Commentary: Creative destruction meets higher education

I was invited to weigh in during the opening general session at the Education Technology Industry Summit in San Francisco this month, hosted by the Software & Information Industry Association. The topic: “What’s Next” in education. As a technology venture capital investor and parent of both a college student and a high school student, “What’s Next” in education is top of mind.

In the immortal words of economist Joseph Schumpeter, higher education is headed for “creative destruction,” a profound structural and economic shift in favor of employers, students and parents. The future will be grim if you run one of the 4,100 colleges or universities in the United States and are unwilling to embrace dramatic change. Especially if you run one of the 1,750 private schools that lack a top ranking from U.S. News & World Report.

Why so grim? Over the past 35 years, colleges have, in unison, jacked up their prices for tuition, room and board at a rate of about 3.5 times the rate of core inflation. They have been able to do so because of the perception of “free money” in the form of government subsidized student aid. They spent that money on fancy new buildings, expensive tenured faculty and new layers of administrators. But the merry-go-round has stopped. Student loan debt now exceeds total credit card debt. New studies are suggesting that for many graduates, a college education does not have the advertised career salary payback once believed. Echoing back to the 1976 Academy Award winning satirical film “Network,” parents and students are saying, “I’m as mad as hell and I’m not going to take this anymore.” And they aren’t.

A study released this month by the National Association of College and University Business Officers reported that enrollment fell at 175 of the 383 private colleges surveyed, with anecdotal reports showing many schools missed their enrollment targets by more than 10 percent. At the same time, the average tuition discount hit an all-time high of 45 percent. Most colleges are losing their power to overcharge for a four-year education. Meanwhile, two-year community colleges are seeing a surge in enrollment from students who figured out they could obtain a four-year degree at half the price by starting there and receiving their diploma at an accredited university. Where you receive your diploma matters most.

I believe that this is just the beginning. I would not be surprised to see several hundred private colleges merge, shrink or fail over the next decade as this unfolds.

Massively Open Online Courses (MOOCs) are driving this creative destruction. Look closely at Coursera, EdX, Udacity, American Honors (one of our companies) and 2U. MOOCs are going mainstream, and colleges will be forced to figure out how to integrate them into their curriculum. Most are shunning them – especially if they are courses from professors at other schools. But some, such as George Mason University, are embracing them. Georgia Tech announced last week a MOOC-only master’s degree in computer science — for only $7,000!

Here’s what I predict, short term:

At least 10 states will require their state universities to accept MOOCs for placement and for credit, helping taxpayers save money on education.

Many of the most talented professors will make more money teaching online than they do as a tenured professor.

Colleges and professors will begin to segregate into online content creators and online content consumers. The creators will be few. The consumers will be many.

Faculty will feel threatened, and will work to pass protectionist legislation to outlaw MOOCs for courses that can by taught in-person by tenured faculty. They may delay, but they will not stop the inevitable.

Community colleges will become a mainstream beginning of a smart and economical path for ambitious students to get a degree. Virginia community colleges are leading the way here.

In the long term:

Top colleges will offer an expanded course catalog, with fewer in-person courses, but more online courses, from both their professors as well as professors from other universities. Online courses will be complemented with active, high-touch teaching assistants.

Branded vocational programs will become mainstream. The Procter & Gamble marketing track. The Goldman Sachs finance series. The Apple user experience course package. Stanford’s Design School is setting the standard.

Except for the top 50 colleges, businesses recruiting college graduates will look through the degree from the university, and examine which courses a student took, from which professor, where and will value the course work over the degree. Online vs. in-person courses will be a distinction without a difference to employers.

Opportunities abound for entrepreneurs willing to participate in higher education’s creative destruction.

John Backus is a founder and managing partner at New Atlantic Ventures, an early stage venture capital firm based in Reston and Cambridge, Mass. He blogs at navfund.com/blog and is @jcbackus on Twitter.

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