MOOConomics and the overhaul of higher education

The rising cost and deteriorating quality of American Education has demanded the media’s spotlight numerous times in the past two decades. Despite recent optimistic reports of rising degree attainment, the United States is consistently outpaced by its first-world counterparts. Last year, the U.S. fell to an alarming 9th place with respect to the young adults enrolled in college and 16th in degree attainment, no doubt a result of exceedingly high dropout rates. Historically, the public has turned to the government for a solution to this pressing issue, but reform has proven to be both too slow and exceptionally mild. Indeed, the model for higher education has undergone few significant structural changes since the late 11th century, when the word ‘university’ was coined. Private innovation and growing global access to the internet, however, seem to promise a much-needed and sweeping overhaul of the college experience.

As most college students are well aware, the cost of a standard 4-year college degree is dear and has, with few exceptions, always been so. As The Economist’s Free Exchange column points out, there are two primary causes for this. The marginal cost of production for a university is high, meaning there are significant costs that come with educating an additional student. Each student requires housing, meals, faculty and other support staff, etc. Secondly, it is hard for universities to improve their productivity. Even in large universities, it is virtually impossible to have professors educate more than a few hundred students per semester and still provide a quality experience. This makes higher education a labor intensive industry, with skilled employees that command above-average salaries. Despite a largely competitive market, the combination of these factors has necessitated a high price for the traditional 4-year college degree.

The advent of Massive Open Online Courses (MOOCs) has overturned these standard expectations. Though there have been various versions of the MOOC model, the most popular ones are offered at a very low cost (compared to their on-campus counterparts) and are available to anyone with access to the Internet. Lectures can be taken multiple times, have no fixed schedule, and do not require proximity to any central physical campus. In a society that compensates skill highly in the form of wages, MOOCs offer a valuable opportunity to students that do not have access to high-quality university educations.

Beyond the fairly high fixed costs that come from setting up a curriculum, recording lectures, and setting up interactive sites to aid and connect students, MOOCs offer a profitable and consequently sustainable business model. Unlike the high marginal costs associated with standard university education discussed earlier, providing an additional student with education through the MOOC model requires virtually no additional cost. This means that after a MOOC provider has covered its initial cost, every additional enrolled student is almost purely profit. This ensures that MOOCs can always continue providing education at low costs as long as they provide it at a satisfactory quality.

Contrary to the common perception, this low-cost education model does not imply inferior quality. While a MOOC education certainly does not stack up to those provided by prestigious, highly exclusive institutions, it does tend to outperform the median experience. In fact, a study conducted by the United States Department of Education concluded that, on average, students who received a MOOC education did better professionally than those that received a traditional college education.

Despite their obvious benefits, MOOCs still are forced to combat the unfair social stigma imposed on their graduates. As more top-tier universities develop their own version of the MOOC program, however, the bias against online-education is becoming increasingly outdated. Over 1000 new online courses have been introduced since just the beginning of 2012, with the most successful ones offered by elite universities like Harvard and Stanford. As MOOC educations grow in popularity, they will offer a very real substitute to over-priced educations at mediocre universities, making quality higher education increasingly accessible to all socioeconomic levels of society.

The ramifications of a growing American online education system are not merely domestic. The MOOC model makes the highly valued American education experience an international commodity. If implemented correctly, online courses have the potential to instantly and dramatically improve education standards in countries around the world. The positive externalities — the benefits provided to society beyond just the benefit to those who consume MOOC education — will be indisputably immense.

The growing market for quality online education will create a need for institutions that offer a traditional face-to-face education to evolve.  If these universities do not improve the quality of the experience they provide, increase the accessibility of their education, and produce new opportunities that convince students to pay their premium, they will be forced out of business. Though they are far from perfect, MOOCs are a good first step to raising the bar for American education and solving the United States’ systemic inequity of opportunity.

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