Tomorrow's online schools: Let's get them here today

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  • Why are online courses so expensive? @AndrewPKelly has the low-down.

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  • What could change college cost trajectory? A break up of #highered regulatory regime, starting w/ the accreditation process.

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  • Without a more competitive market, technology alone will not make much of a dent in the cost of college says @AndrewPKelly.

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In 2008, Tiffin University, a small private college in northwest Ohio, teamed up with Altius Education, a San Francisco–based start-up, to create an entirely new type of college. The online institution — named Ivy Bridge College — was to provide students with an inexpensive online associate’s degree in general studies that graduates could use to transfer to one of 150 partner four-year colleges.

Tiffin handled academics while Altius took care of recruiting and technology. Courses were offered in six seven-week terms, providing students with more opportunities to start a class than a traditional community college would have given them. Each student was paired with a “personal success coach” and given access to free tutoring and career counseling. At $4,250 for a full-time semester last year, Ivy Bridge was more expensive than state-subsidized community colleges, but cost less than half of what Tiffin charges for its on-campus offerings (more than $9,900).

The school started with 65 students in 2008, but enrollment grew to 1,600 by 2011. That year, Ivy Bridge officials reported retention rates of 60 percent, and that 90 percent of their students received Pell Grants.

In 2010, Tiffin’s accreditor — one of the independent agencies that govern access to federal student-aid money — applauded Ivy Bridge in renewing Tiffin’s accreditation, calling the program “an excellent strategic initiative” with “strong curriculum, efficient and effective academic support, [and] excellent instruction.” In 2012, Ivy Bridge won one of 13 Next Generation Learning grants from the Bill and Melinda Gates Foundation.

One year later, though, Ivy Bridge is gone — killed off by America’s higher-education cartel. This past August, the Higher Learning Commission — the same accreditor that lauded Ivy Bridge just three years ago — told Tiffin to stop enrolling students in the program, citing a rule change that went into effect after the 2010 review. Less than a month later, the Department of Justice launched a “false claims” investigation of Altius and Ivy Bridge. Making higher education affordable doesn’t require more technology. It requires that policymakers be brave enough to break up the higher-education cartel.

The Ivy Bridge saga is about more than a pilot program at a small college that went out of business. It serves as a cautionary tale for those who assume that advances in technology are driving American higher education toward an inevitable transformation. Breakthroughs like Massive Open Online Courses (MOOCs) have led optimists to predict “the end of college as we know it.” But even the most revolutionary innovations are hard-pressed to break up entrenched monopolies that are protected by government policy. Making higher education affordable doesn’t require more technology. It requires that policymakers be brave enough to break up the higher-education cartel.

Higher education has the hallmarks of an industry that is in trouble — prices have ballooned, returns have stagnated, and student debt has grown. Yet despite the public outcry, most campuses have been reluctant to change their business model. In response to declines in state funding, most public colleges have jacked up tuition rather than cut costs. Others have taken out mountains of debt to finance profligate spending in the face of declining tuition revenue. Moody’s estimates that the amount of debt held by some 500 four-year campuses more than doubled between 2000 and 2011 (after adjusting for inflation).

Meanwhile, the basic elements of a college degree — content, instruction, and assessment — have become more abundant than ever before. In the space of two years, the MOOC movement has grown into multimillion-dollar ventures such as Coursera, Udacity, and edX. After just under two years, Coursera has attracted 5 million users. Meanwhile, existing colleges such as Arizona State, Southern New Hampshire, and Rio Salado College now enroll thousands of students in online degree programs.

But structural barriers to innovation remain. The most significant of these is accreditation. In order to receive federal student-aid money, colleges must be accredited, which means that accreditation agencies govern entry to the market. But this gatekeeping power is built on a conflict of interest: Accreditors were created by existing colleges, subsist on fees from the campuses they evaluate, and use faculty from one accredited institution to assess another. Accreditation reviews enshrine the traditional college model by focusing on such things as faculty credentials, facilities, and even the number of books in the library. Organizations that only provide courses can’t get accredited because they don’t offer degrees.

Beyond accreditation, federal rules require that financial aid be awarded based on “credit hours” (or the time students spend in class), which discourages programs that grant credit to students once they are able to pass an exam, whether that takes one week or one semester. These programs can now apply for eligibility, but just a handful have done so.

States also have a say in which organizations may provide higher education, and authorization boards are often staffed by representatives or graduates of the state’s finest institutions. Farther down the line, colleges have authority over which credits they accept for transfer and have little incentive to award credit for courses taken elsewhere. That means students can take all the MOOCs they want, but few such courses will actually count toward a degree.

These policies have empowered the regulated to serve as the regulators, stifling the kind of innovation and competition that has driven down prices in other sectors of the economy. So while technology has opened up opportunities for more affordable higher education, there are still serious barriers limiting our ability to capitalize on them.

To see this, take a look at the prices of online programs at traditional colleges and universities. While evidence suggests that online courses should be cheaper to provide than in-person courses, consumers aren’t seeing lower prices. A recent U.S. News and World Report analysis of 300 online bachelor’s-degree programs at public universities found that the cost per credit hour for in-state students was higher in online programs ($277) than it was in in-person classes ($243). And U.S. News points to a forthcoming survey from the American Association of State Colleges and Universities that finds the same situation: Of the 400 colleges surveyed, 60 percent charged the same tuition for online as for in-person courses, while 36 percent charged students more to take their courses online.

Why are online programs so expensive? Because such regulatory barriers as accreditation have created a credentialing monopoly among traditional colleges, allowing them to charge whatever students are willing to pay. Instead of using online delivery to lower prices, campuses have used it to generate revenue that cross-subsidizes their on-campus offerings. Arizona State’s partnership with Pearson, ASU Online, is projected to bring in $130 million (or about 9 percent of the university’s projected tuition revenue) by 2020. Southern New Hampshire University’s online arm generated $74 million in revenue in 2012, up from $10 million in 2007.

Meanwhile, despite the hype, MOOCs are not yet competing with traditional higher education. As the Chronicle of Higher Education recently argued, there is little evidence that students are transferring MOOC credits to existing colleges. Colorado State University Global Campus announced that not a single student had taken it up on its offer to award credit for a computer-science MOOC. And efforts in the California and Florida legislatures to allow students to transfer MOOC credits to state universities were watered down or shelved in the face of resistance from faculty groups. What could change the trajectory of college costs? A vigorous effort to break up the higher-education regulatory regime, starting with the accreditation process.

What could change the trajectory of college costs? A vigorous effort to break up the higher-education regulatory regime, starting with the accreditation process. Markets function best when barriers to entry are low and consumers can make informed decisions. Tweaks to the design of financial-aid programs that leave antiquated regulatory policies in place — the standard congressional approach — will not get us very far.

To their credit, Republicans have bemoaned the web of federal regulations that govern colleges and universities. Senator Lamar Alexander recently remarked, “Let’s face it: One of the greatest obstacles to innovation has become us — the federal government.” But we should do more than free existing colleges of inane federal regulations and overweening accreditors. We should also knock down barriers that keep new ventures, including some that look nothing like existing colleges, out of the higher-education market. And we should collect better data on the costs and benefits of all types of postsecondary providers so that new and traditional models compete for students based on how well they prepare their graduates.

The politics here are tricky. Higher education is a big-money industry, and it happens to be very widely distributed across the country. Nearly every congressional district has a college within its borders, and in 2011 half of all districts had eleven colleges or more. Representatives have little incentive to vote for reforms that might hurt their local college.

Luckily, some leaders with a broader vantage point have sounded a call for regulatory reform. In his most recent State of the Union address, President Obama proposed a new, alternative accreditation system. And Republican senators Mike Lee and Marco Rubio have both pushed for changes to accreditation. More conservatives should take up this cause. Without a more competitive market, technology alone will not make much of a dent in the cost of college.

– Mr. Kelly is the director of the Center on Higher Education Reform at the American Enterprise Institute.

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