Bryan Caplan doubts that on-line education will lead to many bankruptcies in higher education. To provide a contrasting point of view, I see the landscape as follows:
1. The absolute wages of college graduates have been falling for over a decade, even though the relative premium over “no college degree” is robust. Still, absolute wages do determine the long-term viability of any revenue model. And note that a pretty big chunk of the relative college wage premium is captured through post-secondary education only.
2. The “debt bubble” behind a lot of recent higher education expansion won’t be repeated anytime soon.
3. A large number of institutions in the top one hundred will move to a hybrid on-line model for a third or so of their classes and they will do so gradually, without seriously disrupting norms of conformity or eliminating campus life. In fact this will become the new conformity and furthermore through time-shifting it may increase the quantity and joy of drunken parties and campus orgies. Eventually these on-line classes will be sold for credit to outside students. Some top schools will sell credits in this manner, even if the more exclusive Harvard and Princeton do not. Many lesser schools will lose a third or so of their current tuition revenue stream. Note that the prices for these on-line credits, even if hybrid, will likely be much lower, plus lesser schools lose revenue to the schools better at designing on-line content.
4. Some state governors will try to put out a supposedly semi-passable degree from their state schools for 10k a year, with some on-line components of course. That will put price and revenue pressure on many other schools.
So let’s say you are Trinity International University, in Deerfield, Illinois, 1,265 students, nominal tuition about 26k. I had never heard of that place before doing a quick search through U.S. News rankings. Still, it is rated in the second tier. Will it survive? Maybe their Evangelical orientation will push them through. Maybe it will sink to 500 students.
How about Lynn University, in Florida, also second tier, nominal tuition listed as 32k? 1,619 students, but how many by say 2032?
I don’t think bankruptcy, literally interpreted, is the likely legal outcome (for one thing, these schools probably don’t have enough debt for bankruptcy law to be relevant). Still, I think it is quite possible that one hundred or more schools in the U.S. News rankings will find their enrollments or at least their tuition revenue streams cut in half or more within twenty years. They will be shells of their former selves, though on-line education might not even be their major economic challenge. It will be one of three or four major whammies facing them. Higher education as a general practice of course still will thrive, as will community colleges.
One key question is whether on-line education will encourage consolidation or not. Under one vision, on-line offerings shore up the smaller schools, because you can go to them for the atmosphere while taking German III purely on-line. (Even then, they survive but the revenue stream takes a huge whack.) Under another vision, on-line — for most students — works best in hybrid form, mixed with various face-to-face forms, and the larger schools will have a much easier time getting this off the ground in a workable manner.
Two additional comments on Bryan’s post. First, he thinks that for on-line education “…the dollars of venture capital raised are laughable.” Yet keep in mind that the major players are or can be backed by the endowments of the top universities. In any case, why raise extra money before you are able to spend it? If these on-line efforts get any traction at all, the funding and lines of credit will be there.
Second, advocates of the relevance of the signaling model should be relatively optimistic about on-line education. Because it is hard to pay attention in the on-line schoolhouse, it provides an especially potent signal! And you always face the temptation to upgrade your signal by subbing in some Top School on-line credits for some of your Podunk University credits. (Sooner or later Podunk will have to accept such credits.) Social pressures for conformity will encourage rather than stop that trend. On the other hand, if you subscribe to a learning model for higher education, there are some very legitimate questions as to how well the on-line product can teach you what you need to know, at least for people with some fairly wide variety of learning styles.
Conformity pressures and signaling may militate against the “stay at home all day” forms of on-line education, but not against on-line education more generally, in fact quite the contrary. In my view Bryan is underestimating the economic problems to be faced by a wide range of colleges and universities, and putting up a not very plausible model of non-conformist on-line ed as the major threat.
Addendum: Matt Yglesias comments.