Where Higher Education Went Wrong

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Popping the Higher Education Bubble

Glenn Harlan Reynolds

The economist Herbert Stein once said that something that can’t
go on forever, won’t. That observation, sometimes called Stein’s
Law, could well turn out to be the theme for the current decade.
But nowhere is it truer than in higher education. American higher
education is first in the world, but it can’t go on forever on its
current path.

Colleges are raising tuition and fees every year, at a rate of
increase that far outpaces any reasonable expectation. One might
think this is the kind of thing that couldn’t continue forever, but
that’s precisely what has been happening over the past several
decades. Prices have gone up, and buyers have poured in anyway,
buoyed by a flood of seemingly cheap government money in the form
of student loans.

As with any bubble, there are doomsayers who are mostly ignored
and cheerleaders who say that this time it’s different. But—as with
any bubble—reality is starting to intrude.

Though people have been talking about a bubble in higher
education for a while, one major indicator that the swelling is
approaching its limit was found in last year’s Occupy protests.
While the protesters represented a diverse array of grievances, one
common thread was that many had run up huge student loan debts for
degrees that weren’t capable of generating sufficient income to
make the payments.

At an annual growth rate of 7.45 percent, tuition has vastly
outstripped both the consumer price index and health care inflation
(see chart). The growth in home prices during the housing bubble
looks like a mere bump in the road by comparison. For many years,
parents could look to increased home values to make them feel
better about paying Junior’s tuition—the so-called “wealth effect,”
in which increases in asset values make people more comfortable
about spending. Or at least they could borrow tuition costs against
the equity in their homes. But that equity is gone now, and tuition
marches on.

So where does that leave us? Even students who major in programs
shown to increase earnings, such as engineering, face limits to how
much debt they can sanely amass. With costs exceeding $60,000 a
year for many private schools, and out-of-state costs at many state
schools exceeding $40,000 (and often closing in on $30,000 for
in-state students), some people are graduating with debt loads of
$100,000 or more. Sometimes much more.

That’s dangerous. And the problem is not a small one: According
to the Ohio University economist Richard Vedder, writing in the
Chronicle of Higher Education, the number of student-loan
debtors now actually equals the number of people with college
degrees. How is this possible? “First, huge numbers of those
borrowing money never graduate from college,” Vedder
explains. “Second, many who borrow are not in baccalaureate degree
programs. Third, people take forever to pay their loans back.”

Total student loan debt in America has passed the
trillion-dollar mark. That’s more than total credit card debt and
more than total auto loan debt. Students graduating with heavy
burdens of student loan debt must choose (if they can) jobs that
pay enough money to cover the payments, often limiting their career
choices to an extent they didn’t foresee in their undergraduate
days.

Even students who can earn enough to service their debts may
find themselves constrained in other ways: It’s hard to get a
mortgage, for example, when you’re already effectively paying one
in the form of student loans. And unlike other debt, there’s no
“fresh start” available, since student loans generally aren’t
dischargeable under bankruptcy. The whole thing looks a bit like
the debt slavery schemes used by company stores and sharecropping
operators during the 19th century.

Now the whole scheme is starting to break down. In my own world
of legal education, applications have plummeted over the past few
years. According to the ABA Journal, there has been a 22
percent drop this academic year alone, and they’re down almost half
from 2007. Business schools, with declining pay and employment
prospects for MBA graduates, are experiencing similar declines.
Even in undergraduate admissions, colleges are losing the ability
to set prices as applicants become more value-conscious. These
trends have led the Moody’s rating service to downgrade the outlook
for the entire higher education sector to “negative.”

Some in higher education are offended. College should be about
improving your mind, they say, not about future salaries. But a
recent study of more than 700 schools by the American Council of
Trustees and Alumni found that many have virtually no requirements.
Perhaps that’s why students, on average, are studying 50 percent
less than they were a couple of decades ago.

When higher education was cheap enough that students could pay
their own way by working part-time, “study what interests you” was
reasonable advice. When the investment runs well into the six
figures, students would be crazy not to worry about the
return. If there’s no return, it’s not an investment; it’s a
consumption item. A six-figure consumption item is well beyond the
resources of most college-age Americans; nobody would advise an
18-year-old to purchase a Ferrari on borrowed money. But if a
college education is a consumption item, not an investment, then
they’re basically doing the same thing.

Higher education needs to be cheaper, more flexible, and better.
It’s possible that technology will show the way: With the
proliferation of online courses, some offered by major brand-name
schools like Harvard, MIT, or Georgia Tech, there’s no reason why
students should have to go into massive debt. And while an online
degree from MIT (when such becomes available) probably won’t be
worth as much as traditional MIT sheepskin, it may well outperform
degrees from many less prestigious brick-and-mortar schools.

Alternatively, universities could become leaner. Fueled by the
bubble, they’ve piled on staff (mostly non-teaching administrators,
who now outnumber faculty in many institutions), constructed
buildings and palatial athletic facilities, and paid almost no
attention to costs. A few science and engineering courses may have
inherently high equipment costs, but there’s no reason why it
should cost more in constant dollars to get a degree in English
literature today than it did 50 years ago. Schools that get costs
under control will have a huge advantage. Those that don’t, will
suffer.

Today’s university is a knowledge industry using a 19th-century
model in the 21st century. If that doesn’t suggest a need for
updating, what does? 

Glenn Harlan
Reynolds is a law professor at the University of Tennessee, and
the author of
The Higher Education Bubble (Encounter).

The Government Yoke

Richard Vedder

American higher education offers students relatively little
education at a rapidly rising cost. It produces reams of irrelevant
research, operates with breathtaking inefficiency, and treats its
customers arrogantly. This sorry state of affairs has worsened
markedly over the last half century, propelled largely by increased
government involvement.

Start with higher education outcomes. There is a growing body of
evidence that the “value added” of college in terms of knowledge
acquisition and enhancement of critical thinking skills is
embarrassingly small. The 2011 American Civil Literacy Report,
using a test that the Intercollegiate Studies Institute gave to
thousands of students, showed that seniors on average know little
more than freshmen. In their careful 2011 study Academically
Adrift, sociologists Richard Arum and Josipa Roska
demonstrated that the writing and critical thinking of seniors are
only slightly more advanced than that of freshmen. 

Students do less yet are rewarded more. Several recent surveys
have concluded that undergraduates study less frequently than their
parents did (fewer than 30 hours a week on all academic chores,
including class attendance, paper writing, etc.), but get higher
grades: above a “B” average for all students, compared with a “C+”
to “B-” average 50 years ago. Results are similarly dreary on the
research side; Mark Bauerlein of Emory University has demonstrated
that the vast majority of published work in his discipline,
English, is rarely cited, even by other scholars in the same
field.

This is bad, but what makes it scandalous is the rapidly growing
amount of money spent to obtain these poor results. Tuition fees
have skyrocketed, at both state and so-called “private” schools.
When I started at Northwestern University in 1958, the tuition was
$795 a year. Now it is $43,380. In inflation-adjusted terms, the
sticker price has quadrupled. At the rather typical mid-quality
state university where I have taught for more than 47 years, Ohio
University, tuition has risen from $450 in 1965 to $10,216 today,
tripling in real terms, growing far faster than incomes over that
period.

This academic arms race is largely financed by taxpayers. In
1970, the federal government’s student financial assistance
programs totaled a bit over $1 billion. Last year it was $173.8
billion. Ostensibly, this increased funding provides improved
access by allowing those of modest incomes to attend college. But
the proportion of recent college graduates coming from the bottom
quartile of the income distribution has actually fallen
sharply since 1970—from 12 percent to a bit over 7 percent. Former
Secretary of Education Bill Bennett was right in 1987 when he
hypothesized that higher federal student loans would merely lead to
higher tuition fees. Colleges, not students, capture the money.

What have the schools done with the funds? Mostly, they have
hired lots of staff. The enrollment-adjusted number of
“non-instructional professional” personnel has roughly doubled
since the mid-1970s. Meanwhile, professors have been given reduced
teaching loads—the proportion of instructors who teach four hours
or less per week has more than doubled since 2000. 

Administrators also pay themselves handsomely. It’s not just
football coaches who make million-dollar salaries these days; some
university presidents do as well, with fringe benefits that can
include mansions, chauffeured cars, club memberships, copious
first-class or private jet travel, even payment of income
taxes.

Colleges and universities, echoed and abetted by politicians
like President Barack Obama and education-cheerleader groups like
the $1.4 billion Lumina Foundation, promote the notion that nearly
every American should have a post-secondary education and that we
need to regain world leadership in the percent of young adults who
have bachelor’s degrees. Yet labor market data show that a large
portion of those with bachelor’s degrees have jobs that do not
require a college education. (A forthcoming Center for College
Affordability and Productivity study puts the portion at around 48
percent.) There are more than 115,000 janitors, for example, with
bachelor’s degrees. 

The feds encourage students to borrow money for college, run up
huge debts, and then, increasingly, get low-paying jobs upon
graduation. The default rate on student loans is above 12 percent,
exorbitantly high by commercial lending standards. The more
students borrow, the easier it is for colleges to raise tuition
fees to pay for the comfortable lifestyles of administrators and
professors.

Colleges have no skin in this game. They often use federal
monies to lure students whom they know have a high probability of
not graduating, then suffer no consequences when students
default.

Even so-called “private” schools are corrupted by government
funding. Princeton University receives vastly more government
subsidies per student than the nearby state school, the College of
New Jersey. Tax deductions and exemptions (e.g., on capital gains
from endowment income) give private schools a privileged status.
Federal research dollars with generous overhead allowances add to
the fact that prestigious private schools, with a few exceptions
such as Hillsdale College, are heavily beholden to the
government.

This brief tour de horizon skips some areas of
dys­functionality, such as the vast underutilization of campus
facilities, taxpayer-subsidized country club–style recreational
centers, and more. So what is the solution?

As long as governments, particularly the one in Washington,
heavily subsidize higher education, it is likely that reform
efforts will be futile. For starters, we need to get the feds out
of the student financial assistance business, and start privatizing
state universities. Schools such as the Universities of Virginia,
Michigan, and Colorado, where state subsidies amount to very small
portions of the budget, would be good places to start looking for
reform models. Because start we must.  

Richard Vedder directs
the Center for College Affordability and Productivity, teaches at
Ohio University, and is an adjunct scholar at the American
Enterprise Institute.

Poisoned Feeder Schools

Lisa Snell

Since 1970, K-12 education spending in the United States has
tripled in inflation-adjusted dollars. Yet American 17-year-olds
score no higher in reading and math on the National Assessment of
Education Progress than they did 40 years ago. The United States
ranks second behind Switzerland in education spending for K-12 out
of 28 Organization for Economic Co-operation and Development (OECD)
countries, yet exactly in the middle of 49 developed and
newly-developed countries when it comes to gains made by 4th and
8th graders since 1995, according to a 2012 study by the
Harvard-based journal Education Next.

This crisis in public-school productivity has followed American
students into higher education. Colleges spend more than $3 billion
dollars annually on remedial education, with more than 1.7 million
students a year needing help getting up to speed in basic reading,
writing, and math. Of the more than 50 percent of students at the
community college level who start in remedial courses, fewer than 1
in 10 ever earn a two-year degree. Less than one-third of students
who start in remedial classes at four-year colleges ever earn a
bachelor’s degree. 

If we ever expect to get real value for both the $185 billion in
post-secondary student aid each year (49 percent of which came from
the federal government in 2012) and the additional $114 billion
spent on government and private student loans in 2012, we must
first improve the productivity of K-12 education.

Public school choice and competition may be the key. There are
now 29 school voucher and tax credit programs and more than 6,000
charter schools in the United States, enrolling nearly 3 million
students. School choice has led to the rapid growth of niche
schools that focus on college readiness and college credit
completion during high school. There are more than 200 Early
College high schools that allow students to enroll in college
courses during their junior and senior years, with many kids
completing a two-year Associates degree even before they graduate
from high school. These students save parents and taxpayers the
first two years of college tuition.

Many choice schools use college readiness as one of their most
important performance metrics. For example, the Alliance for
College Ready Public Schools, a group of high-performing charters
in Los Angeles, explicitly measures how their students perform on
the California State University early assessment exam, which is
used to determine which high school grads will need placement in
remedial education. The goal is not just to enroll their students
in college, but to reduce the number of kids who will need extra
help once they get there. 

The United States spends more than almost any other country in
the world on elementary and secondary education, then we spend
money all over again trying to get those students up to college
standards after they have already arrived on campus. If we want to
improve the quality of higher education we must improve the
performance of K-12 education through school choice.  

Lisa Snell is the
director of education at the Reason Foundation.

The Decline of Liberal Arts

Naomi Schaefer Riley

Last fall, Florida Gov. Rick Scott released plans for
re­­vamping his state’s higher education system. Among other
things, Scott proposed charging lower tuition rates to students who
major in the more potentially lucrative STEM fields—Science,
Technology, Engineering, and Mathematics. The chairman of his
higher education task force explained the comparative price
increase of humanities degrees this way: “The purpose would not be
to exterminate programs or keep students from pursuing them.…But
you better really want to do it, because you may have to pay
more.”

It’s not clear that such measures would do much to stem the tide
of students pursuing useless degrees. After all, the market already
sends strong signals to students that engineering is worthwhile.
But kids are idealistic and impractical. In her new book
Mission Adulthood, about the struggles of Generation Y,
journalist Hannah Seligson profiles a woman who graduated from a
no-name liberal arts college with a degree in “Peace & Conflict
Studies, International Studies, and Women’s Studies.” She paid
$40,000 a year for the privilege, and has been struggling ever
since to land a full time job in her career of choice—abortion
counselor. 

Even if students recognized before graduation that positions in
their chosen field might not even cover their loan payments, they
might not have the preparation to choose more potentially lucrative
majors. According to a 2011 study by ACT Inc., less than half of
U.S. high-school graduates who took the ACT test were prepared for
college-level math, and fewer than a third of tested high-school
graduates were ready for college-level science. And it’s no secret
that humanities and social science courses tend to be easier than
their math and hard science counterparts. 

It is certainly possible to receive a strong education in the
humanities and social sciences, but the vast majority of American
colleges are not providing one. According to the American Council
of Trustees and Alumni, fewer than two in five colleges require a
single literature course, fewer than one in five require American
history or government, less than 14 percent have an
intermediate-level foreign language requirement, and less than 5
percent require basic economics.

Employers do value the skills that one can gain from a strong
liberal arts education. A recent op-ed in The Wall Street
Journal quoted a successful Silicon Valley tech entrepreneur
as saying, “English majors are exactly the people I’m looking for.”
Prospective bosses are searching for people who can write well, but
those are pretty hard to come by. Which is not surprising, given
how many professors are too busy writing obscure articles in
dreadful academic lingo to help students who are struggling with
basic sentence construction.

All this will probably get worse before it gets better. In the
past year, one social science professor at a public research
university told me her department instructed her to stop assigning
papers and just give multiple-choice exams, in order to reduce the
workload of grad students. Another was told by an administrator to
stop correcting grammar in his students’ essays, because the kids
don’t like all that criticism, and besides, it’s not an English
class.

There’s no need to “exterminate” programs in the social sciences
and humanities. But if they continue down their current absurd
path, few will mourn the thinning of their ranks. 

Naomi Schaefer Riley is the author of
The Faculty Lounges… And Other Reasons Why You Won’t Get the
College Education You Paid For (Ivan R. Dee).

Humanities Under Siege

Nick Gillespie

Universities existed long before the federal government began
bankrolling the higher education bubble. In the West, higher
education has been around for more than 1,000 years; in America,
the first colleges opened their doors long before the Founding
Fathers were even born.

Even after the bubble bursts, and the government money begins to
dry up, the university will endure. In the words of the founder of
Faber College, the fictional school in Animal House,
“Knowledge is Good.” The market for people who are inquisitive and
interested in learning will always be bullish.

The real existential threat to higher ed comes from folks who
conceive of college as a sort of high-end vocational-tech program.
Right-leaning critics such as Naomi Schaefer Riley, Richard Vedder,
and Charles Murray complain about feel-good majors that don’t help
fill the nation’s need for STEM-related graduates. Left-leaning
commentators such as Richard Arum, Josipa Roska, and Christopher
Newfield fear that college is becoming more expensive for students
even as it teaches them little or nothing of value.

These sorts of critiques are wrong for two reasons. First, they
assume that education, especially college, should somehow be
related to employment. While that has always been an
expectation—most of America’s colonial colleges started as
seminaries—it long ago stopped being the rule. In a 2011 Pew
Research survey, 74 percent of college graduates called the
experience “very useful” for their “knowledge and intellectual
growth” and 69 percent said it facilitated their “personal growth
and maturity.” A relatively puny 55 percent said college was very
useful as “preparation for a job or career.”

As the proud possessor of no fewer than four English degrees (a
B.A., two M.A.s, and a Ph.D.) who paid my own way through every
stage, I think these graduates have it exactly right. You should be
going to college to have your mind blown by new ideas (read: whole
fields of knowledge that you didn’t know existed until you got to
college), to discover your intellectual passions, and to figure out
what sorts of experiences you might want to pursue over the next 70
or so years. And let me suggest that it’s precisely the broad field
of inquiry that takes the most abuse for being totally
impractical—the humanities—that students should seek out most.
Understanding history, literature, art, philosophy, and the like
won’t make you a better citizen, or a more responsible employee, or
a happier camper, but those disciplines will give you the tools to
figure out who you are and what you want to be if and when you grow
up.

Second—and far more wrongheadedly—most critics of the
contemporary university err in talking about the place as if it
exists only or mostly to serve students, especially undergraduates.
What actually sets institutions of higher learning apart from high
schools, barbers’ colleges, online academies, and various
universities-in-name-only is that they are centers of knowledge
production. That is, they revolve around faculty scholars who are
actively expanding, revising, and remaking the received wisdom in
their given fields. Active researchers, whether in astronomy or
zoology or cultural studies or good old American literature, are
the folks that make college worth a damn.

Yet these are the very people under siege. A 2010 study
spearheaded by the University of Arkansas’ Jay P. Greene for the
Goldwater Institute documented “administrative bloat” at colleges
and universities. Between 1993 and 2007, wrote Greene et al.,
student enrollment at leading research universities rose by 15
percent and the number of administrators per 100 students jumped 39
percent. The number of tenure-track faculty per 100 students barely
kept track with student growth, rising just 18 percent. At Arizona
State, the number of administrators per 100 students grew 94
percent while faculty slots actually shrank by 2 percent.

The best universities will be able to get by without Pell grants
or guaranteed student loans or even public-sector research dollars.
They will even figure out ways to keep themselves accessible to
motivated students who, like me, didn’t come from money. But none
of them will survive the notion that they exist mostly to serve 18-
to 21-year-olds kids who need high-paying jobs rather than limn the
outer edges of intellectual possibilities.  

Nick Gillespie is editor in chief of
reason.com and Reason TV.

School Is for Signaling

Zac Gochenour

Why are people with higher-paying, more desirable jobs more
likely to have a college degree? The answer has important
implications for the future of higher education.

A popular answer among labor economists and the public is that
education develops human capital. Students learn skills, develop
propitious habits, become acculturated, improve critical thinking,
or are otherwise transformed by college. This human capital means
increased productivity, which is valued by employers, who in turn
offer better compensation to the employees. Certain majors pay more
because they teach more valuable skills; certain schools lead to
better paying jobs because they literally provide a better
education.

The issue of causation is more complicated, though, because
traits like intelligence, conscientiousness, compliance, patience,
and conformity influence both academic and professional success.
The types of workers who have the ability to do well in school can
often do well in work. So even though workers with college degrees
earn more, they would have earned more even if they did not go to
college. Schools and majors that churn out highly paid alumni are
the ones that highly productive workers choose. 

Whether or not employers value the specific skills learned at
school, they might value the degree because of what it tells them
about these traits. To some extent they can judge these traits
directly, such as with test scores or in an interview, but for what
they cannot observe they rely on signals such as the school’s
prestige and the applicant’s major, grades, awards, and other
activities. Employers pay more for signals that indicate high
productivity, such as a tough major with good grades from a top
school.

The relative importance of these distinct factors—human capital,
ability, and signaling—will determine how the market for education
and labor will be changed by technology and politics.

If higher earnings for college graduates are mostly due to the
human capital they develop at school, then higher education is
destined for obsolescence. Subsidies will not be enough to keep
universities afloat and competing with the cornucopia of knowledge
made available by modern technology. As effective alternatives
become cheaper compared to university education, the traditional
college apparatus will at least need a major overhaul.

If the earnings correlation is mostly due to ability and
signaling, however, no upheaval need occur. Participation in
educational alternatives such as online learning might teach the
same skills as a traditional university, but also can’t help but
signal an unwillingness to conform with important societal norms.
On average, good employees are known to prepare for college, go to
college, and finish college. Employers will not be willing to pay
the same premium for alternative educations if they do not signal
the same traits as a traditional education. If public spending for
education declines, society benefits: Fewer resources are being
spent to do the same sorting. But so long as spending on higher
education enjoys enduring popularity, there is no reason for the
train to stop, or even slow down.

Zachary Gochenour is a
Ph.D. candidate in economics at George Mason University and a
researcher for Bryan Caplan’s forthcoming book, The Case Against
Education.

Tear Down the Clock Tower!

Michael Gibson

What is the oldest and most common architectural feature on
college campuses? The clock tower. Why is this so, and what does it
mean?

The widespread adoption of clock tower technology had profound
consequences in the Middle Ages. It standardized time within a
small geographic area. Bells chimed the hour, creating discrete,
uniform time chunks within its earshot. This was the only way to
reduce disagreement and disputes about time spent on any activity,
as everyone began to operate on the same hour-length chunks. On
nascent university campuses, it created a way for students, tutors,
and administrators to coordinate lectures and meetings.

So dominant was the clock tower on campus that time became a
proxy measurement for knowledge and skill acquisition. Students
take credits measured in hours per week. Their abilities are tested
at the end of a season with two-hour exams. A degree is a four-year
course of study.

Future technology will undermine the notion that centralized,
synchronized time should structure the learning process. The more
precisely we can measure skill and knowledge acquisition, the less
dependent we are on time as a proxy measurement. Education should
not be based on how much time a student spent in the vicinity of a
clock tower. It should be based on what is timeless.

Many cultural patterns that seemed normal in the past are absurd
today. Behaviors like smoking on airplanes or using lead paint in
the home now seem beyond the pale. After the discovery of
penicillin, dying from an infected wound became unthinkable.
Likewise, technology products such as mobile phones the size of a
shoebox or mainframes the size of an SUV have all been rendered
silly. Like these totems of the past, the clock tower, too, will
crumble and soon seem ridiculous.

College students currently pay more than quadruple in real terms
what their parents paid. In exchange they get a vague credential,
poor job prospects (of late), and crushing debt. The essence of
this system is an insane and perpetual Hunger Games–style
competition where teenagers fight each other to gain access to dorm
rooms within earshot of the highest-status clock towers.

Many experts will tell students how to pick a college. Fewer ask
students to question whether they should go at all.

We think the future will be very different. In 2011, Peter Thiel
started the 20 Under 20 Thiel Fellowship because he wanted to help
young entrepreneurs and visionaries get started on their ideas as
soon as possible, before they accumulated any debt and before they
found themselves tracked into an uninspired career. During the
two-year program, each fellow receives $100,000 and mentorship from
our network of innovators, engineers, scientists, thought leaders,
and business development experts.

Our first and second classes have started and sold companies,
secured a book deal, raised a million dollars in venture capital,
won international awards, and sparked a do-it-yourself education
movement. We just closed the application season for our third class
of fellows.

We are not telling all college students that they should drop
out. Some universities may still offer community, great real
estate, a fervent dating pool, and—in a few academic
departments—valuable skill acquisition. But students should keep in
mind that the “safe path” is quickly becoming the riskiest.
Students who have entrusted their future solely to college
administrators are marching to someone else’s tune. They have
forgotten why the tower chimes ring. 

Michael Gibson is an associate at Thiel Capital and is VP of
Grants for the Thiel Foundation, where he helps run the 20 Under 20
Thiel Fellowship.

The Competition Goes Online

Alex Tabarrok

Online education is a game changer for traditional universities.
Almost a third of college students are now taking at least one
online course (up from single digits less than 10 years ago). And
traditional universities should take note that the competition is
about to get much fiercer: online education radically lowers the
cost of educational startups. 

In October 2012 my George Mason colleague Tyler Cowen and I
launched MRUniversity (short for Marginal Revolution University,
named after our blog), with a full-length academic course on
development economics. Today we have many thousands of registered
students from all over the world, and are launching new courses.
Inspired by Salman Khan and the YouTube tutorials he offers through
his Khan Academy, we wanted to see what two individuals who enjoy
teaching could accomplish without major financial
backing. 

Our experience has shown us many advantages of online lectures:
They allow the best professors to teach many more students. They
offer large time savings, since students can repeat sections of the
lecture without slowing down other students or consuming
instruction time. They offer lower fixed costs, since students no
longer need to drive to and from campus. Lectures can be shorter,
and consumed at any time, which means online universities are
effectively open 24 hours a day. 

A number of online course providers now exist, including
Coursera, Udacity, and the Harvard-MIT project edX. These
“massively open online courses,” or MOOCs, have sought and received
millions of dollars of venture capital and/or university
funding. 

The biggest hurdle for MOOCs is credentialing, which usually
requires a business model and a partnership with a name-brand
institution. The challenges here are not technical but
bureaucratic. We have, however, seen universities move into this
space at a pace unheard of for such normally slow-moving
institutions. Antioch University, for example, is offering credit
for some Coursera offerings and San Jose State University has
recently partnered with Udacity to offer online mathematics classes
for credit. Most worryingly for the traditionals, the San Jose
online price will be less than half the price of an on-campus
course. 

It’s not just the MOOCs that are competing with traditional
universities. Online lectures are behind the astonishing rise of
for-profit universities. Enrollment at the for-profits was less
than 500,000 students nationwide in 2000, but that number doubled
to 1 million by 2005, and doubled again to 2 million by 2010. Why?
The for-profits pioneered online education, a product that appealed
to non-traditional students who could not afford or did not want
the five-year “edu-vacation” produced by more traditional
universities. 

The education establishment tends to dismiss the MOOCs and the
for-profits as low-quality. There are legitimate complaints about
for-profits, mostly stemming from the fact that the final customer
is often not the student but the federal government, which supplies
the bulk of loan money that students spend there. But it’s
inarguable that the sector has demonstrated a strong demand for
online education. Low-quality entrants that disrupt established
industries often improve their offerings over time. MP3s didn’t
sound as good as CDs, and audiophiles objected. But compressed
digital sound is improving, and has already overtaken physical CDs
in income generated for the recording industry.

Traditional universities should not assume that the quality of
education at the MOOCs or the for-profits is or will remain low. In
a 2011 interview with The Next Web, business guru Clayton
Christensen, author of The Innovator’s Dilemma, reports
that the University of Phoenix invests $200 million annually on
research to improve the quality of teaching. “That’s $200 million
every year just on making their teaching better,” Christensen says.
“Do you know how much money Harvard spends every year to make its
teaching better? Zero.” 

 Take those figures with a grain of salt, but the lesson
about quality improvement is sound. When each teacher teaches only
tens or hundreds of students, no teacher will invest millions of
dollars in improving education. But when a single online course can
reach tens or hundreds of thousands of students, it pays to invest
in quality.

The real competitors to traditional universities may end up
being neither the MOOCs nor the for-profits but entirely new
educational startups. Online education replaces labor with capital,
in the form of software. Online pioneer Marc Andreessen has argued
that software is eating the world—if so, education is the
appetizer. As software replaces labor we will see greater
possibilities for productivity improvements in education.
Incentives to invest in such improvements will expand with the size
of the market.

What will a future “course” look like? One model is a
super-textbook: lectures, exercises, quizzes, and grading all
available on a tablet. The textbook’s artificial intelligence
routines could guide students to lectures and exercises designed
specifically to address that student’s deficits, and could call on
human intelligence—tutors—on an as-needed basis. (“Click here to
connect with a tutor; $5 for the first five minutes and 50 cents a
minute thereafter.”) A textbook of this kind would draw on content
experts but also actors, animators, graphic designers, and experts
in pedagogy.

Universities are not the natural producers of educational
software. Instead think of video games. The process of developing
the mega-hit video game Halo 3 provides a useful model:
The development team at Bungie Studios analyzed 3,000 hours of
Halo play by 600 gamers in order to suss out everything
from preferences for weaponry to places where players are most
likely to get killed. Then they did the same with their
competitors. Wired sums it up this way: “It might seem
like an awfully clinical approach to creating an epic space-war
adventure. But Bungie’s designers aren’t just making a game:
They’re trying to divine the golden mean of fun.”

A game like Halo must be difficult enough so that
players feel challenged but not so difficult that they give up in
frustration. Educators want a course with exactly the same
characteristics. Game developers invest millions of dollars in
producing and testing high-quality video games because the size of
the market justifies such investment. Online technologies are
bringing the same economics to the world of education. In the new
world of online education, we will finally have courses that are as
well designed and as awesome as video games.  

Alex Tabarrok is a
professor of economics at George Mason University and the
co-founder with Tyler Cowen of MRUniversity.com. He writes
regularly at the blog MarginalRevolution.com.

2013-03-19 08:15:12

Source: http://reason.com/archives/2013/03/19/where-higher-education-went-wrong