Monday, June 24, 2013

Why Colleges Are Doomed

Know what a run-of-the-mill liberal arts college charges these days? About $60,000 a year. This number has been rising faster than just about anything else over the last couple of decades. Why? Basically, growing demand and fixed supply. Fixed supply is understandable; universities don't just pop into existence to meet growing demand, but this is about to change. Demand growth is also about to change, but first let's see what's been driving it until now:
  • Demographics - the echo boom has been applying to college in droves.
  • Internationalization - applicants from newly wealthy countries like Korea.
  • Availability of cheap student loans.
On top of this abundance, university endowments had a great, multi-decade run through 2008. It's been a very good time to be a university president. The wind has been at their backs for a long time. When this happens in the business world, though, it invariably breeds a lot of lazy and inefficient practices that get exposed when the weather changes, and it is about to change drastically indeed for the higher ed business model. Many won't survive.

Growing endowments? Gone. Demographics? Now on a declining curve. Cheap student loans? With a federal government that's essentially broke, this game won't last either (I'm not even mentioning all the government grants here). And unless our colleges want to fill their dorms entirely with the children of Russian oligarchs and Chinese billionaires, the internationalization game has largely been played out.

But it's worse than that, because the supply part of the equation is about to change too. Ever hear of Kahn Academy? Coursera? How about iTunes U? These are all free, online options that offer best practices education, many taught by some of our finest educators. In other words, you don't have to go to college to learn anymore. Knowledge has been liberated from ivy tower oligopoly.

The undergraduate model, in particular, is highly threatened because, frankly, most schools just don't do a very good job anymore. They are four year summer camps for kids who got trophies for showing up. Now, they get degrees for showing up. Gone are most course requirements and core curricula, in their place, useless exercises in things like race and gender studies. Studies show that the amount of homework the average college kid does has been cut in half over the last couple of decades.

So, what are colleges left with to justify their existence? Two things, as best I can tell. First, they remain desirable "brands," at least some. Google and Goldman Sachs still buy the brands, not the self-taught. But this will change, and probably sooner than we think. How? A Google or an Apple will discover that they can find good employees who have excelled at, say, Coursera, where one is graded. It will get a lot of publicity, and this will cause parents to start questioning why they are mortgaging their houses to pay for tuition when they can get it done for free.

Second, there is socialization. You make friends in college, and these friends are a lifelong asset, in both an emotional and practical sense. This advantage may be the last one on to which colleges hang. I suspect, though, society will find a solution for this. Perhaps some college somewhere will toss all its expensive, tenured, professors and throw its doors open for students to pursue collaborative learning experiences. There will be ways to meet people and make friends that don't cost 60k a year.

All this is going to go down very hard. Any institution that has thrived under a successful model for generations doesn't just sit down and reinvent itself overnight, particularly if the new model requires destroying the old one. Well, actually, some businesses do. IBM, Amazon, and Netflix come to mind, but these are extraordinary companies with courage and vision. There are far more Eastman Kodaks and Blockbuster Videos out there.

And, let's face it, universities are not run like businesses. In fact, they think it's beneath them. Does anyone think that there are frank discussions going on at the board level about any of this? The small, expensive, liberal arts colleges will get hit first and hardest. I would not want to be in charge of Bates or Ohio Wesleyan right now.

On top of all this, there is the crazy ideological direction that most schools have pursued, making them even less tenable. But in this, there is an opportunity. I will address that in my next post.


  1. Nice, Scotty. I remember when MIT started Open Courseware, showing their lectures free on the internet to anyone who logged in. You had (and still have) a front row seat to Professor Lewin, one of the greatest college physics teachers ever, for less than the "$1.95 in late charges at the local library" that Will Hunting made famous in the eponymous film we all enjoyed about 10 years ago. Now there are "colleges" in Vietnam touting "an MIT education for free" . All you have to do is pay a small fee and the administrators will organize the lectures into a course. You come to a lecture hall every day where they are shown, take a test every month, and get your "degree" when you are done.
    Many other schools of great renown including your Alma Mater are sending their lectures into cyberspace. When I finished MIT and Med School, I owed about $75,000. It would be much more now... I still think it is worth it to actually be there... the best times of my life... But I agree with your article... The traditional model is on the way out.

  2. A reader points out to me that Google is already hiring non-college grads:

  3. The changes you write about are already happening with small liberal arts colleges having to provide substantial dollars to students to keep enrollment up – my son knew no one at OWU that paid full freight other than the foreigners. Other friends of ours report similar stories. The big state schools and the highest caliber institutions will be insulated for awhile, but the real change will be when grad schools start changing requirements and allowing students without a four year degree to enroll. Honestly, why wouldn’t Wharton or Havard Business want to admit smart kids with good credentials in relevant courses from Coursera or Khan?