Kevin Carey's essay in The Huffington Post last week, "The Creeping Capitalist Takeover of Higher Education," struck a nerve among many people in and around higher education. Fans of the piece characterized it as a tour de force documenting, at a key moment, the growing influence of outside companies in delivering academic programs for public and private nonprofit colleges; critics described it as mistakenly or excessively blaming the outside companies for high prices of online learning (as opposed to a symptom of the problem) and for ignoring such key issues as educational quality.
2U's Chip Paucek Responds
The primary target of Kevin Carey's
broadside against OPMs says the
author ignored important issues such
as quality and outcomes. Read the
2U response here.
Both assessments have validity. Carey has a track record of capturing and documenting important developments in higher education, and his piece channels growing unease about the role and influence of corporate players (which have long enabled administrative operations on campuses -- think bookstores and dining and housing) on the academic side of the postsecondary education enterprise. These are not new issues, but Carey parachutes into them in a compelling way at a time when Democratic politicians and others are paying increasing attention to them.
That's also part of the problem with the essay: it often reads more like a political document (which 2020 Democratic candidate will be the first to quote from it?) than a piece of reportage. It's important to remember that Carey's a think tank analyst, not a journalist. So it approaches the complex issues in the sort of narrow way that some consumer advocates might.
"Inside Digital Learning" asked a selection of campus leaders, online learning experts and researchers to offer their thoughts on what Carey's takedown of online program management providers, online pricing and the corporate influence in higher education got right and wrong. The commenters include advocates for online education (and supporters of the use of outside companies to provide it), as well as critics of digital education who think Carey focused on the wrong problems. (For another perspective, please see Josh Kim and Eddie Maloney's assessment, also published today.)
We encourage you to add your thoughts to the conversation in the comments section below.
Aaron Barlow, professor of English, New York City College of Technology of the City University of New York
I found Kevin Carey's piece depressing, but not for the reasons many of the other commenters here probably did.
Carey believes one can get a reasonable undergraduate education online. I think that is extremely rare. My experience with distance education goes back more than 30 years; I know what its uses and limitations are. In particular situations, when students are unable to take advantage of face-to-face instruction, distance, now online, education can provide a viable alternative -- but it is never optimal. The best education always includes extensive personal interaction between student and instructor -- and not interaction mediated by the mail, the phone or the internet.
But that’s not what I find so depressing.
Everyone with serious experience in education knows this is true: good education requires close student/faculty interaction -- even Carey knows this, though he may not want to admit it, still excusing distance learning, even while pointing out the damage its misuse causes. The evidence, though, is right in front of all of us: students and their families pay upwards of $60,000 a year not simply for “name” education but for the heavyweight and very real education behind the name. Students clamor to get into the ivies and to Oberlin, Reed, Haverford and all the other small residential private colleges providing impeccable educations through the opportunity to work closely with faculty. No one, except someone conned into equating the name with the education, would pay the money these schools cost for an online alternative.
Except, as I said, if they are swindled.
This swindle lies behind Carey’s essay. To save money, many universities are moving more heavily than ever before into online education, charging as much, sometimes, for their new courses as they do for their more costly (to the institutions) on-campus courses. Even public institutions are involved: they charge the same for online and hybrid (partly online and partly classroom) courses as they do for classroom-based ones, though it costs much less for the institutions to offer such courses. This saves so much money that the colleges and universities are loath to signal that they are providing a lower-standard product through their online and hybrid catalogs. So, they maintain the fiction by charging the same for both. They want to keep that money coming in; they don’t feel they can afford to admit, through a separate pricing structure, that the online and hybrid courses are not on the same level of instruction as what goes on when the focus of education is at least three hours a week of personal “interface.”
Carey argues, without meaning to, that this reluctance to admit that online education is second-rate has opened the door for an entirely new corporate intrusion into education. Companies are “assisting” universities with their online programs and, according to Carey, are siphoning off a percentage of the huge and growing amounts of money involved for this ersatz education that is so much cheaper to provide. This, he claims, could be the death knell for education as we have known it, for the style of education that has made American universities the envy of the world.
Toward the end of his long article, Carey comments:
As our most trusted universities continue to privatize large swaths of their academic programs, their fundamental nature will be changed in ways that are hard to reverse. The race for profits will grow more heated, and the social goal of higher education will seem even more like an abstraction.
The situation is actually worse: even public institutions that are not outsourcing the digital structures for the online courses that bring in so much more profit are part of this race. Faced with diminishing governmental support, they scramble to find ways of approximating the education they once provided, doing so with reduced resources. To keep this up, they cannot admit that they are shortchanging their students any more than they can admit that they are cutting corners through their increased reliance on adjuncts (who may be fine teachers but who are exploited and, often, overworked as they move from campus to campus).
The idea of a college education as America once saw it (meeting Carey’s “social goal of higher education”) is dying -- instead of something dedicated to the improvement of the whole of each student, it is reduced to simple certification, to quantifiable outcomes instead of development of well-rounded and really educated citizens.
We know this. But no one is willing to admit the obvious and do something about it -- for that costs public money and reduces private profit.
There’s just too much money in the charade, in keeping people believing that the Scarecrow does, in fact, get smarter when the Wizard of Oz hands him a diploma.
And that is very depressing.
Tony Bates, board director, Canadian Digital Learning Research Association; Distinguished Visiting Professor, G. Raymond Chang School of Continuing Education, Ryerson University
Kevin Carey’s article raises many serious questions about the costs of higher education in the U.S.A. As a Canadian, I’m going to pass on many of his points, but I want to address one particular claim -- that institutions could radically reduce the cost of tuition through greater use of online learning.
I’ve spent many years looking at the relative costs of campus-based and online learning, both as a program director and as a researcher. Over all, there is an element of truth in Carey’s claim, but it’s not as clear-cut as he suggests.
Cost is a function of design. You can do online learning cheaply (and badly) or well, the difference usually being related to the amount of interaction with, and the quality of, the instructors. Delivery costs (providing learner support and assessment) tend to be lower, especially as the size of the course increases, because more contract (and hence lower-paid) instructors are used for the extra sections.
However, development costs (preparing quality online courses) tend to be higher, usually involving tenured faculty and also learning technology specialists/instructional designers. Thus there can be some small economies of scale, if the courses attract larger numbers of students, without loss of overall quality.
There are also opportunities for some economies in capital costs. In Canada, we have 82 universities and 152 community colleges. The number of students taking online courses for credit is equivalent to about four campus-based universities of 27,000, and five community colleges of about 10,000 students. Without online learning, there would certainly need to have been more capital expenditure to accommodate this demand. But we are looking at around 10 percent of all enrollments being in online courses (the figure is higher in the U.S.A., but not by a great amount). There is certainly room for more growth in online learning, but not enough to radically reduce overall capital costs.
The problem is that many students need an on-campus experience, and that’s what parents especially are paying for. Campus-based and online students are often very different, with younger students needing the security of campus, and older students needing the flexibility of online learning, so campuses can’t be entirely replaced by online learning.
In Canada, very few institutions use OPMs (almost all institutions do their online learning in-house, because as one provost put it, "online and digital learning will be part of our core competency in the future.") However, tuition fees for online courses or programs are still the same as on campus programs, and the institutions are not rolling in money as a result, although tuition fees are generally much lower, around $5,000 (U.S.) a year.
Certainly in the U.S.A., OPMs are sucking money out of the system, as are for-profits. However, neither of these conditions apply in Canada. Tuition fees are lower because provincial governments in Canada better support higher education institutions financially than do the state governments in the U.S.A.
Sandy Baum, nonresident fellow, Urban Institute
The most critical component of democratizing access to high-quality higher education is quality. No matter how low the price, we cannot meet the needs of low-income and at-risk students if the institutions and programs to which they have access do not provide real opportunities to become engaged citizens with rewarding career paths.
Kevin Carey does a great service by highlighting the serious implications of using online education as a profit source rather than as a route to expanding meaningful educational opportunities. Reversing this trend before it damages the lives of millions of students is critical. But Carey underestimates both the correlation between costs and quality and the extent to which fully online education -- even in this era of technological advance and experience with this mode of instruction -- can be detrimental to outcomes for underprepared students.
As Spiros Protopsaltis and I detailed in our recent report, there is powerful evidence that fully-online course work increases socioeconomic disparities in outcomes, rather than achieving the goal of narrowing the gaps. Unlike hybrid models, in which technology enhances classroom learning, fully online courses too often lack the frequent and meaningful personal interaction between instructors and students -- and among students -- that is a fundamental component of learning.
Paying high prices is obviously a problem for students. Of course, the availability of federal student aid to help pay these prices is a primary driver of the phenomenon Carey describes. The students can postpone the pain until the loans come due. But even if prices for online course work were to fall significantly, students who lack the experience, skills and self-discipline to learn and to persevere to the end of programs that are basically self-taught would pay a high price for missing out on the classroom.
Even without paying tuition, they would be putting considerable time and effort into their attempts to earn college degrees and might be sacrificing earnings by limiting their work hours. Having their dreams shattered by their failure to complete credentials -- or by discovering too late that the credentials they do earn have minimal value in the labor market -- is a more serious problem than just overpaying for tuition.
Kevin Carey’s analysis of the success of for-profit entities in controlling a large share of the online course offerings of public and private nonprofit colleges and universities provides a sobering reminder of the challenge of maintaining a student-first higher education system. It is difficult to fathom how we have failed to learn the lessons of the risk of an unfettered profit motive in higher education.
Policy makers should wake up to the urgent need for thoughtful laws and regulation that adapt to the changing times and ensure that all institutions focus on providing a quality education to students -- particularly those most dependent on personal and academic support to succeed.
Jonathan D. Becker, associate professor of educational leadership, Virginia Commonwealth University
Is it better to eat at fast food restaurants or to eat homemade food? Well, to feed my family, I can go to Wendy’s and get healthy salads. And, at home, I can throw potatoes into oil and fry them. Nutritionally, then, Wendy’s is better. Financially, though, I can make many more fried potatoes for a lot less money than continually buying salads at Wendy’s. We all know, ultimately, that the most cost-effective way to eat is to prepare healthy food at home. There are likely some up-front costs to being able to regularly prepare healthy food at home, including having the right equipment, including pots, pans and knives. But, in the long run, I am best positioned to do the right thing for my family (and me), who will be consuming the food.
While not a perfect analogy, this is how I think about the relationships that have developed between universities and the online program management companies that Kevin Carey writes about.
Outsourcing vs. building institutional capacity. This is a time-honored dilemma for leaders of organizations looking to grow in a new direction. It is certainly a decision that has nagged leaders in higher education chasing new enrollments (and new revenue) via distance education. Offering new online programs requires a suite of services, ranging from marketing to instructional design, that many institutions of higher education either lack the capacity to do altogether or where they are understaffed to handle growth at scale. For those who seek to outsource those services rather than build capacity, OPMs are more than eager to help.
My bias, in most instances, is toward building institutional capacity, especially when it involves a core function like academics. I believe that universities looking to grow their distance education offerings should invest in preparing healthy food at home. They should spend money up front to hire visionary leaders, instructional design talent and student support staff. Outsourcing to an OPM might get you high-quality courses and programs, but they would necessarily be costlier to the consumer, like the Wendy’s salads.
Thus, Kevin Carey and I agree that universities are not doing best financially by their consumers by partnering with OPMs.
Where we disagree is on how much universities would save by offering homegrown online courses and the related issue of what kind of courses they should be offering. Of online courses, Carey claims, “They are also a lot cheaper for universities to run. There are no buildings to maintain, no lawns to mow, no juice bars and lazy rivers to lure new students. While traditional courses are limited by the size of a lecture hall, online courses can accommodate thousands of people at a time.”
Sure, they can. I can, in theory, prepare food at home for thousands of people at a time. But I promise you it won’t be nearly as good as the meal I make for just my family or even a party of 10 or 20. Readers of this article have surely experienced the rubber chicken circuit that is large academic conferences. I don’t want my students regularly consuming rubber chicken.
In the end, I’m not as convinced as Carey that online learning is “the best opportunity to radically drop the price of a good degree.” There may be ways to offer some homegrown, high-quality online programs in ways that are more cost-effective than some traditional, face-to-face programs; this remains an empirical question to me. Carey and I do agree, though, that if a goal is to lower costs to students, partnering with an OPM … ain’t it (as the kids these days say).
Brendan Cantwell, associate professor, department of educational administration, Michigan State University
Kevin Carey brought needed attention to the potential problems of outsourcing to online program managers. Higher education has a long and uncontroversial history of outsourcing. OPMs are different because colleges and universities can hand over the core job of delivering academic programs. Carey's concern is that tuition-thirsty institutions and profit-seeking companies charge high prices, which seems at odds with using technology to drive down tuition. I share Carey's worry about affordability, but I think the profit, the product and processes are as important as the price.
The problem with profit is simple -- it siphons money away from education. OPMs often enter revenue-sharing agreements, sometimes getting the majority of program tuition. Most public and private institutions provide a subsidized education. Even when tuition prices are high, students are getting more education than they pay for. One of the reasons for-profit colleges can be a lousy deal for students is that they often spend much less on education than students pay in tuition. When the for-profit model is brought to public and nonprofit education, revenue is redirected from higher education and cannot be invested in educational missions. Every tuition dollar for an OPM is a tuition dollar that cannot be used to support higher education's education, research and service missions.
Quality in education is a tough concept to pin down, which may explain why Carey gave it only limited attention, but it matters. No student -- paying a high price or no tuition at all -- ought to be offered a poorer education. One recent study suggests student-instructor interaction in online programs is a key to quality. While it is certainly possible for OPMs to be involved in good-quality programs, revenue and profit goals run counter to the cost-intensiveness of individualized instructor attention. And when OPMs are owned by companies that publish textbooks, a single company can hold near monopolistic control over students’ education, which doesn't seem like a recipe for quality higher education.
Finally, the process also matters. Institutions often turn to OPMs in order to launch a program quickly and generate revenue fast. Administrators looking to make a name for themselves as entrepreneurial or solutions oriented can be tempted into making long-term deals with OPMs. These deals can go south, and even when they work may inhibit institutions from developing internal capabilities for online education. When administrators move on after making these deals, it is the faculty and students who are left holding the bag.
Justin C. Ortagus, assistant professor of higher education administration and policy and director of the institute of higher education, University of Florida
The Huffington Post article by Kevin Carey outlined several troubling trends related to the growing prevalence of partnerships between several leading universities and online program managers. The first and most important point to make is that Carey raises valid concerns about some exploitative practices of OPMs and the inherent problems associated with entering into partnerships with for-profit entities with completely different missions than nonprofit colleges and universities.
However, Carey paints with broad strokes on occasion and overlooks many complexities related to the cost (and pricing) structure of online education in higher education.
Contrary to the information presented in Carey’s article, online education is not necessarily “a lot cheaper for universities to run” when compared to face-to-face education. The cost structure of online education is associated with economies of scale, which suggests that the cost advantages of online courses are present at larger enrollment levels. Online degree programs require significantly higher up-front costs to develop their online courses.
These substantial up-front costs are typically driven by a combination of course infrastructure, instructional designers, production specialists, multimedia specialists, and other support personnel. For online degree programs committed to efforts designed to ensure high-quality online instruction, such as enrollment caps and the use of the same faculty who teach in the face-to-face programs, the provision of online education can be more expensive than face-to-face education and take numerous years to recoup those initial investments in online degree programs.
Despite the challenges associated with merely offering online courses at a lower price, some online degree programs at the undergraduate level, such as UF Online, already charge lower tuition and fees when compared to the face-to-face offerings at the same institution. However, Carey’s essay provides examples of exorbitant prices related to a select number of online graduate degree programs at highly selective universities, which is not reflective of the pricing structure of online degree programs at the undergraduate level.
In addition, certain disciplines and types of courses are more conducive to scaling up through online education than others. Cost efficiencies through online instruction can surface when offering high-enrollment courses or using less expensive faculty to reduce personnel costs, but these types of cost-saving strategies cannot be decoupled from legitimate quality concerns associated with making such decisions.
Although I’ve raised concerns about the idea of using a select number of online graduate degree programs to make overarching points about the cost (and pricing) structure of online education in higher education, Carey is justified to be concerned about the rationale of widespread partnerships between OPMs and nonprofit colleges and universities, particularly when these partnerships lead to the perverse incentives and extreme tuition prices identified in the essay.
Online education has the potential to remove time and location constraints for students who may not be able to attend college without online options, but the democratizing mission of online education crumbles when we value profit margins over student outcomes. Moving forward, policy makers should offer improved regulatory scrutiny of all types of online degree programs to protect students and ensure that online degree programs prioritize affordability and high-quality instruction over shareholder value and disproportionately high expenditures on marketing and recruitment efforts.
Matthew Rascoff, associate vice provost for digital education and innovation, Duke University
Among the perils of education innovation work, the most predictable are the swings between euphoric utopianism and disappointed dystopianism. In technology this phenomenon has been charted on a graph and given a name: the "hype cycle." The cycle begins with a discovery that triggers widespread excitement. Before long, reality sets in: it's not going to be as easy as we thought. Welcome to the trough of disillusionment. Finally there's a gentle slope up the plateau of productivity, as we figure out how to meld the innovation with the built environment and mold it to solve problems.
Maybe because the stakes are so high, or because the need is ubiquitous, education seems to amplify the hype cycle's extremes. Education is a labor-intensive human endeavor, and humans and their institutions do not change overnight. Improvement is incremental. So the highs are exaggerated relative to the actual pace of the diffusion of innovations. But the lows are also often too low, since history shows that progress is possible. Slow and steady change requires moderation. Education leaders should, like central bankers, take away the punch bowl just when the party is getting going. But we also need to bring it back when the party needs a boost.
In 2015 Kevin Carey wrote in his book The End of College of a dream of a "university of everywhere," where knowledge that had been “scarce and expensive for centuries will be abundant and free.” It was a magnificent utopian vision. Now he argues that online learning has been captured by capitalists who are "devouring" a public good. This essay is pure disillusion. I suspect Carey may need a boost.
His journey exemplifies some common contradictions about higher education today. Listen to the Silicon Valley rhetoric of disrupting college or read clickbait stories of six-figure student debt and you'd never guess that, in fact, the economic return on a degree remains healthy. Confidence in higher education is declining at a time when advanced learning and credentials are becoming essential to success in the knowledge economy.
Carey thinks capitalism ruined his dream. The practices of some corporations in higher education have been truly egregious. But in his zeal to call out the malefactors, he missed more recent positive developments, many of which involve start-ups offering a better deal to students and schools.
Mission-driven mega-universities: Most recent online enrollment growth has actually been at large-scale, mission-driven national online providers, who are driving down tuition through competition, without OPMs. Southern New Hampshire and Arizona State are respectively nonprofit and public universities building low-cost, high-value national online programs. Prospective students have woken up to the quality problems at for-profit universities, whose enrollments are in free fall. Converting to nonprofit status may reduce their regulatory burden, but it won't clean up their contaminated brands unless they improve quality. Prospective online students who used to go to the University of Phoenix now have a better alternative in their neighbor, Arizona State.
Low-price alternatives: Not all "capitalists" are approaching online pricing the way Carey describes. 2U and its university partners set tuition at the same rate as equivalent residential programs. “Value-based pricing” at "willingness to pay" is what marketing professors would typically recommend: the credential is the same, the value is the same, so why shouldn't the price should be the same? New entrants, though, are experimenting with low-price strategies that are showing promising results. By examining the behavior of applicants who just missed the admissions cutoff, Harvard economist Joshua Goodman showed that by lowering the price of the degree, the Georgia Tech master's in computer science program expanded the market: “By satisfying large, previously unmet demand for midcareer training, this single program will boost annual production of American computer science master’s degrees by about 7 percent,” Goodman and his colleagues concluded. That was a crucial finding about the elasticity of demand for professional master's programs. Low-price scalable programs grow the pie.
Online learning innovators took note: Coursera and its university partners' "stackable" professional master's degrees are priced using a low-price strategy similar to Georgia Tech's. Compare tuition for the University of Illinois online M.B.A. on the Coursera platform ($21,384) vs. the UNC-Chapel Hill online M.B.A. on 2U ($124,345). Similarly, compare the master's in computer science from the University of Pennsylvania on Coursera ($26,300) to the same degree from Syracuse on 2U ($46,770). Indeed, the day after Carey published his essay, Coursera and its partners announced six new low-price online degrees, bringing the total to 14. There is evidence that learners are discerning that an online M.B.A. from UNC and 2U is not worth six times the price of the same degree from Illinois and Coursera. The best response to high prices is competition, scale and transparency.
OPM alternatives: There is no question that many current OPM revenue splits are lopsided in favor of vendors. (Coursera's partnership model also involves a revenue share, but it skews in favor of schools.) But the writing is on the wall for OPM revenue sharing. Noodle has led the way in developing a fee-for-service alternative, and it has recently signed deals with such institutions as the University of Michigan's Ross School of Business and NYU’s Wagner School. But Noodle is not alone. iDesign, another OPM Carey mentioned but seemed to miscategorize, also works on a fee-for-service basis. As does Extension Engine, which helped Notre Dame with its data science master's and Harvard Business School with HBS Online (formerly HBX).
Employer sponsorship brokers: A new "perpetual learning" movement is rising, and start-ups are springing up to serve it. As state governments have reduced funding for higher education, and federal financial aid has fallen behind costs, employers are stepping into the breach. New intermediaries are facilitating employer investments in higher education for their work force. Guild enables corporate chief learning officers to subsidize online degrees from nonprofit and public online providers. Through Guild, even Walmart is paying for its workers to earn a bachelor's degree at an out-of-pocket cost of $1 per day. ASU pioneered this model in 2014 with its Starbucks partnership, which now accounts for one in seven students at ASU Online. Michael Crow recently announced that ASU will spin off a new for-profit startup called InStride, with a model similar to Guild’s, brokering employer sponsorship partnerships between companies other than Starbucks and research universities other than ASU.
Degree completion: ReUp Education is a start-up service provider to colleges and universities that helps them re-recruit students who stopped out to finish their degrees online. There are tens of millions of students with some college, no degree, many of whom have student debt but little or no wage premium to help pay it back. In the past three years, ReUp has succeeded in bringing 7,500 students back to college to finish their degrees.
Coursera, Guild, InStride and ReUp are all for-profits. They're no less capitalist than 2U. But far from devouring higher education, they are feeding its improvement by giving schools more options in developing, financing and marketing online programs. In each case, students are benefiting.
The story of education’s digital transformation is more nuanced than the soothsayers would have you believe. We are not about to cross into the promised land. Nor is doomsday imminent. Capitalism represents neither the salvation nor the destruction of higher education.
Higher education leaders should adopt a pragmatic approach: embrace technology and partner with vendors where appropriate to our goals. Ignore them where not. To keep our eyes on our missions, we need to tune out the hype.
Deborah Seymour, principal, Higher Education Innovation Consulting
The critical question is the one with which Kevin Carey begins, which is: Why is college so expensive today? Carey’s response is that the feature that uniquely drove up prices was the advent of online learning. This is not obviously so, and although Carey’s piece is well written and includes many important facts and valid assertions, this is where he begs the question in order to make his own argument. It’s an oversimplification to assert that college prices are being driven by online program pricing structures. The expense of intercollegiate athletics has gone up, the price of real estate in many geographies has risen and many more factors are in play.
But even disregarding this somewhat misleading segment in the introduction to the article, it’s worth noting that the start-up cost of moving to online degrees is, actually, rather high. For the most part, it’s only once they’ve been up and running for several years that the cost decreases to actually being lower than campus-based programs. One other feature of initial offerings of online programs is that the really poorly planned ones show a hockey stick slope to the break-even point and certainly to profit or surplus, and yet the EBITDA of running such a program, whether through an OPM or in-house, is somehow never discussed in these articles.
The introduction of online programs to an institution can often be viewed as a cash cow to supplement decreasing in-state enrollments or to grow out-of-state enrollments. The ramp-up time for creating these programs in house can be lengthy, and boards or college executives often wish to move more quickly than this process feasibly can.
Hence, the OPM. But do OPMs unreasonably raise the cost of offering online programs? Is the quality of OPM offerings consistent across the board? Is the institution significantly enough involved in the building of the programs and, crucially, in their quality assurance? These are the real questions to be asking.
The argument can be made that if the OPM is chosen well, and the institution is sufficiently involved in the activities of the OPM, and with some solid oversight, at least the quality issues can be addressed. In terms of costs, once again, unless there is significant internal expertise within the institution, the work falls to the OPM and a premium might be charged depending on the program or the intended audience. But, as Carey points out, marketing costs can be incredibly high, and so institutions have to make informed decisions along with their OPM as to allocation of funds for marketing efforts. Too often, however, internal discord within the institution may by default allow the OPM to make decisions unilaterally on their behalf, and then costs may not be sufficiently contained.
At the end of the day, John Katzman is right about one important point. We cannot stop the world from going digital, and this includes higher ed. So it behooves us to find the healthiest and most pragmatic answers to all the questions that are being raised by Carey.
Trace Urdan, Tyton Partners
Kevin Carey is mad that USC is selling an online master’s degree in social work for $107,000 and mad that UNC is selling an online M.B.A. program for $125,000. He blames capitalism. On their own, he posits, in a cost-based pricing universe, these universities would be slashing the prices of these elite graduate programs. But instead, goaded by profit-seeking corporate partners, they are “gouging students” and the great promise of online education is wasted.
But surely this is silly. Mostly Carey doesn’t like profit making in higher education (the selling of books about higher education notwithstanding, of course) and because he can find no examples of actual harm resulting from these programs, he has blamed them for higher ed price inflation.
But higher education pricing at the master’s level is not cost based. Among the elite schools that Carey holds up, it is value based. A Harvard Business School M.B.A. is $147,000, while a University of Rochester M.B.A. costs $92,000, not because Rochester administrators are superior at managing their costs, but because these are the prices that buyers believe these programs are worth.
And on this basis, there is every indication that these prices are the right ones. Students attending OPM programs at these elite schools are thrilled with their high-quality, highly convenient online programs. Employers seem every bit as thrilled by the online version of these degrees as they are by their ground-based equivalents, and taxpayers are seeing their loaned dollars repaid with interest.
And the universities are deploying the profits as they do in every other aspect of their convoluted financial systems: they are using them to cross-subsidize other socially beneficial activities. The M.B.A. profits are supporting programs that do not earn a profit. They are paying for operating costs elsewhere in the university that are allowing these schools to offer generous undergraduate financial aid and replace aging physical plants. They are helping to keep these institutions (which are really quite bad at managing costs) solvent.
Could they charge less for online courses on a cost-based model? Yes, absolutely. Would they? Never. Without the ability to maintain their premium signal, and without the associated financial benefit, they would have no adequate incentive to pursue these programs at scale.
But OPMs have yet to make a meaningful dent at the undergraduate level (Carey glosses over this point in his article). So is it possible that if they did enter the undergrad market in a meaningful way that they could ossify already high prices or, even worse, drive them higher?
Again, this is fundamentally silly. This is not how capitalism works. So far, OPMs have tended to avoid undergraduate markets at scale because in that market, which to date has been primarily focused on degree completion, prices for online programs have been declining. The transparency and absence of geographic considerations have made undergraduate online programs more price competitive. If, in the future, OPMs like Grand Canyon or Zovio (née Bridgepoint) that are more comfortable at these lower price points enter the market, they will have to compete with the likes of Southern New Hampshire University at $320 per credit hour, or Western Governors University at $175 per credit hour.
Of course, there is still the possibility that elite schools could enter at elite prices -- indeed, the University of Pennsylvania has announced a new undergraduate online degree priced at an impressive $750 per credit hour. (And Penn has chosen this price all on its own, without any OPM influence.) Whether Penn’s high price was chosen for signaling purposes or because, without the help of an OPM to provide world-class operating models to scale, this is as low as they could get the cost, is unclear.