Higher Education Strategy Associates

What Students Pay For (I)

Anyone who seriously believes in the whole “Great Disruption” meme has to be able to make the case that technologically-driven change of the kinds currently on offer can actually offer an improved value proposition to higher education consumers. No one, to date, has convincingly done so.

Let’s think about this for a minute: what is it students are actually buying when they enrol in a higher education institution? Though the specific combinations will differ from one student to another, all of them to some degree are buying each of the following four benefits:

1. A credential (e.g., a B.A, or an M.Sc.). At the end of the day, people want letters after their name because they perform an important signaling function in the labour market. The letters help young people get a foot in the door in a way that skills alone often don’t.

2. A brand (e.g., a Humber B.A. or a Dalhousie M.Sc.). Education is to some extent a positional good in the way that housing is. Location matters. Older institutions tend to be more prestigious and hence command a higher price.

3. An experience. For some reason, a lot of people tend to overlook this. Being in school, for most people, is a heck of a lot of fun. I know I’d pay good money to be a student again (and do it better this time). Post-secondary education thus isn’t just an investment, it’s a consumption good as well.

4. A set of skills and competencies which are obtained over the course of gaining a credential.

Most of the arguments for a Great Disruption implicitly assume that most of what people want out of post-secondary education are the skills and competencies.  Not coincidentally, of the four benefits listed above, that happens to be the one area where digital learning has the best case to provide better value for money.

Now, presumably there are some students who really only care about the skills. For them, experiments like Sebastian Thrun’s free Stanford class do indeed constitute some kind of Great Disruption. But for everyone else, any reduction in costs provided by these new “disruptive” providers is balanced by a reduction in one or more of the other three sets of benefits. They are simply less able to deliver on credentials, brand and experience than traditional education providers.

Overcoming deficiencies in those three areas is a pretty tall order, and it’s why most of the disruption stuff is vastly overblown. But there are a number of new providers who are in various ways trying to address these gaps. We’ll see how each of them fares tomorrow.


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4 Responses to What Students Pay For (I)

  1. I think you are missing some key points here Alex. The problem is, with the ever increasing price of college, many people don’t even get the chance to experience what you are describing here. Increasingly, the doors are being shut on them. So I welcome the disruption big time. The established players aren’t serving society as much as they could.

    Take for example, my alma mater — Northwestern University. NU pride themselves on their low acceptance rate. Instead of working to educate more people, they have decreased their freshman class by 1,992 students in the last 2 years (see http://www.northwestern.edu/newscenter/stories/2012/03/notify-applicants.html) . They’ve worked hard to build their Ferrari-like brand. They might as well charge the rich folk (who are hell-bent on maintaining their status in the world and would pay almost anything for the brand) a million $ a year. They’d still probably get their ~5000 student freshman class.

    When I went to school there, several of my courses were taught by graduate students — and those students were not trained on teaching and learning techniques/knowledge.

    Secondly, NU now charges around $55,000 for an undergraduate degree. More and more I’m hearing that an UG degree doesn’t mean much. So, are we saying that a $220,000 investment doesn’t mean anything anymore? Does an NU grad now have to proceed to get a master’s degree to get a decent job?

    I, for one, welcome the disruption. Because whether people like to hear it or not, higher ed ***is a business** and ***has been*** for decades. The traditional model is not sustainable — at least not for the 90% as seen on slide 3 here:

    Respectfully submitted,
    Daniel Christian

    • Alex Usher says:

      Hi Daniel. Thanks for reading our stuff and taking the time to comment.

      I don’t disagree with much of what you say here. My case, though, is based on an analysis of demand rather than on a notional ratio of costs to benefits. What I take from the NU example – and dozens of others like it – is that the old model still has enormous cachet. Despite costing $220K, NU (and others like it) still could fill their seats several times over precisely because education is a positional good and inputs are seen as proxies of quality.

      If there is a demand for a lower-cost product, there is no evidence at *all* that it’s coming from the people who aspire to NU. More likely, the segment of the market for which that kind of education is competitive is community college.

      • Thanks Alex —
        I agree that there’s little — if any — evidence that NU’s target audience would like to see a lower-cost product…and they really don’t need one. From the institution’s perspective, they can fill their seats regardless of what they charge. But it’s too bad from *society’s* standpoint that so much expertise is so limited.

        So NU, along with a handful of other colleges and universities, may not be impacted as much by the disruptions that are — or will be – affecting the rest of us. However, I wonder if even their ROI is what it used to be…?

        Anyway, thanks for your work here.

        • Alex Usher says:

          I’m sure the purely monetary ROI of elite college education is declining all the time. However, counter-balancing that tis the fact that this type of education is increasingly what Veblen referred to as “conspicuous consumption”; that is to say, the demand for the good is increasingly detached from its value as an investment, and increasingly attached to its value as a status symbol.

          Sad, but true.

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