A recent essay here by Robert Archibald and David Feldman challenged the idea of a "higher education bubble." They argued that a degree, even an expensive degree, is still worth it. They correctly pointed out that a degree is not an asset that responds to supply and demand like other markets. Their point that "on average most of us are average, and the data show that college is a very good investment for the average person," is true enough. But their real message was: there’s no need to panic, the status quo is still working. I disagree.
Said essay is part of a broader continuing discussion, this round set off by Peter Thiel's statements surrounding his 20 Under 20 Program encouraging students to "stop out" of college – with the idea that they are more likely to achieve entrepreneurial breakthroughs on their own than with more formal education.
Thiel is a managing partner at one of the venture investors, Founders Fund, in my company, Inigral. Ironically, Inigral serves educational institutions with our Schools App, and most of our clients are traditional colleges and universities. (Schools App is a community platform inside Facebook and on mobile devices that helps to welcome the incoming class during the admissions, orientation, and first-year experience, making sure students find their “fit” and get off on the right foot.) So my company helps keep students in college while Thiel is going around talking about the potential value of "stopping out."
Given this irony, people often ask me what I think about Thiel’s comments suggesting that higher education is in a bubble. Here's what I think: He is mostly right, but the future prospects for education are more optimistic than Thiel suggests for two primary reasons: 1) Though it looks like an economic bubble, it's unlikely that there will be a precise moment in which the market crashes. Instead, there will be a slow market shift towards amorphous market entrants that can deliver relevant, quality education conveniently and affordably. 2) There's a path forward if folks in higher education understand the processes of both disruption and change management.
Thiel's critique of higher education isn’t that degrees have no value. It’s about whether the industry is ripe for disruption, which I have defined in the context of education here. Thiel correctly observes that higher education is a market with unsustainable price increases based on irrational confidence. It’s true. Tuition has grown at rates that astound and outrage since the early '90s, and these prices seem unable to turn course. Our system incentivizes institutions to pursue selectivity, gargantuan research, and increased spending per student (small class sizes, student services, physical plant).
As of yet, there's no market mechanism to reward high levels of student success for the least possible cost. This is irrational. Thiel’s critique is based on an unstated assumption: market forces are starting to unleash on institutions that have not had to learn to thrive in a post-Internet, mobile device-oriented, and competitive marketplace. Indeed, few are currently asking themselves the important questions and embarking upon the dramatic transformations that will allow them to thrive.
This bubble is not going to suddenly crash; degrees are not normal assets that can be bought and sold on the open market. Even more importantly, the irrational confidence in education is founded on some fundamental truths: education produces opportunities for individuals, an educated population can both compete globally and provide a great foundation for democracy, and I would add that an education is an end in itself -- a transformative process that provides a near-priceless value. To boot, almost all of our nation's postsecondary institutions are filled with smart people who can not only survive, but also thrive if given the right road map, tools and opportunity.
Higher education should be transforming as quickly as it can. Whether or not there's a "bubble" that will be dramatically "popped" does not change the bold reality of an oncoming future, what I propose to call the Great Disruption.
Here's a suggested survival guide:
First, regard any continuing education programs, night school, certifications, or alternative models of education as start-ups within your organization. If you don't have one already, start a fully online program. Allow these groups to act as independent entities that can explore different models of how to educate and serve students. Hire the best, smartest, and most courageous people to run them. Allow them to innovate, and have your main operation learn from their innovation actively. Do not assume that their models cannot inform your traditions, because the speed at which traditional institutions learn to adopt these new models will determine how healthy they can stay when the full market forces of disruption start to occur.
Second, embrace "blended learning" and competency-based assessment. Move away from seat-time-based models in an attempt to bring rapid cost efficiency, especially to our more generic courses. We're already trying to teach our "Econ 101" courses to 500 students at a time. Why not go at them with even more scalable models to the point where one course can serve nearly unlimited numbers of students? It’s already possible through lecture capture, video content, blended learning, different technology supported models of coursework, participation, grading, and assessment. What needs to exist but doesn’t yet will come rapidly once the market starts to demand it.
Third, actively seek vendors as partners that can provide technology to "scale" any of your existing processes out of the classroom -- marketing and communication, financial aid, student services, community building, and student success. Over the past 30 years or so, technology has been used within the existing educational model and within the operating framework of our institutions. Institutions need to look at technology differently -- they need to see it as an opportunity to transform what they do and help them adapt.
The reality is that in higher education, there is a lot of spending focused on improving student success, but not all the efforts scale and their outcomes are often difficult to measure. Too often, success is measured anecdotally because there's no scalable way to gather real-time information, but this changes with schoolwide software. A small handful of schools, in particular Purdue University, seem capable of building this technology internally, with projects such as Mixable and Hotseat. But most colleges and universities will find that they are not very good software developers. Even if they can build something they will have trouble building upon it and maintaining it. So colleges should seek this kind of software from others.
Fourth, actively seek to take advantage of the Internet as services arise that are of interest to your students, your faculty and staff, and more importantly -- your market. Put lectures on iTunes U and Youtube, get your professors on Academia.edu and Notehall. Send your students to StudentMentor and StudentAdvisor. See what happens. Something will pop up that will remarkably improve or change what you do. One thing is for sure: we're quickly going to move to a model where "all-star" faculty members who have amazing reputations as both thinkers and teachers will probably be your best foot forward on the Internet.
Fifth, just adopt good management practices from business. Decide who you are and what you are good at, and start cutting the rest. Hold people accountable. Who is responsible for persistence and completion? Give people incentives. Who gets a bonus if the persistence and completion rates go up? Constantly improve institutional efficiency and effectiveness: who’s responsible for identifying opportunities to improve and taking the necessary steps?
On a personal note, my biggest fear is that our institutions in higher education are not structurally capable of making efficient and courageous decisions that will allow them to innovate and thrive through the coming Great Disruption. As a result, probably the biggest element of focus needs to be on change management and reorganization that will provide true accountability for student success, as well as create incentive systems that reward risk taking in pursuit of excellence and efficiency. Having said that, the worst thing to do would be to spend all your focus as an administrator going through a painful and time-consuming reorganization that delays pursuing the five tips listed above.
The cost-cutting race is on. And the Great Disruption is just beginning.
In most industries, technology-enabled competition is deemed healthy and vital. Accustomed to a hyper-competitive modern world, we expect even the largest and most prestigious companies to be continually challenged by nimbler, more creative upstarts. Economists teach that disruptive innovation by newcomers and creative destruction of entrenched incumbents leads to better products and services. When a century-old auto company, airline, investment bank, or newspaper files for bankruptcy or disappears altogether, we regret the attendant human suffering but count the loss as the price of progress, knowing that without competitive innovation and destruction we would enjoy a standard of living no better than our great-grandparents did.
Higher education, though, has been different. Large universities rarely cease to operate. Nor are the prestigious ones quickly overtaken. Part of the reason is a dearth of disruptive competition. The most innovative would-be competitors, for-profit education companies, find great success among working adults, many of whom care more about the content and convenience of their education than the label on it.
But many young college students still seek the assurance of traditional university names and the benefits of campus life. Because of loyal support from this large group of higher education customers, the incumbents have felt little pressure from the for-profits’ use of potentially disruptive online technology.
Meanwhile, the terms of competition among traditional institutions, the public and private not-for-profit universities, have been set primarily by those at the top. The strategy of most schools is one of imitation, not innovation. Little-known and smaller institutions try to move up in the ranks by adding students, majors, and graduate programs, so as to look more like the large universities. They also task their faculty with research responsibilities. In the process the emulators incur new costs and thus must raise tuition. This blunts the price advantage that they began with. They are stuck in a dangerous competitive middle ground, neither highest in quality nor lowest in cost. The great schools, rather than being discomfited by the imitation, seem all the more desirable because of it.
In their defense, the institutions that emulate Harvard and strive to climb the Carnegie ladder are doing just as conventional business logic dictates -- trying to give customers what they want. The great universities such as Harvard inspire not just administrators, faculty, and alumni at other schools. They also excite the most elite prospective students, who want to win admission to the most Harvard-like institution they can. Thus, less prestigious schools emulate Harvard’s essential features, such as graduate programs and expert faculty researchers and research facilities. They also give students costly non-educational amenities such as intercollegiate athletic teams, which Harvard no longer supports at the level of the most competitive schools.
The result of this competition-by-imitation is to solidify past educational practice among traditional universities, making them increasingly more expensive but not fundamentally better from a learning standpoint. The great-grandparents of today’s students would easily recognize the essential elements of modern higher education. Though the students are more diverse, the shape of classrooms, the style of instruction, and the subjects of study are all remarkably true to their century-old antecedents.
Great-Grandpa and Grandma would likewise recognize the three schools atop U.S. News’s 2010 college rankings: Harvard, Princeton, and Yale. In fact, asked to guess, they’d probably have picked just those three.
Only the costs of a higher education, one can argue, have kept pace with the times. In the 10 years after 1997, the inflation-adjusted price of a year of college at the average public university rose by 30 percent, while the earning power of a bachelor’s degree remained roughly the same. Cost increases derive partly from higher faculty salaries, but more from activities unrelated to classroom instruction. Scientific research, competitive athletics, and student amenities require both large operating outlays and the construction of high-tech laboratories, football stadiums, and activity centers. As a result, the cost of higher education grows faster than faculty salaries or other instruction-related costs.
The problem is not unique to higher education. In fact, in products ranging from computers to breakfast cereals, history reveals a pattern of innovation that ultimately exceeds customers’ needs. Hoping to get an edge on their competitors, companies offer new features, such as faster processing speeds in a computer or increased vitamin fortification in cereals. These enhancements are sustaining innovations rather than reinventions: the product becomes better while its basic design and uses remain the same.
The catch, as Clayton Christensen has shown in The Innovator’s Dilemma, is that these performance enhancements at some point exceed even the most demanding customers’ performance needs. The producer is incurring greater costs and thus must raise prices. That leaves the typical purchaser of a $5,000 laptop or a $5 box of cereal paying more than they want to, given what they actually need.
Much of what universities are doing is standard management practice: improve the product; give customers more of what they want; watch the competition. But it leads even great enterprises to fail, as detailed in The Innovator’s Dilemma. Inevitably, while the industry leaders focus on better serving their most prized customers and matching their toughest competitors, they overlook what is happening beneath them. Two things are likely to be occurring there. One is growth in the number of would-be consumers -- students, in the case of higher education -- who cannot afford the continuously enhanced offerings and thus become non-consumers. The other is the emergence of technologies that will, in the right hands, allow new competitors to serve this disenfranchised group of non-consumers.
Until the relatively recent emergence of the Internet and online learning, the higher education industry enjoyed an anomalously long run of disruption-free growth. In times of economic downturn, there were cries of alarm and calls for reform. But for the elite, well-endowed private schools, a bit of budget tightening sufficed until the financial markets recovered. The demand for the elite schools confer far exceeds the supply, allowing them to cover rising costs with tuition increases and fund-raising campaigns.
Even many less-prestigious universities benefit from accreditation, which has elevated them over unaccredited institutions. Public universities also enjoy the long-term commitment of taxpayers. In the absence of a disruptive new technology, the combination of prestige and loyal support from donors and legislators has allowed traditional universities to weather occasional storms. Fundamental change has been unnecessary.
That is no longer true, though, for any but a relative handful of institutions. Costs have risen to unprecedented heights, and new competitors are emerging. A disruptive technology, online learning, is at work in higher education, allowing both for-profit and traditional not-for-profit institutions to rethink the entire traditional higher education model. Private universities without national recognition and large endowments are at great financial risk. So are public universities, even prestigious ones such as the University of California at Berkeley.
Price-sensitive students and fiscally beleaguered legislatures have begun to resist costs that consistently rise faster than those of other goods and services. With the advent of high-quality online learning, there are new, less expensive institutional alternatives to traditional universities, their standing enhanced by changes in accreditation standards that play to their strengths in demonstrating student learning outcomes. These institutions are poised to respond cost-effectively to the national need for increased college participation and completion.
For the vast majority of universities change is inevitable. The main questions are when it will occur and what forces will bring it about.
WASHINGTON -- Higher education hates the U.S. Education Department's recently enacted regulation requiring institutions to seek and gain approval from any state in which they operate, and has fought it on multiple fronts. Late Tuesday colleges and universities got at least a temporary reprieve from the part of the rule to which they most object -- its application to online programs in which even one student from a state enrolls.
The New York Times Company plans to continue its slow advance into the realm of higher education this fall. It announced today that it is teaming up with the University of Southern California to offer continuing education programs to try to tap a growing market of adults looking to pick up new skills.