Bryan Caplan  

Online Education: The Best-Case Scenario

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Do you think that online education is going to put traditional universities out of business?  Great.  Now tell me: Who moves first?  It easy to say, "Forget brick-and-mortar college.  I'm 'going' to Online U."  But what kind of students will actually follow through with this bold plan?  The kids who got into Princeton?  Ha.  UVA?  Ha.  George Mason?  Maybe a few. 

Well, how about kids who would have gone to community college?

Bingo.  The kind of kids who go to community college just might decide to learn online instead.  For them, even I'll grant that it might be a good idea.  After all, the community college completion rate is already awfully low.  They're "two-year colleges," but only 25% finish in three years.  Graduates do experience a sheepskin effect - the market rewards the credential.  However, this reward is relatively small - despite the fact that mere graduation shows you're way above average for a community college student.  Perhaps online colleges could match this graduation rate and financial return.

There's just one problem with this scenario: Community colleges raise only 20% of their revenue from tuition and fees.  Third parties (parents not included!) pick up the rest of the tab.  So unless online education enjoys comparable funding, it will have to struggle even to be a viable alternative to community college.  And if parents suspect that online education is bogus, the advantage of brick-and-mortar schools is greater still.  Tell me: How would your parents react if you told them, "I'm going to college in our basement.  It's totally a thing now"?

You might reply that "online education," as you conceive it, merely means that existing commuter colleges make it easier for students to telecommute to class.  That's a lot easier to believe, but revolutionary it's not.

I've said it before, and I'll say it again: The only real cure for the evils of higher education (and lower education) is austerity.  Before the market can even try to save us, the government has to sharply cut subsidies for the status quo.


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COMMENTS (21 to date)
Michael York writes:

Re: community colleges and on-line courses and therefore are pretty deeply involved in on-line education, because many community colleges receive a big part of their budget based on enrollment and on-line courses count just as much as do brick and mortar courses. Maricopa Community Colleges (mostly through their Rio Salado branch) in Phoenix, AZ, USA is one such, but all AZ community colleges do this, and I would be surprised if AZ were alone in this regard. Also, graduation rates for community colleges are somewhat misleading as a measure of educational completion because a lot of four year college students get their lower division coursework out of the way at a CC but do not bother with getting an AA degree. I was never a fan of CC's until I went to work for one and learned that, although they are not perfect, compared to the way universities (at least state-run institutions) are now (mis)treating their lower division undergraduates, to wit, huge classes (400 or 500 students in a mini-stadium is not unusual) taught by completely untrained and inexperienced grad assistants whose first language is usually not English(in science and math courses this is almost always the case). CC courses are likely to have less than 50 students and be taught by an experienced teacher with at least a Masters and often enough a PhD. And the courses are much less expensive (even though the public subsidy per hour of student education is lower for the CC's than for the four-year schools).

James Miller writes:

Extremely smart high school students could use online education to get a professional job at age 18.

dha writes:

Things like this are the best argument, to my mind, for education being a con.

1. It's not about learning things, because online tuition can verify that just as well. You could take the exams from Harvard and let anyone sit them open access, paying only the fees required to cover the actual cost of marking them, and good performance in principle should be the same as performing well as a student there.

In fact the University of London used to do this, using post rather than the internet, but it didn't persuade even people at lower ranking universities to opt for that instead.

2. It's not really about selecting people for jobs based on high school performance (though it mostly does this in practice) because otherwise employers would equally accept a good SAT result from 18 year olds for professional jobs (or equivalent, apologies as I am not American).

I think it's a sort of social brainbug, one of these things economics doesn't like to deal with, where a lot of people just irrationally believe university matters more than it does for reasons of social prestige and historical connotations of gentleman elites being prepared for army, church and politics. And this creates a stable equilibrium in which it actually does matter because a lot of people believe it does.

As to where online education will be introduced, the answer, sadly, is within the expensive brick and mortar universities. At my university (a top one in Britain) you can already access all written course materials online, and soon will be able to access recordings of all lectures. There isn't much reason to show up except for labs, seminars and tutorials as relevant, which are only a small proportion of the week for most students. The potential enormous efficiencies won't be realised, and the incumbents will probably lobby hard to keep it that way by force if necessary.

PS. One counter-example I have to 2. In Britain, accountants can be recruited from high school if they have good A levels (our SAT/GPA/AP equivalent roled into one). In the US I believe you require not only a degree but post-graduate study to become an accountant. I believe this is a regulatory issue to some extent, but if that were reversed today do you think accountancy firms in the US would suddenly start recruiting high schoolers?

nazgulnarsil writes:

the first movers will have to be employers smart enough to snap up talent that falls through the cracks.

Michael writes:

If employers have to be the first movers then there will be no change.

The current system works for the employer. They get what they need--conscientiousness and conformity--with two words: "BA required." These employers don't even need to know why they get what they get.

Further, the current system keeps the employer's search and selection costs low. Why are employers going to increase these costs when they get what they need now?

Finally, if colleges screw up the signals by graduating students who may not be conscientious and may not conform, (which they seem to be be doing with their focus on increased graduation rates), then employers will simply change their two words: "MA required."

If education is a signaling device, then the level of education is a positional externality (an arms race in credentialing). Students must bear the cost for the device to work. There aren't many incentives for employers to change.

mdb writes:

You leave out one big group that uses online education right now (I count myself as one) - people with a degree going back to school. I am in fully online program through Johns Hopkins. When I started it was one of the few that offered the degree. I needed an online program as I was consulting at the time and needed to travel. Right now, if I were to take another class, it would have to be online - no way am I going to go to a classroom after work. It has worked out very well. Online saves time (no commute), allows you to work when you can, and if you are disciplined - just as good as in class. I don't see it being used full time by traditional students anytime in the near future - but everyone of my classes have full time on campus students enrolled as well.

RPLong writes:

I second what mdb said. I'm considering a graduate degree, but don't want to incur the cost and foregone wages associated with going back to school full-time. I can get exactly the degree I'm looking for online (no, not an online MBA...) at a couple of really good, well-known universities. It's the best option for me.

Steve Skutnik writes:

I was about to post something similar to mdb, although with a different spin on it. I think you're leaving out those who look for a degree in mid-life - I'm thinking high-school educated, and/or blue collar types whose jobs are jeopardy. Online school offers a potential for advancement for relatively lower risk (i.e., less of a fixed time commitment and likely a lower financial commitment).

Dan Zale writes:

mdb, RPLong, Steve,

Bryan's question is: "Do you think that online education is going to put traditional universities out of business?"

Are you all saying that online institutions targeted at non-traditional age students are going to make the answer to Bryan's question "Yes"?

Bryan's bet is on the 18-24 year-old group, who make up the vast majority of college students.

GU writes:

An idea That's been floating in my head re: reforming higher ed:

Get rid of all pre-professional/"practical" majors at the ugrad level. If you want a "college degree" it must be a liberal arts degree (broadly defined to include humanities, social and hard sciences).

Colleges these days are flooded with people who have no intersest in learning anything; rather, they just want "a job". These are the students for whom college is a waste. But i daresay that practical Pete wouldn't attend no name state u to obtain a sociology degree.

Thomas L. Knapp writes:

"Community colleges raise only 20% of their revenue from tuition and fees. Third parties (parents not included!) pick up the rest of the tab. So unless online education enjoys comparable funding, it will have to struggle even to be a viable alternative to community college."

Non sequitur.

Purely online colleges by definition don't have nearly the brick and mortar (and maintenance thereof) costs that brick and mortar schools do.

To the extent that lecture content is delivered online, that means any institution can run a higher ratio of number of students to professor hours.

Instead of delivering a lecture four times because only 100 students can fit in the hall and there's only four available hours to use that hall for that lecture, the professor can deliver it once, have it watched by a thousand students, and grade 2 and a half times as many tests or papers in the same amount of his time -- and the university didn't have to pay to keep that hall lit, heated, etc. and have a janitor clean up after each stampede of the student herd.

So while online colleges will probably get a greater share of their revenues from tuition, they also have hellaciously lower COSTS.

mdb writes:

Dan Zale

Bryan sees only community college students driving demand, which is simply not true. University Phoenix started out targeting the non traditional students, and it probably drove most other schools that you now see into adopting similar formats. I do not see full time 18-24 yo enrolling in an online program, simply because these people want the experience of college, but I would bet every single one will be taking at least 2 on line classes per year with in the next 5 years. The college experience is the driver for this. It will be interesting to see, as the parents take online courses, how many will be willing to pay a huge premium for their children's college experience.


Trespassers W writes:
I think it's a sort of social brainbug, one of these things economics doesn't like to deal with...

This struck me as a particularly odd comment to make on this blog. Bryan, Arnold and Dave all love to argue about this.

...where a lot of people just irrationally believe university matters more than it does for reasons of social prestige and historical connotations of gentleman elites being prepared for army, church and politics.

However, those connotations don't hold in the U.S. at all.

Signalling theory, if I understand it correctly, says that there's nothing irrational about valuing a degree more than the education attached to it, because the degree signifies more to employers than just minimal absorption of a particular body of knowledge. And if employers value it, the potentially-employed are also rational in valuing it.

JKB writes:

The best and the brightest, with a desire for learning rather than credentials, will be some of the first.

Those pursuing economically-useful degrees, i.e., the learning can be objectively demonstrated. (overcomes some of the credentialism)

Those bored to tears by high school, but to young for the "college experience" will be able to GED out of the system and still continue their education. The added bonus, freed from the tyranny of the school schedule, they can pursue other opportunities without slowing their education.

Inquisitive students, who have been beat down over getting ahead of the syllabus, will find a place for advanced study free from teacher branding them disruptive.

Those interested in knowledge as a tool for their own enterprise and therefore not concerned about credentials.

Military members seeking a degree or to broaden their horizons for promotion.

Not so much the future corporate/government drones who need the "right" credential even if it is in some not-directly-applicable, economically-useless field of study.

The key will be the acceptance of the "piece of paper." If considered sub-standard, online will be limited to objectively demonstrable knowledge and skills. To pursue an economically-useless field of study when the credential isn't respected would be foolish, unless, of course, your are pursuing it for your own edification.

Hugh writes:

Once you start to get people who have on-line degrees in a position to hire new graduates the dyke will give way.

From what mdb says, that breaking point may be closer than we think.

Nathan Smith writes:

Yeah, what colleges have to offer is complex, and replacing them will be complex too. The merely hedonic virtues of sorting, the pleasure of mingling with people of similar age, is a big part of it. College in the basement won't help with that.

Mr. Econotarian writes:

There is another practical, first-mover group: the military.

My wife took online computer science courses with University of Maryland University College, and found that most of her classmates were in Iraq or Afghanistan:

http://www.umuc.edu/military/

"UMUC provides the resources service members, veterans and DOD civilians need to stay on top of their educational goals. With convenient online classes, worldwide locations and seamless transfer and relocation processes, UMUC provides the supportive environment you need to start—and finish—your education. Specialized military and veterans advising teams provide support to help finance your education with ease and manage the challenges of being a servicemember and student."

Insight writes:

"If employers have to be the first movers then there will be no change.

The current system works for the employer. They get what they need--conscientiousness and conformity"

The first mover will be a system of production that doesn't require conscientiousness and conformity.

That already exists "around the edges" of the economy. To the extent that is able to produce more goods at lower costs, it will disrupt some of the rest.

It seems unlikely there is a less expensive system that can both filter and develop conscientiousness and conformity, although it does seem possible changes could be made to reduce the rent seeking (such as collapse or reform of the student loan system in the US).

Arinjay writes:

While I agree that online education cannot be a substitute for regular brick and mortar college, it can complement the same and provide useful avenues for people located at distant places or with low resources. The need of the hour is to get good instructors. Yes, but like every change takes time, it would take time before people would start accepting it. We are trying something similar in India through our website www.iedubook.com which provides free lectures to students, and with a mix of online resources, and providing lectures to students in digital form, the response is pretty good.

Jacob AG writes:
"The kind of kids who go to community college just might decide to learn online instead."
That's right, and this is the exact opposite of David Brooks' bizarre prognostication at the end of his op-ed on this subject:
"My guess is it will be easier to be a terrible university on the wide-open Web."
Um, what? Free competition from Harvard is going to make the worst universities' jobs easier..? I can't see how a terrible university is going to thrive in the online marketplace nor anywhere else, not when it's going up against elite universities offering free courses online...

Here: http://www.nytimes.com/2012/05/04/opinion/brooks-the-campus-tsunami.html?_r=1

Curtis writes:

I see four major reasons that people will want to continue attending brick-and-mortar colleges:

1. Facilities for studies not suited to an online environment: Science labs, etc.

2. "The College Experience" -- i.e., parties, clubs, living in a dorm/fraternity/sorority, etc.

3. Sports

4. To get away from parents while still being (legitimately) supported by them.


However, as more people graduate high school having been completely submerged in Internet learning from birth, they will turn to the Internet for their degrees as well. Heck, teachers in primary schools are already preparing kids for online degrees. My daughters (who are both in primary school) visit websites frequently as part of their classwork and homework.

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