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The Forecast of Higher Education’s Finances: Hurricane Season?

“Four-year residential colleges cannot keep on forever raising their fees faster than the public’s capacity to pay them, especially when online degrees are so much cheaper. Universities that fail to prepare for the hurricane ahead are likely to be flattened by it.” This sort of bleak forecast, made by The Economist in response to a recent report prepared by Bain & Company, is becoming commonplace in higher education. “The College-cost Calamity,” an article appearing in The Economist, reports that “A new report looked at the balance-sheets and cashflow statements of 1,692 universities and colleges between 2006 and 2010, and found that one-third were significantly weaker than they had been several years previously.” Universities have attempted to offset their shortfalls by transferring their costs to the student body. The Economist continues regarding universities in the United States: “To pay for all this, universities have been enrolling more students and jacking up their fees. The average cost of college per student has risen by three times the rate of inflation since 1983. The cost of tuition alone has soared from 23% of median annual earnings in 2001 to 38% in 2010. Such increases plainly cannot continue.” The financial crisis among not-for-profit (traditional) universities does not extend to all universities in higher education.

“Students are flocking to Western Governors University, driving growth of 30 to 40 percent each year” according to Marc Parry, in his article “No Financial Aid, No Problem. For-Profit University Sets a $199-a-Month Tuition for Online Courses,” which discusses the reasons why universities are not trying to mimic the success of online for-profit universities. There are two reasons they are not attempting this change, says the education entrepreneur Gene Wade: One, financial-aid regulatory problems that arise with self-paced models that aren't based on seat time; and two, opposition to how Western Governors changes the role of professor, chopping it into ‘course mentors’ who help students master material, and graders who evaluate homework but do no teaching.” Wade is taking his ideas into practice through his startup, UniversityNow. “The for-profit's new venture—New Charter University, led by Sal Monaco, a former Western Governors provost—sidesteps the loan system by setting tuition so cheap that most students shouldn't need to borrow. The price: $796 per semester, or $199 a month, for as many classes as students can finish. ‘This is not buying a house,’ says. Wade, co-founder and chief executive of UniversityNow. ‘This is like, do I want to get cable?’”

The project is the latest in a series of experiments that use technology to rethink the economics of higher education, from the $99-a-month introductory courses of StraighterLine to the huge free courses provided through Stanford and MIT.  Some see these Massively Open Online Courses and low cost for-profits as not just a novel idea, but a step toward a new future in higher education.  “We think people can afford it if we offer it at this low a price," Horn says. "That could be revolutionary." 

Even if these ventures do not revolutionize higher education, they might have a profound impact on student debt.  The Economist discusses the eventual ceiling for student debt: “Easy credit has allowed them to pay ever more, and colleges have raised fees to absorb the extra cash. However, this cannot go on forever, says [Glenn] Reynolds, especially when people start asking whether a degree in religious and women’s studies is worth the $100,000 debt incurred to pay for it.”  This counters the longstanding notion that drives college enrollment.  “People have long believed that “whatever the cost, a college education is a necessary ticket to future prosperity.”  If this is true, but students can no longer pay, will they flock to low cost online alternatives?  If they do, the future for ventures such as New Charter University looks bright.

However, New Charter University is not without its own murky future. “…the project faces tall hurdles: Will employers value these degrees? Will students sign on?”  These questions are valid concerns for the future of low cost for-profit universities.  If employers and students do rally behind these online ventures, what is the future of traditional universities?  If students and employers don’t sign on, will the current financial bubble burst?  Finally, if the hurricane does hit, what will the landscape look like after it has blown through?

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