The Future College as Travel Agent

Career College Central Summary:

  • Higher education’s traditional business model is especially endangered because it consists of modules that depend on cross-subsidies. Freshman students pay big bucks to sit in large classes and subsidize the professor’s research. Costly libraries and exercise facilities need financial support from selling food to students. I’ve written on how this type of business model is vulnerable to a process known as “unbundling,” where competitors offer low-cost alternatives to what were once cross-subsidy cash-cows for an integrated business.
  • The competitive pressure is intensifying, particularly as the cost of information transfer to students declines to near zero. It’s going to be hard to maintain the old model when institutions like Southern New Hampshire’s College for America can offer a $10,000 BA. Or when Georgia Tech and Udacity can team up to offer a $7,000 master’s degree.
  • What might the business model of the future look like, particularly for institutions with a prestige brand but high costs and dependent cross-subsidies? I suspect that many of today’s four-year residential colleges will become two-year or even one-year residential institutions. By that I mean that purchasing a degree from XYZ College would actually mean buying a comprehensive, customized package from XYZ, rather than attending the college itself for four years. Tuition could vary widely based on the contents of the package. The value of the XYZ brand, and hence its tuition price, would be linked to its ability to put together a high-quality package.

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