Sunday, July 06, 2014


Online Pricing

In one version of my fantasy world, for-profit entrepreneurs who want to remake public higher education would first have to get a basic understanding of the finances of public higher ed.  Once you have a basic sense of how things work, you’ll have context for the suggestions.  (I have a book I could recommend to get started…)

For example, see if you can spot the flaws in this excerpt from Randy Best’s essay in IHE last week, arguing for deep discounts for online courses:

These days, two out of three students attending on-campus programs receive some form of generous subsidy or discount, while their online counterparts, generally ineligible for such assistance, foot the full sticker price even though they do not benefit from all the amenities of the revered campus life, do not take up parking spaces, inflict wear and tear on facilities, or take up as much instructor time.

I can see three glaring ones, just for starters.  Wise and worldly readers, please feel free to add more.  Granting upfront that I’m shooting fish in a barrel, here goes.

First, “generally ineligible for such assistance” is either flat-out false or deeply strange, depending on its meaning.  A college that offers Federal financial aid for its onsite credit-bearing classes can also offer Federal financial aid for its online credit-bearing classes.  In the case of public colleges and universities -- and in the case of most privates, as well -- total tuition and fees don’t cover the total cost of production.  That means that every single student gets a discount or subsidy, simply by virtue of enrollment, including those who pay the full sticker price.  (The ones who pay less than the sticker price get even greater discounts or subsidies.)  If a college’s online offerings are ineligible for financial aid, there’s a much larger issue at hand.

Second, the idea that online students don’t “take up as much instructor time” is just false.  If you’re doing online education the right way, it’s quite labor-intensive.  (That’s particularly true for the populations of students who attend community colleges.)  In a classroom setting, a fifty-minute period divided by twenty-five students works out to two minutes per student.  Assuming that prep time is comparable across formats, the delivery time is much higher for online classes.  There’s a payoff in flexibility, but anyone who decides to teach online classes to reduce workload is in for a surprise.  Since labor costs are the bulk of college costs, the labor-intensity of online instruction suggests that easy discounts are unlikely.

You can try to get around labor-intensity through MOOCs, or automated grading, or having students grade each other.  But when you do that, completion rates plummet.  MOOCs can be useful as resources in cultivated contexts, but as standalones for underprepared students, they’ve flopped.  Students still need that human touch, and the human involved still has to be paid.

Which brings me to the third, and most subtle, flaw.  Most colleges -- especially public ones -- have separate budgets and separate funding sources for “capital” and “operating” costs.  “Capital” includes physical plant, such as classrooms, parking lots, and offices.  “Operating” budgets cover labor, utilities, and the various costs of daily business.  IT resources -- both servers and software -- tend to fall under “operating.”  Tuition and fees usually cover operating costs, but not capital.  (Some colleges have separate capital fees, but most don’t.)  Taken together, the “savings” offered by online students accrue to capital, which is not what tuition pays for.  In terms of labor and recurring expenses, online students actually bring new costs.  Any savings from reduced depreciation in a less-used parking lot will take years to matter, and even then, would impact other accounts.

Coming from a for-profit context, that distinction may seem trivial.  But it isn’t.  The funding streams that support each category are distinct, and in many cases, they can’t be mixed.  The idea that “all money is green” is frequently false in the public sector, since different pots of money come with different strings attached.  They aren’t interchangeable.  

Of course, in a community college context, most “online students” are actually blended students, mixing online and classroom courses in an effort to devise a work-friendly schedule.  That means that they’re still using the physical plant, even as they add demand for servers, IT staff, and software licenses.  

In my perfect world, the folks with Bold New Ideas would do some due diligence before proclaiming that they’ve squared the circle.  Until then, we bloggers will continue to have work.

At my college, capital maintenance comes out of a third budget, separate from capital construction. Whether either of these can be used for network hardware or servers depends on mysterious factors, but the trend these days is to outsource all of that so all on-line elements for any class of any kind become pure expense.

The error you missed is "category error". A term like discount makes no sense in the CC world, and the one program he writes about is even in its own category at Ga Tech. The size of the "subsidy" of in-state students varies a great deal from place to place (think Penn State), and I view it as a tax-paid earned benefit rather than a subsidy.

That said, my problem is that he seems to have forgotten to simply look at the fee structure at Ga Tech or read the IHE articles linked from his essay. GT appears to "discount" somewhat some off-campus f2f classes, for example, making one of his points moot at GT. Further, that one on-line masters program is also cheaper than OTHER on-line graduate programs at the same university. Only ONE on-line program has that low price, not all of them. Even worse, the IHE article gives prominent mention to a 2 million dollar subsidy from AT&T for the "cheap" program, so it would appear that the low tuition might currently be subsidized. He does not discuss this detail at all, which is odd because his CEO background means his only expertise must be on the finance side. He is clearly totally clueless about the effort required to teach a fully on-line class.
The two errors that stood out to me are ones you also point out: (1) (the most glaring): the "less instructor time" statement. Absolutely, unquestionably, not true. Of course, in my experience, the larger amount of instructor time isn't actually costing schools anything (it's absorbed by the instructors them/ourselves), but I also haven't seen anybody successfully use online delivery methods to leverage the same amount of instructor time over a much larger number of students *while maintaining the same quality of instruction* (which of course is the administrators' dream). Results might vary by discipline (I teach writing, which is inherently labor-intensive), but, as you point out, students in the sort of intro/core/"commodity" courses that administrators most want to teach cheaply often need a good deal of academic and not-solely-academic help, and that requires (skilled) human intervention.

(2) Online students at my institution (regional state R2) also tend to be, in practice, blended. In fact, a significant proportion of my online students are athletes who want/need time flexibility to attend away games, keep up with training regimens, etc., etc. Athletes are quite heavy users of non-academic infrastructure. Another category is students who have demanding lab or supervised-internship schedules -- once again, pretty heavy infrastructure-users.

It strikes me that Best has tried to generalize from one very specific online MA program (which still may turn out to be more expensive than its creators anticipate) to very different undergraduate courses and programs. Basically, as you point out, its apples and oranges (and the apples may yet turn out to be rotting from the inside).
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