The following entry comes from Burck Smith, one of the “Edupreneurers” (as Anya Kamenetz, who wrote DIU_U, calls them). Burck started a company called Smarthinking, which provides tutoring services to higher education. Unlike that company, which essentially augments the work of colleges and universities, his latest venture, StraighterLine, challenges the status quo. I thought readers might like to understand what motivated Burck to create his latest company.
From Burck Smith, StraighterLine:
“What does it cost to deliver a college course? What do colleges charge for that course? Finding cost data is surprisingly hard to do. Through the National Center for Academic Transformation’s Course Redesign program, some of this information for large enrollment courses can be found. Using their data and acknowledging that this isn’t an exact study of all costs, the direct instructional cost to deliver a large enrollment course is about $100 per student. For these courses, most colleges receive between $2,000 and $3,000 in revenue. This includes tuition, fees and state support. The difference between the two – call it profit, surplus, fund balance, overhead – supports other functions of the college. Students residing at that college may think that this is entirely reasonable. However, students not residing at that college are effectively subsidizing all of the non-academic things that others are enjoying. For online students and commuter students that realize limited benefit from this massive overhead, colleges are dramatically over-pricing courses.
Currently, most colleges price their distance education courses at the same rate or even higher than their face to face courses. Those who believe that they are not overcharging students might argue that the “costs” of the college experience cannot be captured in the per-course costs, that the sequence of courses – the program – is greater than the sum of its parts. Indeed, higher education’s entire regulatory and financing structure is based on this assumption. While this may be true for some programs, it is at odds with a college’s willingness to accept transfer credits for individual courses. It’s also at odds with the rapid growth of student “swirling” and the recognition of alternative ways to get college credit like dual enrollment, prior learning assessment, StraighterLine and others. If the cost and value of an education is mostly to be found in the college environment rather than the individual courses, then that should not be able to be standardized and “traded” like transfer credit.
Others might argue that these cost numbers do not include course development costs and other elements that push course costs up. Undoubtedly, there are instances where colleges have invested a tremendous amount in course materials and technological infrastructure and feel that these expenses must be recouped. However, for almost all of the courses delivered online, there is no need to rebuild online courses from scratch. Online courseware is infinitely replicable and, with the growth of “cloud” computing, all necessary systems can be delivered and hosted by 3rd parties. Lastly, even with significant expenses, the amortization of these expenses across a far larger student body reduces the appropriate per-student allocation to a small fraction of the total revenue.
Another argument is that, if online courses are so much cheaper to deliver, why haven’t we seen price competition among colleges? Wouldn’t colleges have an incentive to price their courses lower to attract students to their programs? While this would undoubtedly be true in a well-functioning market, higher education is not a well-functioning market. Often, prices are set by legislatures rather than the market. Even with pricing flexibility, the market is profoundly distorted by government subsidies, government credit and grants that makes students less responsive to price, and regulatory structures (accreditation, articulation and financial aid) that discourage students from shopping for better prices. For instance, if a student finds the same course for less at another college, the student can’t use his or her federal financial aid to enroll in that course. The student must use out-of-pocket expenses – a significant barrier for cash-strapped students. Even if the student does enroll, the student must be sure that the course will transfer back to the original institution. These policies – institution focused financial aid and patchwork articulation – are supported by an accreditation system that only reviews full degree programs rather than individual courses.
Apple, previously a computer maker, now lets users purchase music by the song. Google and Craigslist have seized the most profitable portions of the newspaper industry. Netflix has caused industry-giant Blockbuster to declare bankruptcy. Almost all information and communication industries have been characterized by the hallmarks of disruption – plummeting prices, product disaggregation and unknown providers rapidly asserting dominance using a new business model. However, higher education prices continue to rise, the form of education remains the same, and new entrants are few and far between. One of the first tenets of market disruption is that existing providers NEVER disrupt themselves. Higher education is governed by a legacy regulatory structure that has codified inherent conflicts of interest in industry regulation – where the revenue and staffing for accreditation comes from those being regulated – and individual action – where colleges both deliver learning and assess its value. As recipients of taxpayer dollars, will colleges see themselves as stewards of students and allow equivalent credit for equivalent courses? Or, will colleges invoke arbitrary quality standards to prevent price competition and preserve their narrow business interests?”
Burck Smith
CEO, StraighterLine
bsmith@straighterline.com
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