Let’s Deregulate Online Learning - The Chronicle of Higher Education
oth nonprofit and for-profit colleges profit, usually handsomely, from providing online courses. While aggregated data on cost and revenue are difficult to find, all the recent online-learning business models point to substantial profit margins.
The quick growth of for-profit colleges results from recognition that an online course can be priced as if it had the same overhead as a face-to-face course, when it has almost none. Nonprofit colleges use the same tactic when offering prestige-label online degree programs in conjunction with private-sector providers who share the tuition revenue. Colleges running separate online divisions usually transfer their profits back to the main campus, thereby using revenue derived from online students to subsidize campus-based expenses.
But doesn’t developing online programs require substantial up-front investment? you ask. They did, once, but the plummeting price of learning software and digital content, and the rise of cloud computing, make start-up costs very low, particularly when amortized across the scale of an online course.
So, if all colleges act like for-profits when it comes to online learning, why are nonprofits considered, well, nonprofits?
Let’s think back to the mid-20th century, when accreditation first became the gatekeeper for students’ eligibility for government grants and credit. At the time, the basic economic model of a university was, more or less, the same that it had been since the 1500s. Because subject-matter experts were scarce and real-time communication options were limited, it made sense to build impressive campuses to attract professors and enable teaching. With such large fixed costs, adding a few more professors was relatively cheap. A critical mass of professors attracted a critical mass of students, who attracted more professors, and so on.
That model—substantial fixed costs with low marginal costs (the cost to offer one more class)—is the economic model that was “hard-wired” when colleges’ accreditation status and revenue streams were inextricably linked. Because the strongest signals of value in a high-fixed-cost model are the physical plant and faculty credentials, accreditation mostly measures variables related to those. Because student mobility was quite limited, standards governing the transfer of credits were unnecessary. All that worked—for a long time.
But online learning has a fundamentally different economic structure. Real-time and speedy synchronous and asynchronous communication options abound. The location of the professor and the student is irrelevant. Content can be cheap or free. The price of the software that enables such learning experiences is plummeting. Courses are mobile, so students don’t have to be.
Online education is characterized by extremely low fixed costs and low marginal costs. Without having to carry the overhead of a face-to-face course, online courses should, more or less, cost only as much as the professor’s labor. However, almost all colleges—for-profit and nonprofit—price online courses the same as or higher than their face-to-face courses.