The typical image of a college comes with buildings, classrooms, parking lots, sports teams, and sometimes ivory towers; however, none of this is needed or provided for online coursework. Online, you don’t need to be a college to offer a college-level course. Yet despite online course delivery needing none of the physical infrastructure of a college, over 90% of colleges charge the same or more for online courses than for face-to-face courses (Poulin, 2013). By pricing online courses the same or higher than face-to-face courses, a college avoids undermining its tuition revenue and generates substantial profits, no matter its tax status.
This substantial profit margin explains a number of trends in higher education. The for-profit sector was the first to realize the profitability of driving down the cost of delivery while keeping prices the same. More recently, public and non-profit colleges have either replicated the for-profit model or turned to “outsourcing” companies that will quickly stand up an online program for a college in exchange for 50% to 80% of the revenue from that program. In effect, colleges, rather than students, are capturing the productivity and cost-saving benefits of online course delivery.
Though great for colleges, this is a problem for policymakers and taxpayers, upon whose largesse colleges depend. “Colleges,” as defined by the federal Department of Education, and their students are eligible for several hundred billion dollars in annual taxpayer subsidies: cheap loans, Pell grants, loan deferment, tax credits, tax-free savings plans, state subsidies and non-profit tax status. Therefore, taxpayers are footing the bill for online courses that are priced dramatically higher than they should be. In most markets, such profit margins would decline over time as new competitors entered the market. However, in higher education, accreditation and the public subsidies to which it is tied make it difficult for course-level competition to emerge.
This dramatic discrepancy between the price and cost of an online course combined with the barriers to entry created by accreditation explain the emergence of unaccredited course providers offering free or cheap online courses that are often as good or better those offered at a college. At their inception, new providers like StraighterLine and MOOCs faced a host of competitive barriers – inability to access financial aid, unwillingness of colleges to award credit for their courses, and disbelief that unaccredited online providers could offer comparable courses. However, despite not having access to the same financial subsidies, students taking courses from unaccredited providers are voting with their wallets and saving thousands for themselves and for taxpayers by starting college outside of college. It is not a coincidence that online enrollments at accredited colleges are flat while enrollments at unaccredited online providers are surging.
Now that it’s clear that unaccredited providers of college equivalent courses are here to stay, policymakers are trying to figure out how to fit new online providers into their regulatory and financial frameworks. In July, the White House held a conference to consider models for extending financial aid to new providers. Last Spring, Senator Lamar Alexander, Chair of the Senate Committee on Health, Education, Labor and Pensions (HELP), released a paper (Senate Committee on Health, 2015) on accrediting alternative providers. The American Council on Education’s Credit Recommendation Service, already a validator of course quality, launched a project with the Gates Foundation to extend credit transferability from alternative providers to a wider group of colleges. The Council for Higher Education Accreditors (CHEA) announced the results of a study group on the subject. The Distance Education Accrediting Commission, a federal Department of Education recognized accreditor, created the Approved Quality Curriculum (AQC) project to provide validation for new providers. (StraighterLine is prominently mentioned or is an active participant in all of these projects.)
While it may seem obvious that regulating and financing all online course providers equally is good policy, it may not be good politics. Over 90% of congressional districts have five or more accredited colleges in them (Kelly, 2014), giving accredited colleges significant political power. Indeed, some trade associations like the American Association of Colleges and Universities (AAC&U) have argued that low-cost online courses aren’t equivalent to college level courses and that college can’t be reduced to a collection of courses. However, as Forrest Gump might say, “college is as college does,” and colleges already lean heavily on pre-packaged courseware to offer general education coursework (Khan, 2014). Also, any college that accepts a significant number of transfer credits is already unbundled. It’s just doing it within the confines of accreditation, which maintains a generally accepted range of relatively high tuition prices.
For colleges, rather than fight the immutable economics of digital distribution, a better strategy would be to develop new delivery models, work with these new providers, or both. For new delivery models, many colleges are exploring Competency Based Education (CBE) or have produced a MOOC as a branding exercise. And unaccredited providers are an increasingly strong source for students who are well prepared for college. Indeed, data from StraighterLine’s partner colleges shows that students who transfer from StraighterLine are more likely to persist term-to-term than students in the general population.
One barrier to partnering with new providers is the lack of quality control metrics or frameworks that colleges can use to evaluate them. Knowing this, some providers have gone to great lengths to assure students and colleges that their courses are equal, or even better, than those offered by a college. At StraighterLine, we focus on input quality, outcome measures and amassing third party validation. For inputs, StraighterLine combines courseware, on-demand tutoring, online proctoring, anti-plagiarism services and psychometrically valid and reliable assessments from well-known educational providers. For outcomes, StraighterLine uses course completion rates and Net Promoter Scores (NPS) to gauge the impact of any course or service change on student performance and satisfaction. Moreover, we ask our partner colleges for the degree completion rates of students who start with StraighterLine. For third party validation, StraighterLine’s courses are recommended by ACE Credit, Distance Education and Accrediting Commissions Approved Quality Curriculum (DEAC-AQC), the College Board and the colleges with whom StraighterLine has formal partnerships.
Herb Stein, Chair of the Council for Economic Advisors to two presidents, once famously said, “If something can’t go on forever, it will stop” (Herbert Stein). Colleges can’t continue to raise their prices for online courses while the cost of delivery falls. On the other hand, the combination of political resistance and a slow-moving legislative process means that inclusion of low-priced, unaccredited online options in the federal regulatory fabric will take time. Though the timeline for accreditation of new providers is murky, the growing number of students taking advantage of the price difference between accredited and unaccredited options means that the economic power of new providers is only going to grow. Savvy colleges will figure out how to co-exist with these new providers. Eventually, the policymaking machinery will follow.
Herbert Stein. (n.d.). Retrieved October 10, 2015, from Wikipedia: https://en.wikipedia.org/wiki/Herbert_Stein
Kelly, A. (2014, March 31). The Thorny Politics of Higher Education Reform. Forbes Magazine. Retrieved from http://www.forbes.com/sites/akelly/2014/03/31/the-thorny-politics-of-higher-education-reform/
Khan, G. (2014, September 4). College in a Box. Slate Magazine. Retrieved from http://www.slate.com/articles/life/education/2014/09/online_college_classes_textbook_companies_offer_courses_with_minimal_university.html
Poulin, R. (2013, April). Should Online Courses Charge Less? It Just Doesn’t Happen. Retrieved from WCET Frontiers: https://wcetblog.wordpress.com/2012/03/22/should-online-courses-charge-less/
Senate Committee on Health, E. L. (2015). Higher Education Accreditation Concepts and Proposals. Retrieved from Inside Higher Ed: https://www.insidehighered.com/sites/default/server_files/files/Accreditation.pdf
Burck Smith is the CEO and founder of StraighterLine, which helps students reduce the price of a degree and helps colleges attract successful students by offering ultra-affordable online general education courses with guaranteed credit transfer to regionally-accredited colleges. Before launching StraighterLine in 2009, Burck co-founded SMARTHINKING, the largest online tutoring provider for schools and colleges. Burck is a member of the American Enterprise Institute’s Higher Education Working Group, and holds a master’s degree in public policy from Harvard University’s John F. Kennedy School of Government and a B.A. from Williams College.