Three things happened recently that caused me to reflect a bit on the future of college education; liberal arts colleges in particular.
One is the political scuffle over the high interest rates on student loans. Since such loans have behaved like housing mortgages in the last generation, we now have over $1 trillion in outstanding principle as future income (student loans) has become a more important source of tuition financing. In 2010, the dollar equivalent of annual loans were around $6B a year. Compared to 40 years ago,they are now about 20x higher at over $112B a year. One of the main drivers of this higher preference for loan financing has been the rapid run up in tuition over this same period. Families wanting to send their child to college have been forced to suck up these price increases and increasingly finance through loans. After adjusting for inflation, the tuition in private colleges is now nearly three times as expensive as when I last paid in 1968, and yet over the same period, median family income is up only by about 15% ![1]. The median income family in 1968-70 might have spent around 15% of their income to send a child to a private college while they now must spend closer to 50% of that income. The pace of increase in tuition has been even faster for public universities, though public tuition does still remain about ¼ as much as private colleges and universities.
A second occurance was the announcement by Harvard and MIT to start offering free online education (not degrees, but certificates). This isn’t really new. Many leading Universities have begun to offer freely accessible on-line courses, and as I prepare my syllabus it is possible now to have students watch on-line lectures by leading professors from Berkeley, Stanford, Yale, and many other excellent places including Harvard and MIT. New studies[2] by William Bowen and others show that blended courses are as effective as the traditional face-to-face model of education, helping to further legitimize the otherwise dominant trend to on-line education. Why free? Possibly, these leading research universities want to retain market leadership and recognizable social impact. Other tuition dependent universities will have a hard time charging for services that Harvard is giving away for free.
Thirdly, a colleague of mine resigned to move on to a deaning job at a bigger institution. This caused me to begin to reflect on what was going on and how it would affect me later.
Does this rapid run up in educational spending and borrowing frenzy represent some sort of bubble? I think so. What could cause it to pop? The product/service of higher education is going to change. The product is now a physical degree, and I have a feeling that that product will give way to something one might call “demonstrated competencies”. This is not a new concept, and University accreditation practices are already moving quickly to require colleges, universities, and the programs and professors within them, to demonstrate that students are learning skills, accumulating knowledge, and demonstrating abilities. If employers make this shift too, it will cause a sea change in the performance of universities.
I teach in several health care degree programs for administrators, nurses, physical therapists, social workers and others. In this industry, we understand that the increased demand for degrees in the last several generations (first BAs, then Masters, and in some cases now Doctorates for some health disciplines) is driven by institutions responding to the “accreditation authorities” who variously set the credentialing bar higher and higher in the workplace. In higher education, we have been happy to start new degree programs to keep up with the demand for more advanced degrees. Who are these “accreditation authorities”? They are individuals (many are higher education leaders) often representing organizations that are seeking more professional prestige, higher pay and other outcomes that will follow from restricting supply by raising standards. While other industries are not so obsessed with credentialing as is the notoriously uncontrolled health care sector, degrees are requirements for many jobs, and often specialized master’s degrees have become the norm in the last generation.
Getting degrees is simply a necessity, imposed by employers in many of the better fields of employment. Academia has grown as a consequence, and American universities have also responded to the increased global demand for degrees (and American degrees) around the world.
What could burst this bubble of demand for degrees in higher education? What does the demand represent? Part of it, to be sure, is the socialization process we want for our children. How much are we willing to pay for a four year liberal arts educational experience? As a comforting voice for families not able to pay, we are hearing election year rhetoric that college is not for everyone, and shouldn’t be necessary for getting ‘good’ jobs. But, to be sure, a significant part of the demand for higher education and the borrowing is driven by career expectations of graduates. Investments in skills and knowledge is seen as the ticket to useful jobs that will fuel a life of purpose and comfort. Along the way (somewhere between Lincoln and Obama), a good ‘education’ became synonymous with a degree, or several. Part of this expectation is the requirement by professional organizations (health workers, lawyers, teachers, librarians, etc.). Maybe the GI Bill after WWII was a big part of this, enabling so many to go back to school and earn the coveted “degree”.
Employer behavior is central to the demand for degrees, and the key to the future of higher education. Employers have adopted the “degree” as a requirement for many jobs. What do they think the degree gives them? Maybe it’s an implied warranty of certain knowledge or certain skills and attitudes. The degree coupled with the school that awarded it is perceived as significantly lowering the risk employer risk of hiring someone who is not bright, not honest, or not motivated; ‘screened’ by the Princeton admission process, or Williams, or Yale.
If this is the nature of demand by employers, and I think it is, then we must recognize that there may be better and more efficient ways for employers to measure predicted value to the firm. If the degree is only a proxy for knowledge, skills, abilities and potential, then more reliable metrics may pose a worrisome future for the demand for degree.
What if Google, Microsoft, Bank of America, and Proctor & Gamble all started using employment tests and assessments (written exams, observational assessments, others) to determine the skills, knowledge, experiences, motivation, behavioral make-up and general potential of job candidates? What if they didn’t care about degrees anymore, only about how well candidates matched the profiles of success given to them by the research teams they hired as consultants?
I am certain this is possible, and I expect that many employers have some ideas about what they value in young recruits beyond the degree. The prospect of hiring candidates applying who have mastered free online programs from well known and highly regarded universities is going to turn some heads at large employers. The moment this begins to happen, it may well foster a ‘tipping point”, causing other employers to begin asking questions about what they really want in applicants. Such a change in behavior by employers will create a cascade of interest among serious students who will immediately find the prospect of paying tuition and borrowing as unnecessary.
As the demise of the bookstores has shown us, web based education by the best universities may be a devastating blow to the marginal universities, particularly the higher priced private universities. Some will survive, those not so dependent on tuition revenue and with excellent traditions of legacy recruitment from well-to-do families. But, the nearly perfect storm of web offerings from the best, bloated tuition and loan financing charges from even the marginal places, and a realization of employers that the ‘degree’ was only a proxy for measurable attributes of new employees, may together, burst the bubble.
Universities should begin to assess their situation by measuring their competitive “price” by looking at the cost the student will incur to include future financing charges. They should also be imagining closer relationships with employers as a prelude to new product development, including competency assessment tools and complementary training activities. The new opportunities for un-bundled skill and knowledge “products” is going to emerge on the web to help satisfy employer and student needs. Creative packaging and delivery of such products and ‘certificates’ will likely become a very competitive and a global marketplace. Organizations that can differentiate themselves well in this marketplace of products will have a future in a post-degree world.
Gary Gaumer
[1] Financial Trends in Higher Education: The United States, Center for the Study of Higher Education, Pennsylvania State University, 2011.
Trends in Student Aid, College Board, 2012
Trends in College Pricing, 2011, College Board, 2011
[2] http://davidwees.com/content/online-education-effective-face-face-instruction
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