Free college? COVID-19 could help make it happen

The lockdowns in response to the COVID-19 pandemic forcing colleges and universities to shift to online learning could accelerate a radical change in the pricing structure of institutions that charge as much as $75,000 a year for tuition.

Students are demanding discounts, having “realized what higher education is loath to admit: Instruction is not what they, their parents and the American taxpayer are paying full price for,” writes Daniel Pianko, co-founder and managing director of University Ventures, in the Wall Street Journal.

Some institutions are offering a 10% discount, but many want much more, claiming that “nonacademic activities, from school plays and concerts to networking and parties, represent a lot more than 10% of the price tag of college.”

“Such discounts imply that students are still getting 90% of the value of higher education (about $45,000 worth, on average) from their Zoom lectures, but much of the educational content has become widely available for free,” Pianko pointed out.

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“Students and parents can’t be faulted for suspecting that an online education should cost next to nothing.”

That’s already happened at primarily online Southern New Hampshire University, which is offering incoming students a free first year in light of the pandemic.

“Can the pandemic finally bring the traditional college pricing model to its knees? Or will these examples remain outliers?” he asked.

Pianko said the recent history of the brokerage industry may provide a clue.

“Like higher ed, stock trading is a highly regulated field with massive barriers to change,” he wrote.

He noted that for years, the traditional brokerage industry was considered too difficult to replicate with technology.

“How could the internet replace a white-shoe adviser who not only took trade orders but also answered the phone, offered personal advice and took part in estate planning and other higher-order wealth-management tasks?”

But over the course of 30 years, technology reduced the cost of trading a stock from hundreds of dollars to virtually zero.

Firms now make money from new revenue sources, such as selling order flow to market makers. It’s similar to the way Gmail is free for users who provide their data to help Google sell targeted advertising.

“Higher ed is where the brokerage business was in the late 1990s: poised for transformation,” he said.

“Even before the pandemic, momentum was building in the education market away from high-cost operators and toward low-cost ones.”

Southern New Hampshire University and Western Governors University, for example, are nonprofits that charge less than $10,000 a year in tuition.

But they have already become some of the largest and fastest-growing institutions in the country, serving more than 100,000 students.

They use online delivery and competency-based instruction to drive down costs dramatically without sacrificing quality, Pianko wrote.

“These mega-universities will leverage technology to drive tuition revenue to zero over time,” he said. “Some are already on the way, and the pandemic may accelerate the shift for many others.”

He suggested that rather than collecting tens of thousands of dollars from students up front, colleges might make money by forming partnerships with employers.

Students could be charged a percentage of their postgraduation income. Also, government-issued social-impact bonds could be tied to successful outcomes such as graduation rates.

Pianko said colleges should recognize that technological change “affects industries in deep, novel ways that established players ignore at their own peril.”

“New education models are already driving tuition down, but there’s still room for massive, structural price-driven disruption in this industry,” he said. “In the wake of the pandemic, the winner will be the institution that takes the cost of online learning down to free.”

Pianko wrote that “just as no one 30 years ago could have foreseen what would befall brokerage fees, few now can imagine what will befall colleges in a world without tuition revenue.”

“But that world may be coming,” he said. “If it is, the debate over free college will become an anachronism.”