The Restructuring of U.S. Higher Education                 

The United States is home to over 4,200 degree-granting colleges and universities.  In 2009 over 20 million individuals – one in every seven US citizens or residents – were enrolled in post-secondary degree-granting institutions (http://nces.ed.gov/fastfacts/display.asp?id=98).  This large and diverse industry of US colleges and universities is being quickly and dramatically restructured.  Saddled with a residential, bricks-and-mortar history and cost structure, traditional US colleges and universities are inherently expensive enterprises, both socially and in terms of operating costs. ¹

In addition to the 4,200 degree granting institutions there are more than 2,500 institutions offering education and training leading to certificates, and innumerable other non-profit organizations and companies offering work-related courses and training.  In 2005, the most recent year for which there are data, over 13 percent of all adults 17 or older in the United States, both in and out of the workforce, were enrolled in work-related college or university certificate programs, vocational training certificate programs, or apprenticeships (http://nces.ed.gov/surveys/ctes/).

The forces driving restructuring across the entire spectrum of post-secondary institutions and programs include:

• Increasing awareness of the high and rapidly rising total cost of residential undergraduate and graduate education (price to the individual and total social cost);
• Changing attitudes toward public funding of post secondary education;
• Rapid and widespread demonstrated innovations that allow providers to scale high-quality e-learning (including distance education) from 10s to 100s or 1000s of students in a class;
• Increasing “modularization” of higher and lifelong education so that individuals or corporate buyers can assemble value-adding components of an education over time and from different providers.

The debate about why escalation in the cost of higher education has been more rapid and persistent than in other sectors spans decades, from Baumol and Bowen in 1965 ² to Andrew Rosen, the CEO of Kaplan, Inc. today. ³

There is a simple argument that the economics of producing educational services have not changed materially since tribal elders instructed the next generation seated beneath a tree.  Institutions proclaim their low student-to-faculty ratios as an indication of quality even while the “tree” has grown to become a campus/city with housing, recreational facilities, health care services, sports teams, and research facilities of little direct value to an undergraduate education.  In this context, it is not surprising that higher education costs have risen much more rapidly than in those sectors of the economy that have seen lots of technological change and productivity improvement.

Despite escalation in tuition and fees that rapidly outstripped the increases in median family income since about 1970, most US public and private non-profit colleges and universities are only partially funded by tuition payments.  The norm in non-profit higher education is that public funding and philanthropy make up the difference between price and cost.  In contrast, for-profit colleges and universities, and many enterprises offering technical and vocational education certificates, pride themselves on the economic discipline of being tuition-funded.

The issues of the cost of post-secondary education are completely entangled with both national and state concerns about accessibility (code for the fact that tuition costs often exceed the means of many families), financial aid and loans, and claims of unfair subsidies made by for-profit educational institutions.

These trends are breaking down barriers that traditionally existed among residential higher education, lifelong or continuing education (usually while employed), and company-sponsored internal education and knowledge systems.

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