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Maximum Education or Maximum Revenue?

College officials may favor their own online courses over less costly ones offered by others.

By Burck Smith

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June 20, 2012

Colleges and universities have a private-sector business model combined with a public-sector mandate. As competition from low-cost and even free online courses proliferates, the tension between many schools’ private interests and their public mandate will become more and more pronounced.

This may be tricky to explain, but let’s start by thinking about graduation ceremonies. The long robes, silly hats, multi-colored sashes, and the solemnity of the occasion create a sense of continuity, extending all the way back to the Middle Ages. In this model, where one group welcomes a new member, the granting of a credential is a “private” asset.

By “private,” I mean that the decision to award or withhold the credential lies with the group, and the group determines the standards. The “private” credentialing model resembles the inclusion in a guild or the completion of an apprenticeship.

While this iconic model continues to thrive, particularly among small liberal arts colleges, many students now have a very different college experience. For them, proofs of course-completion—i.e., credits—are increasingly accumulated from multiple sources. Students may earn some college credit while in high school, continue at a community college, move to a public university, take coursework from an employer, or, now, from many alternative providers of college courses.

To the extent that they’re transferable, these credits are eventually assembled into a publicly recognized degree that is conferred by one of the colleges, usually the last one the student attends. In fact, various terms are popping up to describe this phenomenon such as “DIY U,” “curating the degree,” and “stackable credentials.”

With stackable credentials, the authority to grant a degree or course credit becomes a “public” asset. By “public,” I mean that the student has met standards that apply to a wide variety of institutions. Getting a diploma is a little like getting a building permit or a driver’s license or passing a bar exam. Individuals who meet the standard are entitled to the credential—unlike the private credential, which is determined by the group that accepts its graduates.

As free or low-cost online courses that are comparable to a college’s own online courses become widely offered by many providers outside of the accredited environment, the credentialing element of a college’s mission becomes more important than the course delivery element. Because alternative providers of college courses are not allowed to participate in the existing accreditation system, they must rely on the good faith of those with “public” credentialing authority. This tension will require colleges and policymakers to think much more carefully about where degree-granting authority originates and the responsibilities that it entails.

For several years, my company, StraighterLine, has offered online courses that are ultra-affordable because we do not price our courses as if they had the same overhead as face-to-face courses. Recently, many others have jumped on the bandwagon. Joining StraighterLine is a mix of for-profit and non-profit entities—Harvard’s and MIT’s Edx, Coursera, Udacity, Cappella’s Sophia, and Pearson’s Propero—all offering free or very affordable, unsubsidized online college courses. Because these providers offer individual courses, rather than full degrees, they exist outside of the accreditation system and students must rely on other institutions to accept them for credit.

This explosion of free and low-cost course providers shows that online courses ought to be much less expensive than face-to-face courses, yet 93% of colleges price their online course the same or higher than their face to face courses. By next year, I predict that both students and policymakers will start asking tough questions about why accredited colleges don’t pass cost savings derived from online delivery to students in the form of lower prices. Because of questions like these, every college that operates primarily under a “public” credentialing model will need to figure out a strategy to deal with new, extremely affordable options available to students.

Inevitably, as colleges struggle with competition, they will be torn between using their credentialing authority to better sell their own courses rather and allowing students to choose the courses offering them the best value. Will they uphold the public trust that is manifest in degree-granting authority—or use credentialing to pursue profit-maximizing strategies?

The use of credentialing authority to protect or create revenue and profit is not new. Today’s byzantine course articulation and student transfer system is a result of colleges being reluctant to recognize courses from other schools. However, the extension of selective credentialing into the online world allows colleges to keep online prices high while driving the cost of delivery way down—thereby substantially increasing profit margins.

One common practice is to enter a revenue-sharing agreement with a for-profit outsourcer. Such a relationship allows a college to quickly create a new revenue stream with substantial profit margins, which it shares with its for-profit partner. That is good for the college and good for the partner, but it keeps prices much higher than they should be for the online student.

 For instance, Arizona State University Online, a revenue-sharing relationship between Pearson, a for-profit company best known as a publisher, and Arizona State University (ASU), yielded $6 million in profit in 2011 for ASU. Projections are that it will yield $200 million in profit by 2020. Many other non-profit colleges with large online programs tout the substantial profits generated by online programs that are re-invested in on-ground facilities. Thus, online students are being substantially overcharged to generate profits that subsidize face-to-face learners, faculty and administrators.

These business strategies would be fine if colleges were businesses subject to the competitive pressure of the marketplace. Each college would develop its best model and compete equally on quality and price. But nearly all colleges are supported by direct and indirect taxpayer funds and many colleges have direct government backing and support. This preferred market position, combined with the lack of objective and public standards for course recognition, creates a tension between “public” degree-granting authority and the revenue-generating engine of course delivery.

Though colleges are not accustomed to seeing themselves as licensers, the explosion of possible providers of online courses changes the public’s requirement of many of the nation’s institutions of higher education. Colleges are no longer the sole provider of college coursework. More than ever, they are needed as credentialers of other providers’ coursework.

This new role requires the kind of objectivity and transparency expected from licensing agencies and written into government contracting processes. Without these basic safeguards, the “degree” will be less a measure of student accomplishment and more a tool to drive revenue.

 


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