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April 25, 2019

The Future of Higher Education

MHT Partners  | Education Investment Bank

The ongoing increase in tuition prices compared to stagnating wages for college graduates poses challenges for the prospective collegiate, particularly one requiring student loans. The added cost of room and board, transportation and other incidentals are an added burden to the gross price of higher education. For students and families on a budget, finding ways to cut costs is an important consideration. The obvious alternative to a four-year degree without paying a premium is online higher education. But is online education really the same?

Fully online institutions spend approximately $5,000 per student, approximately one-sixth the amount spent by private, non-profit schools with fewer than 5% online enrollment.  Traditional schools tend to spend more on instruction and faculty, which are expensive resources. Fully online schools devote proportionally more resources to academic support and student services, most likely due to the self-paced nature of these programs. One of the obvious benefits to online education beyond the reduced cost is student accessibility regardless of geography or proximity to the school. Students have greater flexibility when it comes to attendance and completing course work.  This model is especially useful for students who live at home and need to balance work or family obligations with their academic requirements.

Despite the benefits, online education has suffered from the image of a cheap knockoff to traditional higher education.  Many employers still prefer job candidates from traditional, physical universities, where budget dollars are dedicated to attracting the top professors and best instruction. Furthermore, students with online degrees are considered to have had fewer in-person interactions with professors and people of different backgrounds, cultures and ideas, which they will inevitably encounter in the workplace.  Online courses also may limit opportunities to develop presentation and communication skills, which are vital in the professional world.

No doubt, the cost and experiences of online and physical higher education are different, but are results the same? Naturally, quality is more challenging to measure. Fully online and traditional schools offer the same degrees and have the same accreditation. That said, graduation rates for fully online institutions tend to be one-third lower than those of traditional schools. Whether this variance stems from a less traditional student body or lower quality learning of online programs remains to be seen.

So, what does the future hold? While online higher education is likely to put stress on traditional residential colleges in terms of enrollment and tuition prices, it is unlikely to replace them altogether.  The physical location of a university campus is more likely to become a place where online and classroom learning is blended.  Examples of creative blends of in-person and online learning already exist, even among some elite private colleges in the U.S.  These schools attempt to leverage the best of faculty and technology in order to produce the optimal combination of quality and cost reduction.  That said, as pricing pressure affects all degree-granting institutions, they will likely continue to offer the best in-person experiences at their physical campuses and transition the rest to online, which may result in a consolidation of higher education institutions and an interesting dynamic for the M&A markets.

If you would like to learn more about MHT Partners, a leading education investment bank, please e-mail Shawn D. Terry (sterry@mhtpartners.com), Alex Hicks (ahicks@mhtpartners.com) or Rebecca Bell (rbell@mhtpartners.com).

Source:  Eduventures and IPEDS data

 

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