Education redefined and re-engineered

Move over, Harvard: the bubble is bursting

One “industry” that has changed very little in the last 150 years is education.  How, when and to whom education is delivered, and the building blocks of what we still call a basic education today, are ideas that were conceived in the Industrial Revolution and are still current today.  In fact, if you look only at the structure of the capstone institution of the education industry – the university – there are a lot of leftover ideas not from the 1800’s, but the 1400’s!

So for many decades, if not centuries, education has been much the same animal, even if in some obvious respects, it has modernized.  Think of the anachronism of a biology lab outfitted with a multi-million dollar, state-of-the-art electron microscope, while the biology professor presiding over the lab enjoys a 19th century perk called lifetime tenure and attends ceremonies wearing a medieval cap and gown.

(And tenure, by the way, is about a professor pleasing his academic department, not pleasing his consumers, i.e. students – another way in which the university is out of sync with 21st century reality.)

A fundamental rethink seems to be underway.  Based on some trends you can see around us right now, I believe that in the next 11 years, three aspects of education – its cost, timing, and delivery – will change.

Why is this important?  Since education affects literally everyone, big changes in the processes, economics and intended outcomes of education will have a definite impact on our lives – and especially on our children’s lives.  What’s more, these changes could also have an impact on such important business factors as the quality and availability of talent.  That means your company’s competitiveness, not to mention the competitiveness of an entire country, could be affected.

 

The higher education bubble: it costs how much to go to college??

Economically, a “bubble” forms when the price of some asset (e.g. tulip bulbs in the 1600’s or houses over the last 5-10 years) inflates to an artificially and unsustainably high level – higher than the intrinsic value of the asset.  Speculation is usually the driving force behind this run-up in prices, but a bubble can be made a lot worse when, for example, government subsidies inject more money into a market, making it even easier to buy that asset.  With cheap funds fueling more purchases, even more buyers pile into the market and drive prices spiraling higher and higher.

Eventually, though, the bubble bursts.  Prices collapse.

Is there a “higher education bubble” building now?  Here’s a testimonial that provides some anecdotal evidence that a bubble may be forming in the USA:

 

While visiting with old college friends on New Years’ Eve, we did a back-of-the-envelope calculation on the cost and value of our BA degrees in Accounting from 1981. We attended a small, well-regarded Midwestern liberal arts college from 1977 to 1981. Tuition, room and board was between $3,000 and $4,000 per year, so around $16,000 for our BA. As entry-level accountants in public CPA firms, we earned a salary of around $17,000 per year. So we earned in salary an amount equal to the cost of a BA degree in our first year of employment. Now that same college, which my youngest daughter is looking at attending, costs $42,000 per year. If she earned her BA in Accounting it would cost her $168,000. Her possible first year salary as a CPA?  Not even close to $168,000. Maybe around $45,000. What a change in 30 years in the value of that BA in Accounting.

 

Why does that college charge $42,000 a year now – 10 times what it cost a generation ago?  The answer is simple: The school sets the price this high because it can get away with it.  How?  Because today, there is a lot more money chasing a steady supply of university places, and given that supply/demand dynamic, prices always rise.  The lack of price competition between schools is another reason high prices stay high.

So where did all this extra money come from?  The Federal government.  In order to make a university education affordable to everyone – in theory a laudable goal – the US government lends money to students who need funds to pay for their high-priced education.  Thanks to these student loans, $100 billion in tax money has been pumped into the US education market each of the last few years.  Pushed to get a college education (“It’s the key to success, young man!”), more buyers decide that’s what they want.  Helping them make this decision is the fact that money is available through loans.  So… more buyers plus more money: What else could result but price inflation?  The schools simply raise their fees to soak up as much of this money as they can.  Who can blame them?

Some of this money is put to good use, of course.  Electron microscopes are not cheap.  But a lot of it is spent by schools on non-academic expenditures: increasingly bloated administrations, expensive athletics programs, and even amenities such as luxury housing, gourmet dorm food, climbing walls… all of which helps the schools attract new students, but do not necessarily do much to improve the quality of the actual education product.

Over the past several years, this trend has gone out of control.  It’s become unsustainable.  The run-up in housing prices during the 2000’s, bad as it was, pales in comparison to the skyrocketing – and persistently climbing – costs of higher education.

11 Changes - College Tuition

So where will this all end?

What will happen in the next 11 years?  I believe the answer is embedded in the above anecdote.

More and more, the people purchasing a higher education (people commonly known as “parents”) will make the kind of calculation quoted above and realize that the ROI on their education investment is unlikely to be positive.

Here’s what they are likely to discover.  With certain degrees, for example engineering or computer sciences, graduates have a decent chance of landing a job that pays well.  For them, the ROI on their education is acceptable – at least for the time being, although as university fees increase further (and continue to outpace salary growth), the ROI calculation even for fairly lucrative career paths will look worse and worse.

But not all parents can look at the prospect of their child becoming a well-paid engineer or programmer.  What if young Johnny or Sally wants to major in 19th century French Literature, or some recently invented “academic” field such as cult film studies? (Yes, this actually exists.)

These parents may rightly wonder if it is worthwhile to borrow heavily and spend $100-150,000 only to end up with a degree in an academic field that doesn’t promise a decent salary (or any salary at all) after graduation.  Will these students be able to pay back the debt they’ve incurred to finance the cost of their education?  What happens if they remain underwater for years and years after they graduate?  They may have to put off buying a home, starting a family…  It is not a trivial consideration.

Mind you, I’m not saying that a degree in Basket Weaving Management or Latin American Feminist Studies is a bad thing… only that it is not economically viable if it costs so much.  Far from liberating graduates to take wing in the grown-up world, such a degree in fact becomes a ball and chain that weighs them down.

So in the coming years, more and more students and their parents will become more consumer-driven in their decision, and they will wake up to the hopelessness of pursuing that kind of an education at that price tag.  When universities see prospective students making the ROI calculation and opting not to attend university but rather to find other alternatives (see below), their reaction will be to start cutting their fees.

For the first time, price competition will become a reality universities will have to contend with.  Don’t forget, there is another factor at play here, too.  According to demographic trends, the pool of young people – i.e. the prospective market for universities – is not growing, but rather shrinking: in some countries, quite dramatically, in fact.  Faced with an ever smaller number of 18-year olds whose parents are more and more tempted to forego the huge financial investment required, universities will find themselves motivated to start getting competitive in the pricing arena.

When this happens across the board – and we will see it in the next 11 years – the bubble will have burst.  Tuition levels may collapse.  The institutions will then have to start cutting some of their own investments in non-core activities.

 

Going to college not once but three or four times

The next big change in education will have to do with the timing of its delivery.  The way the industry’s model works today, most of us are in the education pipeline from the time we are 5 until we are either 18 (high school), 22/23 (undergraduate university) or perhaps 25/26 (graduate school).  This education is then supposed to last us the rest of our lives.  If we are lucky, we may go get specific top-ups lasting anywhere from a day or two to several weeks.  These seminars or courses are usually work-related, and the bill is paid by our employer.

This model is becoming obsolete, fast.  As I wrote here, our working lives are going to get longer, eventually spanning more than 60 years.  Many people will not want to stay in a single career track that long.  They may decide to fill those 60 years with three separate careers, for example a first, main career lasting 25 years (i.e. till about age 50), after which they embark on a second career for 10 or 15 more years, and finally another one taking them up to retirement at age 80 or even later.  (Another scenario: Along the way, they lose a job and decide to view that as an opportunity to make a career switch into something new.)

At the same time, the increasing pace of our advances in the sciences and technology means that by the time a student in these fields graduates from school, the material he learned just two or three years earlier may already be out of date.

So it’s unimaginable that an education, virtually all of which is delivered to you by the time you’re 25, can last you until you’re 80 or 90 years old.  It’s much more likely in my view that in the future, you will not receive an education but rather three or four educations.  They will mostly be career-driven, i.e. focused on practical know-how needed to prepare for a new career.  For that reason, they will be relatively compact – doable in 12 months, maybe 18 at most – and sandwiched between careers.

Top European MBA’s are an example of this model in action today, although most students in these schools are around age 30 and therefore making their career switch after only about 7 or 8 years instead of 20 or 25.

I believe it is possible that over our future working lives, these three or four intensive forays back into the education pipeline will be supplemented – or possibly even replaced – by the third big change:

 

Coming soon to a screen near you

Distance learning is not new. Such well-known distance providers as UK’s Open University and the University of Phoenix offer accredited degrees that are delivered completely, or mostly, online.  They have already been around for a few years and attract thousands of fee-paying students a year.

There’s the rub: They still charge fees.

But did you know that you can take practically any MIT course online, for free?  One of the world’s top universities, MIT decided in 2002 to put its courses, lecture notes and materials on the Internet, available to anyone.  The program was originally called MIT Open CourseWare (OCW) but has since been expanded and is called MITx.

And did you know that a virtually one-man-band of a university called the Khan Academy, operating since 2009, has created more than 2,100 video tutorials that are all available on YouTube?  Covering a huge range of topics in math, science, economics and finance, these 10-minute videos have generated over 36 million views in the last year and a half.  And of course, being on YouTube, they are also free of charge.

One big fan of Mr. Khan is Bill Gates, who sees the Khan Academy as a good example of the way education will be delivered in the near future.  Another fan is my own daughter, Claire, who was able to grasp the concept of the gas laws thanks to Salman Khan’s patient, light-hearted explanation and easy-to-follow, “thinking-out-loud” examples.  Her own physics teacher hadn’t been able to make this subject clear to her.  So she popped onto YouTube, and a few clicks and ten minutes later, she saw the light.  Sitting next to her at that moment, I witnessed her dawning comprehension of this complex set of physical laws with a mix of pride and amazement (and gratitude).  If I had given her the choice of learning physics by continuing to attend her Gymnase here in Switzerland, or by following Khan Academy lessons online, there is absolutely no question what her answer would have been: Khan all the way!

 

As an Australian ten-year old recently put it: "I don't understand why I have to go to school at all. The Internet knows more than all the teachers there put together."

 

MIT and the Khan Academy are pioneers.  They also have funding for their ventures, which is obviously important if their content is to be offered without charging for it.  MIT, for example, sinks $3.5 million a year into running OCW/MITx.  But notwithstanding these costs, over the next 11 years many other Khan Academies will spring up.  When they do, the education industry will never be the same.

The rise of “teaching machines” will also change the future educational landscape.  Based on adaptive learning, these programs, like the Skinner box we all learned about in Psych 101, allow students to learn on their own and at their own pace, without a teacher hovering nearby. Combine Khan Academy-type lessons with Knewton, the program described in the linked article, and you have the makings of a totally independent “school” needing not much more than a laptop and a motivated student.

Do these service providers spell the end of brick-and-mortar schools and universities?  No!  Face-to-face learning, group work, etc will be as important as ever, and schools will provide this.  But the structure of their program content will be hugely influenced by the flexible, quickly developing programs offered by Khan, MIT and similar online providers.  Leadership will come from them, not the other way around.

Nor will the success of Khan et al. mean the end of fee-based online education, such as that offered by Open University.  What it will mean is that a serious alternative will finally exist to the age-old monopoly enjoyed by schools in the real-time, physical world.  They will make it possible to follow high-quality, professionally delivered instruction, focused on the subject of your choice, when and where it’s convenient for you, at your own pace, and (for now, anyway) free of charge.

As more “education consumers” turn to these alternatives, one consequence will be, as mentioned above, that the competition they pose to fee-charging universities will drive tuition fees lower.

But perhaps a more interesting consequence is the following.  If you are able to use Khan Academy-type tutorials (a) to re-educate yourself in a relatively quick burst of 12-18 months, and then (b) to stay on top of rapidly evolving developments in your chosen professional field, then the availability of these courses will make career switching easier.  In other words, gaining the necessary education and skill set for a new career will not entail huge costs in terms of money or time.  This will greatly facilitate the trend toward 3 or 4-career lives.

Right now, a disadvantage of the Khan Academy-type alternative is that it is not accredited and therefore can’t offer an actual degree.  How long will this remain the case?  Or perhaps a better question is: How long with this remain important?  Today, what seems to be important is to be credentialed: i.e. the world believes that since you have a diploma in X, you must know X.  But is it imaginable that one day, actually demonstrating mastery of X, for example via an online exam, will be a more credible "proof" that you know X than a diploma?

In the next 11 years, you can bet that this “weakness” will be resolved. Indeed, in January 2012 MIT announced that students who follow their online courses and demonstrate mastery of the material will earn a certificate of completion – not an actual degree, but a pretty valuable piece of paper nonetheless: certainly one that would be of interest to potential employers.

It can't be long before other providers of free online education follow suit.

Meanwhile, the Minerva Project is another fascinating idea, just getting started now and expecting to matriculate students for the first time in 2014. Minerva is an online, for-profit school which aims to become an elite university – an Internet Ivy League contender that hopes to become a prestige name in education by virtue of the fact they will only accept the very best students from around the world. Tuition will be half what the Ivy League schools charge today (which is still a lot of money). Will it work? Stay tuned. If it does work, what will be the effect on Harvard, Princeton, Dartmouth and the rest of the country’s top-tier schools? Stay tuned. This is going to get interesting.

Useful resources

Readers interested in this topic might like to check out these two sites:

OEDB is a tool for learning more about free open online courses.

Affordable Online Schools lists countless colleges in the USA that do not charge an arm and a leg for tuition.  At these schools, education can be had for the cost of an arm alone.

 

 

 

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