College Education Costs Are Likely to Drop at Least 50% — without Government Intervention

This article appeared in Forbes​.com on August 26, 2013.
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After the federal government has injected more than $1 trillion into higher education, doing more than anything else to inflate the cost of higher education — now comes President Obama who claims he can reduce costs with even more intervention.

Obama offers the latest of his command‐​and‐​control schemes: government‐​controlled ratings of colleges and universities that would help determine which institutions get government money and which institutions are denied. Of course, the Department of Education wouldn’t politicize college ratings like the IRS.

This is the same man who, while he was promoting government‐​run health insurance, vowed that it would lower health insurance premiums and that “If you like your health insurance plan, you can keep it” — until health insurance premiums soared, and people began losing their health insurance plans.

The fact is that nothing he’s proposing would stop the inflation of college costs, as long as more dollars — via subsidized student loans — are chasing basically the same number of college openings. The gusher of federal money has encouraged more students to go to college — more students than there are jobs requiring a college degree. This, in turn, has encouraged colleges to spend more money on everything. Colleges have learned they can endlessly hike their rates, and next year there will be even more applications. The richest colleges, with endowments in the billions, hike their rates like everybody else.

I’m in the midst of all this, because three years ago my son entered a top tier research university, and the cost of tuition, student life fee, room charge, meal plan and insurance was about $60,000. My daughter will be attending the same university, and the tab is now about $66,000. That’s up 10 percent in three years. Higher education inflation has soared about 900 percent during the last 30 years. The education is great, but there’s the prospect of worrisome debt.

Ironically, Obama’s effort to gain more control over colleges and universities comes as the private sector is in the early stages of cutting college costs dramatically — if the government doesn’t interfere. In free markets, high prices give people powerful incentives to develop options, and that process is well underway.

Privately‐​funded technologies have sparked a revolution in the education business whose basic method — bring together a wise teacher and a motivated student — haven’t changed much since the days of Socrates, Plato and Aristotle. Oxford University has had the same model for almost a thousand years.

Salman Khan, a former hedge fund analyst, showed how dramatically and inexpensively all levels of education could be improved with simple online methods like a computer blackboard. His Khan Academy videos have reportedly been viewed more than 200 million times by people around the world.

Consider undergraduate lecture classes, the biggest moneymakers in the traditional college curriculum. A lecture class is often attended by hundreds of students — the largest number supporting a single professor’s salary.

Because these are such big classes, there isn’t much opportunity for students to ask questions or interact in other ways with a professor. Consequently, lecture classes could be replaced with online learning programs that feature recorded presentations by the world’s best professors, regardless where they might be affiliated. Even the most humble college could arrange for its students to benefit from the best professors.

Such programs could incorporate a wide range of visual elements, including illustrations, video clips, computer graphics and animation, to enliven presentations and help students retain more.

To get an idea what recorded lectures might look like — without much in the way of video enhancements — one need only look at the website of the Teaching Company, now known as Great Courses. For a quarter‐​century, it has been identifying and recording hundreds of lectures by America’s best professors on science, mathematics, history, geography, art, music, philosophy, social science, foreign languages and much more. Audio and video recordings are available. They’re fabulous. Course costs vary with the length. They range from $30 to several hundred dollars, and Great Courses seems to haves sales every month.

Who decides which professors qualify as the best? The customers. Individuals or colleges are free to choose the professors whose presentations they want to use in their programs.

Because such programs could be licensed to large numbers of institutions, the cost to licensees would be less than having a best professor on staff.

Note that the process of showing students presentations by the best professors is like selecting textbooks. College departments are likely to choose better textbooks when they have more choices. What college would be so backward as to insist that a textbook could be assigned in a class only if it was written by one of the college’s professors? That would mean less choice and almost certainly inferior textbooks.

Online learning isn’t poised to replace only traditional lectures. It could replace most general education requirements, except perhaps for those requiring lab work. All these could be better handled by recorded presentations from the best professors. Why would a student want to be limited to professors who happen to be based at a single campus, when the best, wherever they might live, can be seen with a few clicks?

Increasingly sophisticated software, Dan W. Butin, an author and professor of education, explained in eLearn Magazine, aims to include “an adaptive testing model in which students are presented with a question about a lecture topic at an appropriate level of difficulty based on their correct or incorrect answers to previous segments. As students demonstrate mastery at specific levels, they can move forward. In the event of incorrect answers, they are sent to subprograms to test for and support key background skills and knowledge. Such subprograms, in turn, could make use of a wider set of resources that students work through until they are able to rejoin the course at the point at which they were first stumped. These subprograms could themselves be liked to a formidable array of computer‐​based intelligent tutoring systems (ITS) that have been shown to be as effective as human tutors by mimicking real‐​life tutors as they ‘walk students through’ a problem and its solution.”

Butin added, “Well‐​designed studies have begun to show that not only are such automated models as good as human teaching or tutoring, in many cases they increase certain types of learning by 20–50 percent.”

Upgrading college lectures and most general education requirements while cutting costs with the best professors would pose two challenges for colleges.

First, lucrative undergraduate lectures and other large introductory classes enable a college to take money from undergraduate families and give it to somebody else who’s probably not benefiting their children — namely, graduate school professors with perhaps a half‐​dozen graduate students in, say, a Ph.D. seminar.

Because colleges are squeezing undergraduate families so much, colleges shouldn’t count on them to subsidize somebody else’s graduate education forever. Higher unemployment and/​or federal financial problems that result in student loan cutbacks could mean serious resistance to escalating college costs.

Without subsidies from undergraduate families, money to support graduate programs would have to be obtained from other sources, or graduate school fees would have to be raised quite a bit until they cover the cost of graduate education less whatever portion might be borne by endowment funds.

Many professors working with graduate students are among the best professors and could earn their keep by developing recorded presentations for undergraduates and graduates, used at their home base as well as licensed for use at other institutions.

If a professor is a Nobel Prize winner or considered to be on a Nobel short list, he or she could be a draw for donors despite focusing on research and minimizing time with students. Otherwise, a research institute might be a better fit than a college or university.

The second challenge of replacing big lecture classes and other large introductory classes with online presentations by the best professors is what to do with non‐​best professors under contract to a college. If they don’t develop competitive presentations or contribute in other ways to a best‐​professor system, then probably their contracts shouldn’t be renewed, so that costs can be reduced. These people are likely to be the most vocal opponents of cutting costs.

Colleges are likely to find themselves in the same position that Hollywood movie studios faced with the coming of talkies during the late 1920s and early 1930s. While old contracts obligated studios to continue paying actors who couldn’t adapt to the new medium, the studios scrambled to find new talent that could thrive with it. Because colleges still have many tenured professors (about a quarter of the total), the transition to more online learning will be slower than it would be otherwise.

For colleges, personnel and financial transition issues seem likely to be more challenging than online technology issues.

Clearly, one thing online learning technology can do is enable colleges to cut their staffing cost while increasing the number of students who can be well‐​served.

Western Governors University is a pioneer. Launched in 1998 by governors of 19 western and mid‐​western states and based in Salt Lake City, Utah, this is a private, nonprofit university that doesn’t receive any government subsidies, though each state contributed $100,000 of seed money. The university has four colleges: Business, Information Technology, Teacher Education and Health Professions. Bachelors and master’s degrees are offered in each.

This is the first accredited university to be competency‐​based. Students can move rapidly through topics they already know, so they can focus on what they need to learn. Students receive credit for knowledge they can demonstrate, regardless how little time they might have spent in a classroom. Degree programs involve textbooks, web tutorials, online classes and other materials. The university licenses course modules from major educational publishers including Pearson and McGraw‐​Hill. Testing is done at proctored exam sites.

The university reports it has about 38,000 students from all 50 states. There are about 1,100 full‐​time staff and 200 part‐​timers. The average student earns a degree in about 30 months with a total tuition cost around $17,000.

The Massachusetts Institute of Technology ventured into the online world when, in 2001, it began posting course materials for nearly all its classes. There are now postings for some 2,100 MIT courses, and they have been viewed by more than 100 million people. In 2011, MIT began offering free online courses, and it awarded certificates to those who demonstrated mastery of the subjects. About 120,000 people enrolled in the first course, “Circuits & Electronics,” and 10,000 took the final exam.

A German immigrant, Sebastian Thrun, became a research professor of computer science at Stanford University, and in 2011 he created a free online course about artificial intelligence. More than 160,000 students enrolled. The following year, Thrun and two associates, David Stavens and Mike Sokolsky, established Udacity, a for‐​profit educational corporation to develop massive open online (MOOCs) courses for large‐​scale participation. Funding has come from venture capitalists as well as the principals. Udacity reports that students have enrolled from more than 200 countries, and their ages range from 13 to over 80.

In May 2012, Harvard and MIT launched edX, a $60 million non‐​profit for creating online classrooms with free online courses. They include discussions, labs and quizzes. The prestige of these institutions helps give more credibility to the online education phenomenon, though it remains to be seen whether they will be leaders or laggards with online courses for credit. They might be concerned about undermining their elite brands with mass market products.

In any case, Dan W. Butin noted in eLearn Magazine, “It’s just a matter of time before someone solves the logistics of user authentication to turn a certificate [of mastery] into transferable credit for a nominal fee. There have been attempts, but they haven’t gained acceptance.”

In April 2012, two Stanford University computer science professors — Israeli‐​American Daphne Koller and UK‐​born Chinese Andrew Ng — established Coursera, a company that provides a computer platform for free online courses. Coursera offers more than 400 courses in 20 categories by partnering with Duke University, Johns Hopkins University, Princeton University, University of California (Berkeley), the University of Pennsylvania, Yale University and others — 85 altogether in the U.S. and abroad. Some 4 million students have enrolled in Coursera courses.

In mid‐​August 2013, Georgia Tech made news when it introduced an online master’s degree program in computer science, priced at $6,600. Georgia Tech offers the same program on campus for $45,000.

If this proves to be popular, other major colleges and universities are likely to offer more online programs that offer a degree rather than a certificate of mastery or completion that online programs tend to offer now.

As employers hire online graduates and find them to be competent — indicating that online degrees are predictors of success — then hold onto your seats, because online learning will be taking off. The success of comparatively inexpensive online alternatives will intensify pressure on traditional on‐​campus colleges to cut their costs.

To be sure, there’s no telling which, if any, of these initial participants, strategies and technologies will survive. Dramatic changes are the norm during the development of any new product or service. For sure, somebody has to come up with a business model that can yield profits.

It has been suggested that online learning could make it possible to cut the traditional four‐​year college experience to two years. That would be the time for small undergraduate seminars, lab work and other functions, including social functions, that can only be done when students are together on campus. The single step of transitioning from a four‐​year college to a two‐​year college could cut college costs in half.

Many of those who can afford a four‐​year college experience will continue to choose that, especially if a college offers something special like girls, water skiing, football or an Ivy League credential.

Critics like to say that online learning cannot replace all in‐​person campus experiences, but it would be hard to find anybody who would make such a general claim. Even if current college management practices were the best from the standpoint of education, they cannot be sustained, because they cost too much, and too many students are becoming overwhelmed with debt.

Online learning can do as well or better than many in‐​person campus experiences. Online learning is likely to become one among a number of standard elements of a college education.

  • Online learning makes possible dramatic cuts in college costs.
  • Courses based on recorded presentations by the best professors, regardless where they might be based, expose students to more high‐​powered teaching talent than is likely exist on any campus.
  • Gone is the common annoyance of paying steep tuition even when one or more of a student’s courses are handled by graduate student teaching assistants, not professors.
  • It’s common for students not to know in advance who will teach a course, but when courses are based on recorded presentations by the best professors, their names will be known — they’re bragging points!
  • Online learning takes place at a time and place convenient for students, not wherever and whenever a college is able to schedule a class. This flexibility of online learning accommodates students with jobs and families as well as everyone else.

A caveat: Low pass rates on some online exams make one wonder if successful results require participants who are self‐​starters. Online technology, regardless how sophisticated, might not work if participants are easily distracted and cannot focus on their work for extended periods.

On the other hand, low pass rates aren’t very surprising when registration is easy, and courses are free. Undoubtedly many people are simply curious to see what a course is like. By contrast, when people have a practical need for particular knowledge, and they must pay to get it, they have a stronger motivation to finish a course and pass an exam.

Charles Murray, in his book Real Education, urged that the process of learning skills and certifying competency should be separated. There certainly is a conflict of interest if schools that do the teaching also do the testing to determine how effective the teaching was. This is why students in accounting and law go to professional schools, then take competency exams before they can actually begin their careers.

Separating the educational process from the certification process would enable individuals to use more diverse methods of learning. In effect, they could build a portfolio demonstrating different competencies. Students would be able to demonstrate what they need to in ways that suit their budgets and interests.

Independent certification of skill‐​sets should make it easier for employers to determine an individual’s ability to perform — and make it easier for a competent person to get a job.

So, the private sector is setting the stage for better education at much less cost — exactly what government cannot do. That’s because people in government spend other people’s money, and as we know, people aren’t as careful with other people’s money as they are with their own money.

When government tries to solve a problem, it mainly does two things: use force and throw money.

For example, in 2010 the Los Angeles government school district tried to improve its wretched K-12 schooling, and the result was the 24‐​acre Robert F. Kennedy Community Schools complex, the most costly public school facility ever built in the United States. It cost $578 million ($140,000 per student). The sports and entertainment center alone cost $375 million. The school district approved this extravagance even though it was struggling with a $640 million budget deficit that resulted in laying off some 3,000 teachers. Despite all this wild spending, the district’s test scores are still among the lowest in the country, and the graduation rates are among the worst.

Spurred by competitors taking advantage of new technologies, colleges will be under intense pressure to cut costs while doing a better job. There’s no need for a heavy‐​handed president making threats and trying to take over another sector of the economy.

Colleges that don’t find better, cheaper ways of delivering a good education will probably either fade away or be absorbed by somebody else.