The Online Challenge For Higher Education

Higher education is moving online, and that's a trend that will continue and expand.  The costs of college degrees have risen sharply over the past 40 years and this trend shows few signs of abating.  Cost considerations alone will force many students to look for online alternatives.  It doesn't matter that physical institutions offer the benefits of face-to-face classroom interactions and social opportunities that could create lifetime friendships.  When college costs continue to rise 5% or more a year, and incomes rise scarcely at all (except for the top few percent), numerous students from less privileged backgrounds will be financially squeezed out of traditional college experiences.  How quickly and how far online education grows depends on how purveyors of online education and traditional colleges confront certain basic challenges.

Online education has to prove that it can provide a quality education, one that makes its graduates competitive in the marketplace for good, well-paying jobs.  Online students obviously won't enjoy football Saturdays, beer in the student union, or impromptu chats with professors; nor will they be able to disgrace themselves with embarrassing behavior on fraternity row on weekend nights.  And it's difficult to replicate certain educational experiences online--laboratory work for physics and chemistry classes isn't quite the same if all you're doing is watching someone else do it through a computer monitor.  But the educational content of many, and perhaps most, college courses can be presented online with little or no loss of substance.

The online educational process may be more adaptable to meeting the needs of employers.  Physical institutions tend to subscribe to a traditional belief in the value of a broadly based liberal education.  While this concept remains valid, it isn't essential for everyone.  The billionaire founders of Microsoft, Oracle and Facebook are all college dropouts.  The denizens of academe may sneer at trade schools, but Europe's most powerful economy--Germany's--includes trade schooling as a crucial part of its educational system.   There is more to life than work, but life really stinks if you need a job and don't have one.  If online schooling can produce competitively employable graduates, it will transform education the same way that Amazon and Alibaba have transformed retailing.

Physical colleges have overpriced their product, and now confront an overcapacity problem.  The elite schools (the top 100 or so) will continue to do well because there will always be a certain segment of the population willing to pay (or having parents willing to pay) the costs of a name brand sheepskin.  Students aiming to be professionals--doctors, lawyers, and so on--will benefit from the friendships and contacts they make by being on campus. Students who don't really know what they want to do may be able to find a focus for their energies from exposure to the breadth of topics covered by a liberal education.

But the days when getting a college degree in anything and still being readily employable for a good salary are long gone.  There is increased pressure on kids at the high school level to choose a field and get a focused education so they can get a job.  Mid-tier colleges that provide good students with a good general education will find that's often not enough.  And even as they struggle to adapt, they'll be competing against numerous other mid-tier colleges that are struggling to adapt.  Reality is that a lot of mid-tier colleges have limited half-lives.

Much of the problem lies in the easy availability of educational loans.  There is no meaningful underwriting process for these loans.  Anyone admitted to an accredited institution can get a loan.  And, in order to preserve the principle that there's no free lunch, these non-underwritten loans are virtually impossible to discharge in bankruptcy.  For many kids, educational loans are like a pact with the devil--easy to enter into, but binding for eternity.  Many colleges are culpable participants in this pact.  They used the availability of easy education credit to raise tuition and fees much faster than incomes were rising, and to pad the compensation of administrators and top level college officials.  They aren't stuck with having to repay defaulted loans of their students.  So they have every incentive to encourage students to take out loans that benefit the college and its officials, but impose no costs when the educations they provide aren't sufficient to land the students good jobs.

Political considerations preclude any meaningful reform of college loan programs that would balance the costs and benefits, particularly by penalizing colleges for churning out graduates who can't repay loans that the colleges helped them obtain.  But economic forces will compel change.  Many high school graduates, looking at the bear trap college loans can become, will choose low cost routes through community college, trade schools, and, increasingly, online education.  Many physical colleges that have floated on the cushion of educational loans will have to downsize or close, as their cost structures cannot be sustained by their likely future revenue stream.  They will no doubt lobby the political process, whose knee jerk reaction will be to make college loans even easier to obtain.  But that will, if anything, make the problem worse, not better.  Students, having been served too many coffee drinks by well-educated baristas, won't take the bait. 

The economy as a whole is better off if students can obtain high quality, low cost educations.  Indeed, as the American middle class continues to decline, inexpensive higher education may offer one of the few avenues for recovery.  The end result will be workers who can succeed, prosper, and consume, rather than have pauper's lives in quasi-debtor prison.