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Online Education

Christensen is right about new business model i think they should understand this too.

Charles C.

Great article.


Good article and comments. Though the process may take time. It is still very vauable to move forward as time changes.


It's interesting to note the "rehab" aspect of the for-profit institutions. However, I don't know that they've "bought" accreditation. The processes and means to attain accreditation is a complex process that involves regulating education bodies. How does one "buy" accreditation in this context?

Lloyd responds: a for-profit buys an institution that is accredited, and then tries to convince the accreditor that the change in ownership will not lead to substantive change in program quality, mission, etc. If the arguments are successful, then the now for-profit institution continues using the old accreditation. Had the for-profit tried to set up a brand new institution, it would have taken several years to obtain accreditation.


Powerful article, plus nice comments from Wally Boston.

It appears that the advancements in technology that were supposed to cut costs and improve efficiency have not been realized in higher education because schools did not need to make such advancements to stay afloat. They just relied on guaranteed funding resources by admitting X number of students to meet budgetary needs. It is unfortunate that this is the case.

Author makes a great point that online for-profit schools used a less direct method to challenge current brick and mortar institutions. What they did is bought into accreditation by buying distressed schools and revamping them, as in the Frontline special "College Inc" explains.

After buying accreditation they were free to award federal student aid to their admitted students, and calculated their tuition pricing around students Federal Stafford loan eligibility and potential Pell eligibility.

So in effect, the potential savings to the consumer were lost, but the head on disruptive collision of online vs brick and mortar schools was averted.

I make mention of the rising costs of college in an article produced last year identifying federal funding as a major cost driver, although the definition of experience good is explained differently by Robert Martin, a distinguished economics scholar.


Wally Boston

Nice article and thanks for pointing out Burck's piece as well. Whenever regulations impact an industry, the economic effects are more similar to the reaction of fluids in a closed end hydraulic system than an open end hydraulic system. Participation in the federal financial aid system requires accreditation. Accreditation requires an initial and periodic peer review process. There are many accreditors, national, regional, and specialty that are approved by the Department of Education. With more than 4,000 accredited institutions of higher learning, there are substantial differences among them even if the majority of the players seem to behave the same from a pricing perspective.

Burck is correct that accreditors do not accredit courses. But, inexpensive courses have been offered by community colleges for years. The "good" that the consumer/student wants is a college degree. Regardless of whether your goal in adulthood is a profession or a job, you want to have the credential that positions you to be hired by your prospective employer. If the employers change their requirements, the market will adjust. Accreditors have policies, rules, and regulations that prescribe how much of an education must be delivered by the accredited institution in order for them to grant a degree. Nonetheless, flexibility exists for institutions to accept credits from multiple sources including non-accredited courses, training programs, experiential learning, or competency tests. The elite institutions accept very little transfer credit because they don't have to (if you have the highest valued luxury good, why cut your price?). Below the elite level, transfer credit policies vary substantially and most are based on economic decisions as well as decisions based on the perceived quality of the learning being evaluated for credit transfer.

Your points about credence and experience goods are on track. Christensen points out that the "umbrella of pricing" held by the traditional institutions allows online institutions (for-profits and Western Governors) to offer programs at a total cost per student 40 percent less than the traditional costs (cost per student includes state and federal subsidies) but gives them no incentive to decrease costs even more. A question with no answer at this point is "Is there a minimum price point for a college degree, below which, students with no economic 'skin in the game' more easily drop out?" If an answer could be calculated, I believe the online market would eventually move there and don't believe that there would be any reason for the accrediting bodies to object. Our most selective institutions are generally our highest priced and have the highest graduation rates. The inverse is generally true as well. If decreasing your cost of attendance creates a larger market but one in which completion rates decrease, institutions capable of disrupting will be less inclined to do so.

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