Educational Technology Continued

Dance references this article on how college can be had to $99 a month:

Traditional universities are complex and expensive, providing a range of services from scientific research and graduate training to mass entertainment via loosely affiliated professional sports franchises. To fund these things, universities tap numerous streams of revenue: tuition, government funding, research grants, alumni and charitable donations. But the biggest cash cow is lower-division undergraduate education. Because introductory courses are cheap to offer, they’re enormously profitable. The math is simple: Add standard tuition rates and any government subsidies, and multiply that by several hundred freshmen in a big lecture hall. Subtract the cost of paying a beleaguered adjunct lecturer or graduate student to teach the course. There’s a lot left over. That money is used to subsidize everything else.

But this arrangement, however beneficial to society as a whole, is not a particularly good deal for the freshman gutting through an excruciating fifty minutes in the back of a lecture hall.

…

Just as the world needs the foreign bureaus that newspapers are rapidly shutting down, it needs quirky small university presses, Mughal textile historians, and people who are paid to think deep, economically unproductive thoughts. Rather than hiding within the conglomerate, each unbundled part of the university will have to find new ways to stand alone.

Poppycock. Universities are in the business of creating and then disseminating knowledge. If we consider knowledge simply as an economic product, something I'm loathe to do but since we're talking about the economics of universities must do, then it's best to think of it as a product with high fixed-costs and low marginal-cost. Think of a drug. It costs lots of money to develop a drug, but producing the pill is nil. Likewise, the cost creating knowledge (labs, research libraries, offices, researchers' salaries, training researchers, etc) is very high. The cost of disseminating that knowledge (putting it on the internet, paying a grad student or junior professor) is relatively low.

The argument above, that it's not a good deal for the freshman, focuses on the marginal costs. It's like saying that paying $100 for a cancer medicine isn't a good deal for the patient because it only cost $1 to make. Both the results of the cancer treatment and the benefits of education stretch out over the person's remaining life. Furthermore, the marginal profit goes to pay back the cost of the research and to fund more research. To create new drugs and knowledge.

Granted, some of the new knowledge created using the marginal profits is complete bunk. And some drugs never come to market.

Economics tells us that the price of a product falls to the marginal cost. Governments grant patents to help encourage innovation. A temporary ability to extract monopoly rents allows firms to recoup their investment in research. Since knowledge cannot and shouldn't generally be patented, we have other means of protecting colleges.

If you read the article, the main thrust seems to be that we can credential people more cheaply than colleges charge. People who want a new career can go online, take some classes on a subscription model, and in a few months and a little cost come away with something that helps them in their career. They may flock to this as something to put on their resume to help with the next job or promotion, but two things stand in the way of the price of education falling to marginal cost.


First, the people who can grant credentials are controlled via accreditation. Like any regulation of this type, it inhibits the increase of supply, which in turn helps keep prices up.

Second, if the marginal cost is $99 a month, then you can charge it and put anybody who will pay through your program, but nobody is going to confuse your credential with a Harvard one. Product differentiation is another key to protecting the creation of knowledge.

I'm happy these things keep the cost of education above marginal cost. Education is more than a simple economic product. It's not just some transmission of knowledge. If it were, then we could simply post information on the internet and let it soak in. I can even see how basic finance and accounting course, beneficial to people looking to increase their business skills and annotate their resume as such, might work online, but even that's not all education is about.

It's not simply a collection of information and skills needed to get a job. I understand that many people view education that way, but that's a narrow and distorted view. In fact, I'd be happy if we eliminated all undergraduate business degrees period.

Nevertheless, I don't see these online schools competing with traditional universities for students. They're more about expanding the educational market than competing. As online education improves and expands working adults will complete degrees, certificates, and courses for both personal and professional reasons. More for the professional reasons, I fear. The 18 year-olds will still attend traditional four year and community colleges. And at the very least there will always be a market for prestigious, rigorous, and on-campus education. $99 a month isn't going to ever eat into the market for Princeton, Stanford, Yale, Harvard, etc. Nor is it going to replace engineering education with it's facility requirements.

All told, the future of online education seems to be limited to business and core, general ed classes that people just want to get out of the way on their journey to a degree. In short, credentialing. That's a big market, I'm sure. One in which lots of money can probably be made, but it's not going to replace most flagship state schools or elite private schools.