop classes but don’t necessarily teach them; often, the teachers are adjuncts who use the course authors’ materials. Next year, SNHU expects online education to bring in more than $100 million—a windfall that subsidizes the money-losing undergraduate campus. In a sharp break with most established universities, SNHU views online courses not as a sideshow to its traditional on-campus programs, but rather as the key to its future.

The Declarative Knowledge Revolution

Another significant threat to the traditional college education are companies like Google, Apple, Microsoft, or some yet to be announced start-up. As corporations and individuals begin to demand better bang for their buck, who else better to teach “declarative knowledge”—facts rather than know-how—than the leaders of the knowledge revolution at a fraction of the cost of the university and equal or better outcomes. A whole generation of young people has grown up with or has adopted mobile devices, and a company that aims directly for this market could capture commuters, travelers, and busy working adults. And for a new learning based on collaborative learning and peer-to-peer education, a business like Facebook is primed to jump in.

Higher Ed Meets Higher Value

The real challenge for these new entrants is to show potential students and their parents that the programs they offer actually do rival or outperform their established competitors in terms of value for money. To be sure, well-established leaders in any industry are used to dealing with competition from new technologies and new entrants with different business models. But with college costs rising, would-be students are demanding clear demonstrations that their money will be well spent. Traditionally, value-seekers have been at a disadvantage: Compared with the value-for-money data available for many other products and services, obtaining the financial and other information needed to make a wise decision about college is confusing and difficult. But the situation is steadily improving, thanks to rankings and data like those supplied by U.S. News & World Report, Kiplinger, and Forbes. As a result, colleges are likely to see a significant increase in prospective students’ ability to make informed decisions, to the detriment of complacent colleges that have relied on their brand names and historical reputations to coast along.

A Tipping Point for the American Dream?

Among experts in the fields of education and industry transformation, there is a growing sense that higher education is approaching a tipping point—and that the industry will encounter disruptive innovation quite soon. The Innosight Institute’s Michael Horn predicts: “I wouldn’t be surprised if, in 10 to 15 years, half of the institutions of higher education will have either merged or gone out of business.”

For a growing number of Americans, a college degree is something obtained only through enormous sacrifice and indebtedness on their part or their parents or a dream that is entirely out of reach. Meanwhile, most college leaders live in a bubble in which the costs of ever more elaborate facilities, expanding administrative bureaucracies, and high-profile professors with light teaching loads can simply be passed on to customers in the form of higher tuition.

But those days are about to end. If this transformation does come to pass, it could have profound and beneficial implications. It could significantly increase the international competitiveness of American workers in a world in which we need higher skills and productivity to compete. It could sharply improve the employability of those on the bottom rungs of America’s income ladder, giving them the tools they need to move up. And it could do much to restore the American Dream for those who have begun to believe that opportunity in this country is disappearing. In other words, such a change could hardly come too soon.


Ira S Wolfe