College Is Going Online, Whether We Like It Or Not

Skittish college professors won't stop the digital disruption of higher education.



The United States has a problem: rapidly rising student debt. It also has a solution: online education. The primary reason for spiraling student debt is the soaring costs of a college education at a physical college. Online education strips away all of those expenses except for the cost of the professor's time and experience. It sounds perfect, an alignment of technology, social need and limited resources. So why do so many people believe that it is a deeply flawed solution?

Because it means massive swaths of higher education is about to change. Technology has disrupted many industries; now it's about to do the same to higher ed.

But it is the students who need aid, and not the financial kind. They have too much of that as it is. The amount of student debt is large and getting larger. It will top $1.1 trillion this year; two-thirds of college students will graduate with debt. The average debt burden is $27,000, though that is skewed higher by a small percentage who owe a lot more. Forty percent of students owe less than $10,000. The amount of student debt has doubled since 2007, tripled since 2004, and many economists believe that the effect on the overall economy is negative.

While college graduates undoubtedly land in higher-paid jobs (earning almost twice those with only high school degrees), that may be offset by the burden of interest payments on student loans. Says Diane Swonk of Mesirow Financial: "Student debt has a dramatic impact on the ability to buy a house, and to buy the dishwashers and the lawnmowers and all the other purchases that stem from that ... It has a ripple effect throughout the economy."

As for the students, the price of the debt is often not worth the benefits. According to economists at the Federal Reserve Bank of New York, 17 percent of students are in default, compared with 10 percent in 2004. And a large portion of those defaulting are over 30 years old, which means that the problems with student debt don't disappear with age.

Some debt is clearly manageable, rational and reasonable. Taking on a modest amount of debt for a degree that dramatically enhances your earnings power makes eminent sense. Yes, interest rates on federal student loans are too high relative to mortgage and market rates, and they are set to go higher this year, possibly to nearly 7 percent. But the problem with student debt is not that it has gotten so large so fast; it's the extent to which a college degree has become so expensive for so many who cannot afford it, yet leaves so many with a credential that is excessively costly relative to the skills it offers.

Colleges, including commuter community colleges, cost money to run and build, and they cost ever more as even third- and fourth-tier institutions try to entice students. Most students earn a degree because the credential is required for almost all higher-paying jobs. If the cost is between $25,000 and $75,000, and more than $200,000 at elite schools, then that is the price that must be born.

But is it? That is where the burgeoning world of massively online education presents such an opportunity. Institutions like the University of Phoenix have been offering online courses since the 1990s, but this new wave is larger in scale and now includes traditional universities. Online courses cost a fraction of a brick-and-mortar education. New companies such as Udacity and Coursera have been experimenting with new models, ranging from per fee, limited-enrollment classes with select professors to the so-called MOOCs ("massive, open, online classes") that attract tens of thousands of students per class. Coursera, barely a year old, already has 3.5 million registered users. Students anywhere in the country and indeed the world can sign up, take a course with skilled professors, meet with other students in their area for study groups and learn the material. Even more crucial, they assemble a menu of courses that combine pure learning and more-tailored vocational studies based on skills needed for particular jobs. And all for a fraction of the costs.

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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