Cengage Learning, Inc., the second largest publisher of higher education course materials in America, filed for Chapter 11 bankruptcy protection Tuesday. The move had been expected by financial analysts.
The company hopes to eliminate about $4 billion of its $5.8 billion in debt, the company said in a statement. The company's chief financial officer, Dean Durbin, blamed the company's woes on the move away from traditional printed textbooks to digital offerings, cuts in government spending since the recession, and piracy of its materials.
In a court filing, he said the company is working on a new business plan and pointed in particular to MindTap, a new cloud-based platform the company has elsewhere described as "more than an e-book and different than a learning management system." The company expects to continue to make timely payments to its vendors and offer the same wages and benefits to its employees, it said in a press release.
“The decisive actions we are taking today will reduce our debt and improve our capital structure to support our long-term business strategy of transitioning from traditional print models to digital educational and research materials," CEO Michael Hansen said in a statement. "Cengage Learning began an operational transformation six months ago under the leadership of our new senior management team, which is executing bold plans to enhance our customer relationships and introduce innovative digital and print products and solutions to meet our customers’ evolving needs."
Florida Governor Rick Scott signed a bill into law last week to encourage the state's K-12 and higher education systems to use massive open online courses, or MOOCs.
The law has narrower scope than early versions of the bill but its critics remain deeply concerned. An earlier proposal could have allowed anyone to create and seek “Florida-accredited” status for courses that Florida's public colleges and universities would have to granted credit for.
The bill Scott signed allows MOOCs, under certain conditions, to be used to help teach K-12 students in four subjects and also orders Florida education officials to study and set rules that would allow students who have yet to enroll in college to earn transfer credits by taking MOOCs.
Tom Auxter, the president of the 7,000-member United Faculty of Florida, said "intense and feverish" opposition from faculty helped scale back the plan. Still, he warned of a generation of "cheap and dirty" online courses offered to students before they enroll in college. “No matter how many times they use ‘quality,’ this is a cheapening of what higher education is all about,” Auxter warned, referring to supporters of MOOCs for credit.
Republican State Senator Jeff Brandes, who sponsored early versions of the bill, did not give the unions or faculty credit for the changes.
Much remains up in the air now, though. Brandes said he expected the scope of the law to eventually be expanded. Much will also be decided in coming months as state education officials study the issue and set rules about how to use MOOCs for college credit. “We’re giving them two years to set up all the rules and procedures they need to allow us to work with Udacity, or edX or Coursera to offer their wealth of knowledge in Florida,” Brandes said, referring to three MOOC providers.
Dean Florez, a former California state senator who leads the Twenty Million Minds Foundation and generally supports efforts to expand online education, said the Florida law encourages "practices that consider the future of the classroom from the early years into college.”
“Florida has recognized the opportunities inherent in MOOCs and in admirable fashion reached consensus on a bill incorporating all public education systems, from K-12 to higher ed,” he said in a statement.
California Governor Jerry Brown vetoed his own idea on Thursday to make the University of California and California State University systems spend $10 million each on education technology.
The new money was designed to allow the two systems to increase the number of online courses available to undergraduate students. Instead, under the budget Brown made law Thursday, the two universities will get to keep the money and spend it any way they want. Brown used his line-item veto power to take the strings off the money, although both UC and Cal State say they will go ahead with plans to buy technology with the funds. "Eliminating these earmarks will give the university greater flexibility to manage its resources to meet its obligations, operate its instructional programs more effectively, and avoid tuition and fee increases," his veto message said.
Even though they don't have to, both systems said they plan to spend the money on technology. “We’ve made a commitment to provide the $10 million, so it’s not going to affect our plans,” said Steve Montiel, a spokesman for the UC president's office.
Michael Uhlenkamp, spokesman for Cal State Chancellor Timothy White, said the system thinks technology can help address a critical need and that it can use the money to alleviate bottlenecks.
"So while there is no legislative mandate in the budget to accomplish this, we’ll still continue to work along those lines," he said in an email.
An earmark that gives nearly $17 million to the California community college system and mandates the system spend the money specifically on ed tech remained in the budget Brown signed Thursday.
Dean Florez, the head of the pro-online education 20 Million Minds Foundation and former majority leader in the California Senate, said Brown's veto should make colleges think about spending more on online education rather than less.
"Governor Brown vetoing his own earmark for online education in the CSU and UC, emphasizes that funding for said programs should not be limited in any way,” he said in a statement. “The California Community Colleges, who serve 2.4 million students and already have approximately 17 percent of their courses online, will still receive $16.9 million in dedicated funds for expansion of online access. In light of the advances made in the CCC system, we hope that the other two segments will follow through with their assurances of online program advancement to alleviate system-wide bottlenecks.”
The website of Renmin University, in China, has experienced unprecedented traffic (and has crashed as a result) because of a photograph of an attractive woman who recently graduated,The South China Morning Post reported. While the photograph is not the least bit risqué by American standards, it is quite unusual for a Chinese university's website. The photograph has prompted considerable debate in China, with some praising it and others wondering if it is shifting attention away from academic issues.
The latest leaks from Edward Snowden, provided to The South China Morning Post, focus on U.S. National Security Agency hacking of backbone computer networks at China's Tsinghua University. A Post article said that documents provided by Snowden showed the hacking to be "intensive." On one day, 63 computers and networks were hacked by the NSA.
FutureLearn, the British provider of massive open online courses, is planning to create "badges" that can be earned for each section of its MOOCs, Times Higher Education reported. This will make it easier for those who enroll to show that they have learned something even if they do not complete the course. Martin Bean, vice chancellor of the Open University, which created FutureLearn, said that it was "sad" when journalists talk about those who don't finish MOOCs as "dropouts." He said that these badges might change that. "As a vice-chancellor I get very annoyed when I see people who don’t complete [courses] described in negative terms. We’re trying to design FutureLearn pedagogy around a 'mini-MOOC' model, shorter in duration and broken down into bite-sized pieces," he said.
Love MOOCs or hate them, there’s something to disappoint everyone in the Udacity/Georgia Tech services contract amendments that Inside Higher Ed’s Ry Rivard obtained through a public records request.
Although MOOCs have monopolized definitions of higher education reform for nearly two years now, some academic managers have wondered whether they shouldn’t extend online instruction on the base of their existing online programs, rather than partnering with an MOOC platform like Udacity. A consortium of Midwestern research universities recently took a major step in this direction in suggesting that their members might evolve their own "coordinated platform for the development and delivery of online or blended courses” for the whole consortium’s use.
In contrast, the strongest argument to skip internal development and hire MOOC companies has been the companies' claim to bring revolutionary cost savings to colleges and their students with their revolutionary technology. Unfortunately for all concerned, there is no sign in the Udacity spreadsheets of massive online cost-cutting services. Nor can the savings that do appear be traced directly to the Udacity platform.
The contract, between Udacity and the Georgia Tech Research Corporation (GTRC), aims to create a MOOC master’s degree in computer science — described as "the first professional online master of science degree in computer science (OMS CS) that can be earned completely through the ‘massive online’ format." The hook is the low low price -- $6,630, according to Rivard, or one-seventh of the $40,000-plus price of a face-to-face computer science M.S. at the same institution.
But when we look for massive cost savings in the Georgia Tech-Udacity spreadsheets, what do we find? In Year 1 (Exhibit H), things don’t look so cheap. The two entities together will spend about $3.1 million running a program for an estimated 200 students in the first semester. This comes to around $15,700 per year per enrolled student. The figure is close to what the University of California Office of the President says it spends educating all UC students averaged together (Display 6). In Year 1, Udacity-Georgia Tech costs look like those of a good, conventional public university program.
But wouldn’t Semester 1 naturally be burdened by start-up costs and a steep learning curve? Yes, were Georgia Tech designing the platform from scratch. But Udacity is supposed to have already solved higher education’s "cost disease" with its technology. We’ll note that Year 1 is not plug-and-play. Years 2 and 3, when student volume increases, feature courses that are in the can, and low marginal costs of instruction could kick in.
Here’s where things get disappointing.
First of all, the budgets don’t fit with the enrollment plan. Each student takes "6 credit hours (2 courses) per semester" in a 12-course master's. The enrollment forecast "assumes 200 pending full standing (degree-seeking) students begin the program each semester and all 200 in semester 1 become full-standing students .... in semester 2." So in semester 6, the enrollment forecast has semester 1 students in their final term, and five more semesters of 200 new students apiece, for a total of 1,200 students. That is a lot of growth in the existing program that now admits 150 new students a year (page 2). But on the spreadsheet, year 3 revenues have increased nearly 14-fold, to over $19 million. This income requires over 2,800 student FTE in Year 3 (based on Year 1 per-student revenues), which is more than double the enrollment forecast found in the footnotes.
But in fact, the partnership is not collecting $6,630 per year but per degree, and the degree is estimated to take three years. So the typical student in any given year is paying $2,210 in tuition. At that annual price, $19 million of Year 3 revenue requires 8,700 paying student FTE. This figure is larger than the total number of computer science master’s degrees granted in 2009-10 in the United States (Table 4). Even after noting an untapped global market, this Year 3 number is not credible for degree program enrollment.
At least two conflicting enrollment scenarios are supported by different parts of these documents: (1) growth to 1,200 in Semester 6, and (2) growth to 8,700 in Year 3. (1) fits with reasonable estimates of the time it takes to design and produce new classes, hire and train many "course assistants" (CAs), solve infrastructure issues, and so on, while abiding by the Georgia Tech faculty’s desire to enforce the institution’s high academic standards.
Scenario (2), however, fits with MOOC hype about the "digital revolution" cracking open closed universities to massive global markets by teaching at "effectively zero dollars marginal cost per additional student," in the words of Coursera's co-founder, Daphne Koller. With $14.4 million in expenses in Year 3, a OMS CS with an implausible enrollment of 8,700 students would spend about $1,655 per year per student, or under $5,000 per degree. The cost is ultra-low for a master’s degree, or for any other kind.
How would the OMS CS get to this cost? The simple answer is that it wouldn’t. The faculty working group expected a 30:1 student:TA ratio. The contract says 1 contact hour per student credit hour, or 104,400 contact hours per year for 8,700 students, each of whom gets a total of 12 hours of personal attention in that time, or 36 hours over the 3-year program. At the same time, the first-year co-sponsor, AT&T, expects 100 percent online instruction, which is cheap only when stripped of personal attention (whether online, via Skype, or in person). There is a big difference between 290 CAs with the 30:1 ratio, the 87 who at 40 hours a week could deliver 12 hours per student per year, and zero for the online model that eliminates personal attention. (The budget for student support suggests something close to 87.) With this slippage, Udacity can appeal to the corporate belief that the future of teaching is no teachers, while hiring quasi-teachers to suppress that belief’s results.
Let’s turn from price to cost. Regardless of real enrollment growth, the spreadsheets undermine two key assumptions about commercial MOOCs. The first is that MOOCs offer an automation of teaching that will allow the elimination and/or the cheapening of most teaching staff. This is how Taylorism worked in assembly-line industrialization, and how robotics has worked in manufacturing.
But in the budget, the category of "student support" grows in lockstep with revenue (up 13.8x and 13.9x respectively). One simple reason is that the Georgia Tech faculty wants the OMS CS to have "world-class quality," and that means "blended" or "hybrid" courses. Fully online courses are cheaper, but they generate the highest attrition rates in the history of higher education. Quality MOOCs are always blended MOOCs, and blended MOOCs have lots of CAs (coming mostly from Udacity), which means they aren’t actually MOOCs in the sense of the imagined near-zero personnel costs that has set the business and policy worlds on fire.
This is an important admission that a MOOC is "as good or better" than hands-on instruction only through much hands-on instruction. (Coursera’s recent announcement of 10 public university partnerships also focuses on blended services.) This blocks online’s alleged cost revolution — although online support for instruction obviously helps with costs.
Next, there’s an unpleasant surprise in the equally relentless growth of "Operations, Materials, & Supplies." This is where Udacity’s proprietary technology was supposed to rescue teaching budgets from the medieval methods that currently bloat them. In fact, looking at the budget, its platform does nothing to cut operating costs. The cost of examinations is particularly large. The big savings, ironically, come by squeezing innovation — payments to course creators flatten out — and by leveraging overhead. But there’s nothing novel in these practices. It’s easy to reduce expenses by giving the same lecture over and over, which is what existing online courses are designed to do. The same goes for running more volume on the same equipment, which is another time-honored university tactic.
The Udacity-GTRC contract raises the question of what exactly Udacity brings to the table. First, it brings its platform. Yet its platform is not transformative — not visibly better, faster, or cheaper than what Georgia Tech’s computer science department has already created or could create with new resources for this purpose.
Second, there are some net revenues. With a profit of $1,665 per degree, the program would earn $14.5 million on the untenable 8,700 graduates, or about $4.8 million per year. Sixty percent of this total (or $2.9 million) would go to GTRC. This amounts to a bit over 1 percent of GTRC’s annual research revenues, even with this high number of enrollments. On top of this, GTRC would get 20 percent of gross revenues and 20 percent of gross profits for non-OMS students that use Georgia Tech courses through Udacity. But these are MOOC students who will in general not pay anything. Georgia Tech probably has better margins on its existing extension programs, and could also support its institutional needs with new, smaller programs that it runs on its own.
What Udacity does bring to the table is platform branding. The company has positioned itself as a first mover and dominant player in what it describes as a new global market. Its founder is high-status, famous, and influential. Sebastian Thrun is associated with Google’s driverless car and with Stanford’s artificial intelligence program. He co-signed a deal to provide three entry-level courses to San Jose State University in the presence of the governor of California.
A similar story of brand dominance can be told about Coursera and its co-founder Daphne Koller, whose access to decision makers extends to the World Economic Forum conference at Davos. The three main MOOC companies have had the clout to sign deals directly with a given institution’s senior managers, over the heads of the university faculty. Since Internet and communications technologies seem always to lead to oligarchy (Google/Bing/Yahoo) or duopoly (Apple OS /Microsoft Windows), Udacity can pitch its platform as one of the very few ways for universities to stay in a global online game.
In exchange for presenting itself as an oligarch in waiting, Udacity extracts quite a bit from Georgia Tech. Udacity gets the intellectual content for a master’s program of 20 courses at an upfront cost of $400,000. It borrows Georgia Tech’s reputation as its own, at a huge discount (no training of graduate students, no support for labs, no decades of accumulated know-how through which Georgia Tech earned its reputation). It acquires these courses for a proprietary platform: Georgia Tech cannot offer these OMS CS courses, created by its own faculty, to a competing distributor.
Udacity expects Georgia Tech faculty members to maintain and update course material, and can use their latest version. While requiring that Georgia Tech not compete with it, it can take Georgia Tech-created courses and offer them to tens or hundreds of thousands of non-registered students — and sell a program certificate for those courses. These courses will differ from Georgia Tech’s in being "minimally staffed to rely on course assistants only for student assessment," but will use Georgia Tech’s content to compete with Georgia Tech’s and all other masters’ programs. With these courses, Udacity enters the master's certification business, selling a complete degree program without a degree’s intellectual ecology, physical infrastructure, interpersonal venues, and sunk costs.
Udacity’s business model requires that it become a dominant platform. With a series of Georgia Tech-style deals for entire degree programs, it could leverage university content — with sustained free-riding -- to appear to the public as a global university.
For two years, claims about the cheapness of the MOOC format overcame widespread doubts about their educational and social effects. During this time, the main MOOC companies did not release specific financial projections. Now we finally have two spreadsheets, and their claims to cheapness are not confirmed.
If these costs are typical, it will be more efficient for universities to partner directly with other universities to develop online instruction for underserved students -- and avoid taking on yet another middleman to do one of their two basic jobs.