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.