When the Sky Falls

A colleague recently asked for my opinion on two articles about the pandemic’s effects on higher education. The first is an interview with entrepreneur and NYU marketing professor Scott Galloway, who says that the current economic landscape makes higher education a tempting target for tech firms — the same point made by Kevin Carey and many others back in 2012.

I told you it wasn’t just a wooden horse.

The second is an op-ed by Glenn Moots, a philosophy and political science professor at Northwood University. Moots argues that online education lacks the “experiential learning, networking, and in-person collaboration, celebration, and commiseration” that students prefer.

Both Galloway and Moots distinguish between a college education and the college experience. The business model of many U.S. colleges and universities has long relied upon successfully selling the latter—i.e., “come here and you can continue playing the sport you played in high school for four more years while majoring in, oh, I don’t know, whatever.” The credential of the bachelor’s degree is an ancillary benefit one gets at the end, not the main product.

This is a business model that works until it doesn’t. The model is highly fragile because it assumes a static environment that conforms to one’s expectations. Given stagnant or declining household incomes, and shrinking numbers of 18-year old high school graduates in some regions, it has been an untenable financial strategy for many higher ed institutions for quite some time. The pandemic only made the model’s flaws more obvious. And thus we are now faced with an interesting economics question: how much are people willing to pay for the credential of a college diploma when the experience with which it has been historically bundled no longer exists? And which schools can survive at the price point they are now able to charge?

As Galloway points out, a few hyper-elite institutions offer credentials with such a high reputational value that they don’t need to worry about the college experience, or even, really, the education. Universities like MIT figured out nearly two decades ago that they could give away their curricular content for free and not damage their brands.

As a contrasting example, IPEDS data and IRS filings show that Northwood University lost 25% of its FTE undergraduate enrollment between 2007-08 and 2017-18 and suffered budget deficits in fiscal years 2012-2014 and 2018. Positive net revenue for the years in between came mainly from sales of assets. It looks like the demand for Moots’ “own little corner of academe”—the experience provided to full-time, campus-residing 18-22 year old students—was in decline long before Covid-19.