Avoiding a Chilly Future

UV Letter - Volume II, #9

The hoopla surrounding massive open online courses (“MOOCs”) got hoopier last week with the announcement that Princeton, Stanford, Penn and Michigan had signed on with the startup Coursera, supported by $16M from Kleiner Perkins and NEA. These are important developments, but rather than repeating our thoughts, we refer you to one of our February letters published in Inside Higher Education .

A reader perusing last week’s issue of The Economist would have come across an article describing a certain country as follows:

  • Fees at most universities cluster at the upper end, regardless of quality, and on average have been rising by 3-4% per year in real terms for the past 15 years.
  • Although 60% of students get grants or government-backed loans, these cover only 70-80% of fees. Many poorer families find they can achieve their dream of educating their children only by taking on large debts.
  • Many students are paying a lot for an uncertain return; they arrive with the idea that they will derive the same advantages that universities offered when they catered for only a small minority, but this is no longer true. As the number of educated students has risen, the premium they command in the labor market has fallen. Employers give more weight to degree from top universities. In addition, drop-out rates are high. Those who drop out have accumulated debts and are likely worse off as a result.
  • One president of a students’ union complains: “there are good universities for the rich and bad universities for the poor.”
  • As former government official puts it, “the combination of lower-than-expected income and higher-than-expected debt is explosive.”

Sounds familiar, doesn’t it? Read on:

  • The higher education system is viewed as locking in social inequality rather than breaking it down.
  • All this has culminated in a massive new student movement that has captured the support of the middle class with its protests and demands.
  • The student movement has initiated a popular rebellion against the country’s established economic model.
  • As a direct result, the young, reformist President’s approval rating has fallen from 63% to 29%. He is unlikely to be reelected.

The country is not the United States. Not yet. This is Chile – perhaps a harbinger of a chilly future if America’s colleges and universities fail to take real action soon to address affordability.


When questioned on affordability, higher education leaders and commentators tend to point to the myriad of studies demonstrating a high ROI from a college degree as well as reports like this one from Fitch Ratings, released two weeks ago: “The increase in cost of attendance at U.S. colleges and universities, which began during the mid-1990s and accelerated through the end of the past decade, has not yet had a meaningful impact on enrollment at most institutions. The lack of a negative enrollment trend, we believe, underscores fundamentally robust societal demand for postsecondary education and the non-discretionary nature of a college degree."

The operative phrase is “not yet.” No longitudinal ROI studies are yet showing any impact from the Great Recession. But there is a sense things may be changing:

  • Median starting salary of college graduates in 2009 and 2010 was down 10% from those who graduated before the Recession.
  • Over 50% of college graduates under the age of 25 last year were jobless or underemployed. In 2010, they were more likely to be employed as waiters, waitresses, bartenders and food-service workers than as engineers, physicists, chemists and mathematicians (100,000 versus 90,000). There were more college graduates working in clerical jobs such as receptionist or payroll clerk than in all computer professional jobs (163,000 versus 100,000). More were employed as cashiers, retail clerks and customer representatives than engineers (125,000 versus 80,000).
  • In 2009, households headed by someone under age 35 had their median net worth reduced by 27% as a result of student loan and credit card debt. (The next closest age group was 35-44, at 10%.)
  • The wealth gap between young and old is now wider than ever. The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35. This wealth gap is now more than double what it was in 2005. In all 37% of young households have a net worth of zero or less – twice what it was 25 years ago.
  • According to a New York Times/CBS News poll released last week, four in 10 parents say they have had to alter expectations for the type of college they can afford to send their children.

Today’s decision matrix for higher education is determined to a much greater extent by the experience of the past five years than by old news. With a handful of exceptions (the most elite colleges and STEM programs, particularly engineering), this experience says that higher education may not pay. And as with the real estate market, there’s a sense that, rather than expecting some reversion to giddy history, this is likely to be the new normal.

So we’re not Chile. Not yet. But we appear to be headed down a path where higher education – often viewed as one of our nation’s great strength – could be a fundamental weakness to our economy and society.


Over the past six months, the Obama administration has talked a great deal about college affordability. And most higher education leaders are thinking through the issue. But there’s been little action. We count positive steps at five institutions (tuition freezes at Arizona State, University of Texas-Arlington, Sewanee, and Mount Holyoke, and an actual tuition reduction at University of the South), which means no action at 99.9% of colleges and universities. In other words, the silence has been deafening.

Perhaps the most remarkable aspect of the rise of Open Courseware and MOOCs and online learning generally is that aside from a few examples like Ashford University, Western Governors University and now New Charter University, technology has not yet had a material impact on the affordability of degree programs. (Content and courses, sure – but not degrees.) Heretofore, higher education has managed to resist the technology-driven cost reductions that have swept through the communications and media sectors. Fortunately, we see the resistance crumbling.

So here’s a top 10 list of trends we’ll see in the next five years that will bend higher education’s cost curve and make it much easier for more colleges and universities to offer more affordable degree programs. Most, but not all, involve technology. We’ve ordered them from easy to hard.

  1. One-third of all students switch institutions at least once before graduation, and among low income students, it’s over 40%. So help these students by removing the question of credit transfer/acceptance from faculty and departments. This is a strategic issue that must be dealt with at the institutional level, or higher.
  2. Develop online programs priced below onground programs for textbook-based large lecture classes.
  3. Reduce the cost of delivery and increase persistence by disaggregating the role of faculty; consider developing specialist functions in the areas of course development, assessment and advisement.
  4. Partner with outside organizations for functions that your institution may not be particularly adept at, including marketing, enrollment, student support and advisement, online provision, and developing innovative in-demand programs.
  5. Flip the classroom (i.e., no more “sage on the stage” – to the extent lectures are required, students should view them online before attending class, which is reserved for discussion, problem solving and group work) and increase onground faculty productivity (credit hours taught per semester) by 20-40%.
  6. Scholarships must be need-based, not merit-based (in order to attract better students and improve rankings).
  7. No more trophy facilities: spending must be on what happens in the classroom rather than on what’s easy to admire. And athletics and extracurricular activities must serve learning. If they can’t be shown to do so in measurable ways, students should be permitted to opt-out of the deluxe university experience i.e., these frills should not be priced into tuition.
  8. Migrate from a seat-time model to a competency-based model.
  9. Move online courses to a self-paced model.
  10. Innovate as much with student acquisition as with program delivery. The cost savings here are nearly as large.

As American higher education makes progress on these items, we will not only avoid a Chilean future, we will also find ourselves with a major new export that serves students in their home countries with high-quality, technology-mediated and – crucially – very low-cost American degree programs.

University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of ‘innovation from within’. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV expects to set new standards for student outcomes and advance the development of the next generation of colleges and universities on a global scale.

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