Where is higher education economically vulnerable?

Disruptive threats nearly always start with an attack on the large sources of profit. In the newspaper industry, the first real blow was not the replacement of the traditional newsroom as we initially feared: it was the erosion of classified revenue that paid for the newsroom by companies with weird names like eBay and Monster.

In higher education, the real threat won’t be a frontal assault on core degree programs, but the erosion of the most profitable continuing education courses and graduate programs. Coding bootcamps aren’t likely to expand their focus to challenge the preeminence of the degree any time soon. But the explosion of non-accredited programs is beginning to threaten the MBA. They have proven that they can iterate quickly and deliver a more modern learning product at a fraction of the price. Higher education will never be replaced, but the most profitable courses will be attacked, creating revenue implications that have a ripple effect across institutions.

That is from Frederick Singer, via Jeff Selingo.  Do note that Jeff’s new book There is Life After College is coming out April 12.


Dunno about this topic, but I say Karjakin won the Candidates tourney because Moscow sent him coded signals as to the best move (call me crazy)... I have no proof, no.

Law schools are very profitable, but I think the ABA cartel sufficiently protects them from disruption. Add in the fact that most politicians are attorneys who are biased toward protecting that model, and the prospects for innovation in legal education don't look great.

Yes, but the continuing legal education is more vulnerable, as stated.

I saw continuing education mentioned generally but not continuing legal education (CLEs) mentioned specifically.

I'd also disagree that CLEs are likely to be disrupted. State bars dictate what CLEs are allowed, and state bars are no more eager to innovate than the ABA. It'll be hard to sell CLEs that don't get you any credit toward your required 15 hours, or whatever the requirement may be.

Interestingly, to me at least, is some of the more liberal jurisdictions (DC, Massachusetts, MD) are the handful of places that don't require CLEs.

By "State bars dictate what CLEs are allowed" I meant to add "to count toward your annual CLE requirement" - not that they would ban CLEs from the marketplace.

Go to any forum for lawyers, and you will see complaints that the ABA is failing in its job as a protective cartel. The complaint isn't that that they are allowing competitors to law school to emerge, but rather that they just willy-nilly approve any new law school that wants to exist, oversaturating the market with law schools at a time when far more law school graduates exist than entry level law jobs.

@Hadur Yes - the ABA has approved some pretty awful, for profit law schools. But I'd say that is not really disrupting legal education in the normal way that term is used (like how Uber disrupted the taxi industry and gave more choices to consumers) so much as fleecing a number of students. The cartel is still safe, because more lawyers - even unemployed ones - still puts more money into the ABA and state bars.

The main way the ABA prevents innovations, besides being a cartel, is they still require these for-profit schools to maintain standards like limiting the number of adjuncts that make legal education much more expensive.

That's why even with a glut of unemployed lawyers, so many low- and middle- income people have their legal needs unmet.

Pretty accurate - the ABA/state bars do not protect lawyers. They protect law schools.

However, one factor which prevents low and middle income people from having their legal needs met which is usually not given enough consideration is that being a lawyer is kind of miserable. As in, even without education debt, most people probably wouldn't want to practice law if they only made $40,000/year representing poor people.

I agree but only because leaving the job market for three full years (longer if you fail the bar) to make $40k seems like a pretty bad deal for any job.

If people could get specialized degrees (writing wills, bankruptcy, criminal law, etc.) in much shorter time frames, I think a lot of people would be happy making $40k/year and helping meet the legal needs of less affluent communities.

There's a similar fight with the dentistry cartel and allowing 'dental therapists' to do some limited dental health work.

I'd looked into some options for self-directed learning towards accessing the bar in the jurisdiction I'm from, but it turns out that you're not even allowed to try unless you go through one of the handful of accredited institutions that you have to attend before being able to seek accreditation. To the tune of $100,000 or so in tuition for a three-year program. So ... I dropped that idea entirely. It should be pretty obvious that this limits the competition in the field, thereby driving up prices beyond their market equilibrium, even with a strong accreditation barrier in place.

I understand that there are a number of states in the USA where you can become accredited as a lawyer without having to attend one of the selected institutions. This seems like a far superior system to me, although there may be some risks inherent to not having people forced to go through some number of classes where professors direct students to think about and debate the basic nature of "good practice" in law.

I think very, very few jurisdictions allow you to take the bar exam without graduating from an ABA-accredited law school. I only know one; California, and they weed out lots of people with a tougher bar exam. And I don't think bar exams are good measures of whether you'll be a good attorney or not.

I think CA also have some kind of apprentice option. I know a few states let you skip the bar exam if you graduate from certain programs.

OK, OK...I'll make a substantive comment. Seems to me that an MBA is only good for a 'big corporation', and since they are not hiring as much as before, the real threat to traditional educational programs is simply declining enrollment. This is the real threat, not MOOCs and online what-not.

Are you sure the decline in enrollments? Or is competition making the enrollments of individual institutions lower; that is, more suppliers cause the demand to split among the suppliers?


There is no decline in enrollments. There is stagnation in enrollment in MBAs, but increases in enrollments in other types of business school graduate programs. I.e., MS in Accounting or Marketing or Finance are taking people who otherwise would be doing MBAs. But, these are all still provided by the same universities, so it makes no difference to the university if you're there to get an MBA or an MS in Accounting. (if anything, it increases the costs of the school since they have to hire more accounting professors, which are extremely highly paid, vs. hiring more BS management professors who are lower paid)

People who have no clue about business schools only look at MBAs. MBAs are simply one kind of degree program they provide.

Your comment on more suppliers is also true: a lot more business schools started up in the last few decades. But, they too simply attract people who otherwise would not have gone into existing MBA program. I.e., increasing the pool of customers, rather than taking customers away from the existing schools.

Keep in mind, the value of higher ed is contingent on how...exclusive...it is. If everyone has an MBA, then an MBA has no value. So its not as if top schools are interested in always growing their student body. They are NOT. Harvard isn't going to start teaching 10,000 MBAs a year. That would destroy its brand and make it less attractive to students. Harvard explicitly wants to limit the pool of candidates. Which then opens up opportunities for lower-quality schools to attract students which otherwise would not get into Harvard. That doesn't hurt Harvard.

This is an economics blog (allegedly). And yet people here don't seem to understand that these things cause...shifts in demand?

PS: Of course, "stagnation" in growth of MBA programs is just a word. MBAs have experienced exceptionally high growths over the last decades and are the single highest graduate degree awarded in the US, by a huge margin. Maintaining the same growth rates is obviously going to be impossible, but it is hardly due to...MR University LOL :)

Thanks for the Forbes link, but the MS degree is a one year degree, while the MBA is a two year degree. I'm not sure you should combine the two. Also, if you have to pay a teacher two years to teach a class of students (MBA) vs one year (MS), it might be more profitable, not less profitable, to offer MS degrees.

1 year or 2 year makes no difference to hiring professors. Professors are not hired on a yearly basis.

It also makes little difference to the school in terms of profits, its just higher cycle time. 1 person for 2 years, or 2 people for 1 year...its the same thing. For example, while MBA enrollment has decreased by about 4,000 between 2008-2013, masters programs in b-schools increased by 14,000.

But I didn't say less profitable. I said more costly, by which I meant, more costly in terms of tuition ;) Obviously these programs are more profitable for the school.

Both undergraduate and MBA programs have approximately 10 core courses or one year of courses. The difference between my undergraduate business and MBA program is that a paper was required in the MBA program. Remember MBA programs do not require a business degree.

An MS degree is for students that have an undergraduate degree in business and already have the core courses. This is particularly popular for accounting majors who need the M.S. to sit for the CPA examination.

My sense is that the cartels will crack in a State that somehow allows students who take on line courses to sit for the CPA exam. If you pass the CPA exam you can generally get a job in public accounting at some level. Students, especially people returning to college for a marketable degree will go for the cheaper alternative.

You don't need business undergrad to do the specialized masters programs either.

The difference between an undergrad and an MBA are vast. If you only saw the difference being one paper, then it probably wasn't a very good MBA program.

But the explosion of non-accredited programs is beginning to threaten the MBA.

What programs? Offered by whom? How? Not saying he's wrong, I'm just curious because, having been in the job market recently, I remember seeing an awful lot of job descriptions that said "MBA preferred."

LOL. Of course. The article is nonsense.

It's incredible how people have been calling the MBA dead for about 2 decades now, even though it is the largest single graduate degree program in the country. Close to 50% of all graduate degrees awarded in the country are business school degrees.

And yet, it's...dead...and dying. LOL

They seem to confuse growth rates, with size. When you're 50% of total graduate student output, growth is hard to come by. But you're far from dead.

PS: And of course, they don't seem to be too concerned with explaining why b-school professors are by far the highest paid professors in academia (outside of professional degree professors like law and medicine, of course).

How is it that something that's dying, and under threat from....MOOCS...LOL :) ...pays 50-100% more than econ professors, or engineering professors, and 200% more than the rest of academia? And with salary rates that are increasing quite rapidly. So not only are they the single largest players in academia by size, both in the undergraduate and graduate level, but they are also the highest paid.

I thought this was an economics blog, yet apparently...price signals...mean nothing?

Might be more vulnerable to the loss of public subsidization through federal loans, and the various cartels that require certain pieces of paper to join.

An even more significant vulnerability would be cultural change that reduces valuation of these pieces of paper. But the regulatory changes mentioned above would probably be necessary to produce these cultural changes.

"They have proven that they can iterate quickly"

When skeptics looked at early online education and scoffed, I warned them about iteration. Few understood how much iteration was built in as the plan. It is more widely recognized now, with instrumented courses etc, but many still focus on state rather than arc.

How can post secondary education not change? We are only a few cycles in with on-line, and tradfitional college costs are still a problem. That only leads one way.

(Those at traditional schools whose only answer is "government pays" will lose, pockets are not that deep.)

I've followed a few online courses, and can see that they're pretty OK for lower-level high-volume courses where the field is essentially standardized, such as programming, mathematics, various sciences, etc., and where the need for much nuance and active debate and discussion between learners and teachers is less important.

Those are high revenue courses for post-secondary schools. If higher education becomes primarily directed towards more specialized learning situations where smaller class size is essential for good learning, the cost of courses will certainly have to rise. This need not be a threat to the entire education system, but it implies a smaller post-secondary sector. Say, all first and second year courses can now be accredited through essentially free or very low cost learning, which could give students access to higher level courses. These higher level courses would be much more expensive, but the student would theoretically be paying the true cost of those courses, no longer subsidized by the lower level courses - but, if the lower level courses are essentially free, the total cost of delivering the educational outcome would be lower.

Of course, we can naturally expect universities to resist acknowledging accreditation for high volume courses from free alternatives. Wouldn't it be nice to do 1st and 2nd year at your own pace for free, and start directly in 2nd or 3rd year? I don't think the change will start until some enterprising accredited universities start allowing such alternatives, and they will have an interest in doing so because they can attract clients (students) by allowing this alternative.

"When skeptics looked at early online education and scoffed, I warned them about iteration."

LOL. Anon, you've been spending too much time at MR. It's like la-la land in here.

Online education is still where it was 10 or 15 or 20 years ago: nowhere. And all the "online schools" are even worst in terms of reputation and ranking than before.

What...you...failed to realize, is that online would simply be an additional tool for...traditional universities. They are, after all, the largest users and providers of the thing. It's just a medium, but other than a medium, it has nothing much else.

All "online" does is allow a cheap adjunct at a school with 40,000 kids to teach 6 low-value undergrad courses, instead of 4. The "revolution" being fewer cheap adjuncts needed.

I am saying take this as an iteration rather than an endpoint.

There's nothing of interest there. It explicitly says...partnership with "prestigious" universities. I.e. these mediums...and that's all they are, mediums...in of themselves can never compete in terms of quality. It's the reputation of the traditional university, and these are simply additional tools they can use.

The second example of partnership with companies is simply an alternative to in-house professional development offered by companies. I.e., training and certification courses companies offer for their existing employees, now outsourced. Which, of course, they already have been doing for decades. But which have very little value outside of the focal company.

All in all, these are extremely low-value added activities for existing universities. This is not where the profit is. This is simply outsourcing low-value added tedious tasks which before used to be done by armies of adjuncts and lecturers. But this is the opposite of attacking their profits.

I wish we could require license and/or credential for all majors except general education, liberal arts, general studies, et cetera (and all other general and/or breadth types of majors).

So what are the main sources of profit? This is a tentative list.

Socialization, identity formation, and class stratification for undergraduates. Particularly those who come from abroad; and those who receive federal higher education dollars.

Professional schools - Med, MBA, Law. Engineering (MS).

Credentials for gov't employment.

Research dollars from the government (NIH, DOE, DoD).

Publishing houses?

PhD/Postdoc training grants?


High volume lower year courses.

These are not a source of profit, by definition, since they are low value added. Whatever value they have, is contingent on completing higher level courses after the entry level courses. The value of the entry level course, in isolation, is closer to zero.

Take a course with 200 students paying $1000 a piece. That's $200,000 to run the course. This subsidizes other courses, like a 15-student graduate level course, where tuition payments are often the same price. This isn't really a debatable matter. For a university operating at zero deficit, 200- or 500-student first year courses are subsidizing 15-student 4th year courses.

I even had an 800-student 2nd year biology course - and you think this wasn't subsidizing the 100-odd specialist 3rd and 4th year courses on offer, which had 20-30 students per class?

Anyways, what's "low value" about mastering basics? Like, upper year stuff is completely unaccessible if you're haven't mastered basics.

First off, graduate tuition are always higher than undergraduates. Sometimes as much as twice as high. Second, you have it precisely backward. The only reason these classes have value is due to the value created by the higher level courses and higher level students.

If all you were interested in learning were the introductory basics, there's community college for that. Universities create value at the high end, not at the low end.

AIG - personally, most of the most useful stuff I learned was all in first and second year courses (all the established principles of a variety of fields), and the higher level courses and graduate stuff was all specialist stuff that I basically never use for anything.

Also, where I'm from, undergrad and grad school charge the same tuition fees per course. In fact, in grad school, they collect lower revenues on average because a higher share of students are subsidized or on scholarship. Where I'm from, it is not debatable that high-enrollment lower year courses subsidize the cost of smaller classes in higher year courses.

Also, it's really not clear to me what you mean by "value". How do you suppose that there is more value in teaching 15 students in a grad level course than 800 students in a 1st/2nd year course? Maybe the average grad student gets more value out of their average course, but there are 20 times more students in the lower level course, and hence more "value" provided.

First off, I've never heard of an 800 person course. That would be an incredible cluster-f*** of a course.

Second, there may be 1-2 300-400 student intro courses, but 5 15-30 student grad courses. Of the 300-400 first-year students, maybe 150-200 will make it to the end of their degree. People drop out, or switch to other schools, or to other disciplines at a relatively high rate.

The value in higher ed is created at the top. Saying that you need the bottom is fine, but the bottom in itself doesn't create much value. It's the ability to utilize the stuff you learned at the bottom, to move up to the top level classes, which creates value, both for the student and for the school.

The schools value comes in reputation and ranking (and in being able to place students in good jobs)

Perhaps if Bernie were younger he would say "free MOOCs for all," but he would lose traditional liberal constituencies.

I'd considered taking some programming courses, until I came across realms of decent quality free step- by-step tutorials to a variety of programming languages, including increasingly independent problem solving.

However, while some years past there was massive proliferation of such altruistically offered (or advertisement-geared) offerings, it seems that such websites are being progressively cleansed from the net, in part as for-profit non-free endeavours rise in the search rankings and free alternatives lose out on traffic (in which case, how genuine can those search rankings be? The paid-for substitute more popular than the free alternative? I guess it's driven by advertising, but it seems far less a genuine ranking to me, and it would seem that advertising revenue-driven business model such as Google would certainly not have incentive to take this on from the perpsective of public interest).

I would think it would make sense to offer some government grants to promote the development of higher quality MOOCs. Say, any courses which can demonstrate that more than 1,000 US nationals completed the previous iteration of the course could be provided with a $50,000 grant towards the development of the next iteration (perhaps made contingent on allowing some interventionist public body host earlier iterations of the courses for free on some website).

Professional master's programs like the MBA are profitable for sure, but not nearly as much as introductory undergrad general education courses. MBAs generally get little aid and pay inflated prices, but their class sizes are relatively small and their faculty are disproportionately well-paid (and tenured) due to professional accreditation requirements. Similar situation with the law school example mentioned above.

By comparison, think about a 100-student Intro to Composition course or a 500-student Calculus I course taught by a graduate student. Even though the price per student is lower, you make up the difference on volume several times over. And a lot of the financial aid those students are getting is federal and state cash, not institutional discounts.

"But the explosion of non-accredited programs is beginning to threaten the MBA"

Total BS. What incredible BS.

The authors apparently understand economics so much, that they don't understand that such "non-accredited programs" attract non-MBA customers. I.e. they attract people who would never do an MBA in the first place. How can it threaten something if they are not competing for the same customers?

"non-accredited programs" and all these other BS "alternative" means of education are a substitute for....community college. Nothing more.

So the exact opposite of what is claimed here: they go for the low hanging fruit, not the "profitable" portion. Well, they do go for the profitable portions in that cheap low-value added but extremely highly subsidized by student loans programs like...community colleges...are profitable for the charlatans who run them

Ok, that Forbes article is one of the worst things I've ever read. The authors should have done an MBA, instead of a MOOC ;)

"Disruptive threats nearly always start with an attack on the large sources of profit."

No. Disruptive threats always start to attack where its EASIEST TO ENTER. This is almost never where it is most profitable for the...existing...firm. By definition, if something is profitable, it is so because it is has barriers to entry.

Second, disruptive threats usually, not always, come by turning non-consumers into consumers. This is the case here with these online programs and non-accredited programs. They target people that traditional universities explicitly do not want, or cannot serve. This means, usually, very poor performing students (who can't get into traditional programs). We see this when we compare the pre-college performance of the students in the two camps: those who enroll in non-accredited programs or BS online schools are people who can't even get a decent SAT score or a decent GRE/GMAT score.

Universities explicitly do not want these people.

Third, how well this business model performs, or how much of a "disruptive threat" they are, is in how easily they can move up-market in terms of providing the same quality of service as the existing up-market players. It's been 20 years now since these programs started, and they have made...zero...headway into increasing their quality of teaching, or the quality of their graduates.

And that's because it is not easy to move up-market in quality. University of Phoenix or Capella University can produce 100 or 1000 times the MBAs of Harvard, or any other traditional school...and yet their reputation has only decreased over the years, not increased. It's hard to move up-market if your teachers are extremely low-paid and extremely temporary and extremely poorly prepared adjuncts and lecturers. If they want better people, they have to pay them way more, which is not possible in their business model.

This sort of model works best when customers only care about costs. Southwest or Walmart etc. did just this: turn non-consumers into consumers, attacked the areas where the traditional companies were not serving, and then moved up-market to attack them on their home turf. But the consumer only cared about costs in those industries.

Higher Ed is not an industry which competes on costs. Its an industry that competes on return. Simply making something cheaper does not increase return, as in wage increases, for the student.

It does so, however, for things like community colleges. They compete on price. Two different industries between "universities" and "community colleges"

"They have proven that they can iterate quickly and deliver a more modern learning product at a fraction of the price."

A more "modern" learning product means nothing. Quality of education is what people pay for, not "modern" online interfaces.

"In the education world, we know that student engagement can have a massive impact on outcomes. Active, flipped or blended classrooms activate millennial learners who crave control over how they engage with material. "

BS jargon which means nothing. The author may not be aware of this, but online materials, online engagement, online assignments and tests and projects and tools, have been common and widely used in traditional universities since at least 15 years ago. It makes not a zilch of difference as far as quality is concerned. It simply increases the speed and volume of materials or assignments that can be done.

The authors seem to confuse volume with quality.

Well said.

I thought there was something fishy about "Disruptive threats nearly always start with an attack on the large sources of profit," but you've spelled it out very clearly.

Have you ever taken an online course? And, if so, a free one in a non-credited environment or a paid-for one in a traditional univeristy?

The subject is not the use of online means of disseminating class materials or providing forums for class discussions/questions, the subject is 100% online courses, and whether they may, due to a cost advantage, be able to displace the high-volume high-revenue lower level courses.

You are too caught up in whatever you perceive as "value" to consider that we're talking about revenues here. Revenues.

You get revenue because there is value. I.e., a school is able to charge money to undergrads on the basis of how much value it creates for the undergrads. This is the basic concept of a firm which competes on...quality, differentiation, call it what you want.

This is why Econ 101 at Harvard costs 10 times more than Econ 101 at a community college, even if the material is the same. Harvard creates a lot of value for the student, and it does so precisely because they then go on to take higher level courses at Harvard. At the community college, that's it. There's no higher value other than regurgitating the book material.

Online courses are rubbish, from the perspective of the student. Which is why they have extremely high drop out rates.

AIG in comments seems more correct than the Forbes article -- especially the part about Easy Entry for disruptive tech. Uber discovered that the taxi business was easy to enter with the disruptive share-taxi business model.
However, this is not quite right about a lot of Ed: "Its an industry that competes on return." << The top colleges compete on reputation, and exclusivity. And it's not clear how much value added is added to top students who are accepted to the Ivies.
There was a report recently that engineers at mid-tier colleges had, after 5 years of work, mostly converged on the salaries of those engineers from the top colleges. For humanities majors, not so.

There has been much less effective on-line courses than were promised/ hyped years ago - altho that might well change. How? With Cognitive Computing, when there is a virtual AI Teacher able to pass a Turing-Teacher test, with most students unable to tell the difference between being taught on-line by a good human or by a good AI (like IBM's Watson, which I'm starting to work with a bit.) English Language looks like a very profitable section of education that is ripe for this type of disruption, especially Business.

Finally, the key issue about MOOCs and accreditation is whether there will be developed post-grad SAT / GRE / or other competency tests for students that will be accepted by Human Relations hiring managers? When there are good non-college tests accepted rather than "degrees", that will be the biggest step towards edu disruption.

"English Language looks like a very profitable section of education that is ripe for this type of disruption, especially Business."

Business classes are some of the hardest to do this for. Some business classes, of course, are similar to other classes where its simply learning material, formulas and how to apply the formulas to problems. Many business classes are about the interaction in class, however. Teaching cases on a particular business's strategy to a class...is not something that can be automated. The experience, the interaction in class, is idiosyncratic to each class.

"The top colleges compete on reputation, and exclusivity. And it's not clear how much value added is added to top students who are accepted to the Ivies."

This inability to figure out why top schools are top schools, is precisely why they can't be copied. We cal it "reputation"...but that's just a term which means "we're ignorant on why they are better". Whether it comes from the network effects, or actually better education, or some other factor, is irrelevant.

All that matters is that they create higher value for their students.

But because external observers can't figure out how to copy it, creates entry barriers. Of course, this is why other schools love to hire PhDs from top schools. They try to get some of the same "magic", but obviously it doesn't usually translate as well, which implies there is something school-specific about it. There is something causally ambiguous about it.

Of course, all this applies to lower level schools as well. Its not just Harvard. Big state schools are also extremely good, and smaller schools can't copy and compete. Online school s are at the bottom of the pile in terms of value created for the student. But their business model is explicitly aimed at community colleges.

The error here seems to be to assume that because online schools serve (rather poorly and terribly), low-performing students who seek low-cost options, that the same model can work to compete up-market.

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