Down To Business: Higher Education Is Ripe For Technology Disruption

There are only so many truisms left in American life now that home ownership and pro football in the fall aren't the safe bets they once were. One of them -- go to college, get a good education -- is coming under closer scrutiny, to the point where some are calling the traditional university system a bubble ready to burst.

Various business and academic pundits are waxing philosophical on the subject, but this "education bubble" idea had occurred to me months before I read about it in various journals, as I started scouting colleges with my son, a high school junior. How can it be that tuition and other college fees rise 4% to 5% year after year in a near-zero-inflation, near-flat-job-growth economy? If ever there was a sector ripe for disruption -- in this case, technology-led disruption -- it's higher education, rife with institutions whose ivied business models have changed little in many decades.

In an excellent TechCrunch article, PayPal co-founder and hedge fund manager Peter Thiel argues that bubbles emerge "when something is overvalued and intensely believed." Even with college costs soaring and career prospects stagnating, few people question the value of a college education. Thiel calls it the "absolute taboo…like telling the world there's no Santa Claus."

One oft-cited study maintains that people who graduate from college will earn $1 million more over the course of their careers than those who don't. And even without the boost in earnings potential, the college "experience" is considered fundamental to grooming more thoughtful, mature, well-rounded individuals and citizens.

But Thiel and others are starting to question whether a traditional college education is worth taking on tens or hundreds of thousands of dollars in debt. The New York Times reports that student loan debt exceeded credit card debt for the first time last year, and it's likely to surpass a trillion dollars this year as more students attend college and borrow money to pay for it. Thiel compares the current education market to the housing market near the height of its recent bubble: Both were always considered safe long-term investments, even when prices bulged beyond reason. While the housing market collapse brought speculators to their senses (and knees), however, no such cataclysmic event awaits the higher education sector. Transformative changes there will be longer term. But they will come.

There's a market-disrupting force at play in higher education that isn't so prevalent in housing: information technology. Specifically, readily available, much-lower-cost, Web-based alternatives to the standard fare. The Web's potential to let customers bypass the bricks-and-mortar status quo applies just as much to higher education as it does to book selling or stock trading.

Yes, a big part of the college value proposition is the on-campus experience -- the social as well as academic engagement, frat parties as well as chemistry labs. But for those who just want the knowledge, skills, and diploma, it's only a matter of time before online and other unconventional learning tracks become the norm rather than the exception. If you think online degrees and courses will remain just a niche or are a passing fancy, consider the time when Borders and E.F. Hutton were touting their superior in-person experiences. College courses and degree programs delivered mostly online are cheaper, more convenient, and often more specialized than traditional programs, even if they don't (yet) bestow the same prestige.

Established universities are starting to step up. For example, a colleague of mine is now earning a master's degree in media management through the prestigious University of Missouri-Columbia school of journalism. The coursework, which spans about 36 semester hours, includes a discussion component analogous to class participation. Students do have to take a professional seminar on campus for three days, and they must defend their thesis in person, typically requiring a half-day on campus. Otherwise, it's all online. And she's doing it while holding down a full-time job.

Even fringe online programs, like the not-for-profit University of the People, which promises degrees in computer science and business administration at little to no cost, represents a small chink in the armor of the tuition-plus-room-and-board business model. This model will not go unscathed.

Rob Preston,
VP and Editor in Chief, InformationWeek
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InformationWeek: May 16, 2011 Issue

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