With fewer high-school graduates and foreign students coming to class, the nation’s universities and colleges are turning to increasingly sophisticated and more affordable online courses to help fill the gap.
The development of online education raises the question of whether it will evolve from a supplement to traditional in-person learning to something that supplants it. One expert on technological disruption even predicts that half of the nation’s 5,300 bricks-and-mortar colleges and universities could be closed in 10 to 15 years as a result.
The credit implications have not fully been baked in with rating agencies and analysts mixed on the future of the higher education sector — but they are talking about potential disruptions.
The numbers
College enrollment this spring dropped 1.7% year over year, according to a May 31
In the U.S., enrollment in exclusively online programs rose 38% over the past five years, according to Moody’s Investors Service. From 2016 to 2017, total higher education enrollment fell slightly and would have fallen more without online growth, according to the National Center for Education Statistics.
Fifty years after four universities created what is now known as the internet, online education poses a secondary risk to the traditional campus amid soaring tuition costs, mounting student debt and declining confidence in the value of a college degree, experts say.
“The traditional college and university is imperiled since the cost of education has increased greatly, the number of jobs that need skills that require college education has shrunk, and there exists the cheaper alternative of online education,” said Subhash Kak, an Oklahoma State University professor of computer science and electrical engineering. Kak teaches classes in artificial intelligence, an emerging presence in online education, along with its cousin, virtual reality.
As a professor in both worlds, Kak said his fellow educators fear the disruptions that massive open online courses, or MOOCs, might cause to brick-and-mortar colleges and universities.
Closures are real
Demographics and debt have already claimed several small private colleges. In the past year,
Long Island’s
Disruptive innovation
Clayton Christiansen, a Harvard Business School professor who developed the theory of "
Christiansen is a former board member of Southern New Hampshire University, one of the largest online universities in the U.S.
Christiansen’s theory is based on research showing that certain kinds of cheaper, initially inferior, innovations change an industry not by serving current customers better, but by enticing those who were not previously in the market to buy a product or service, thereby redefining the market. The new entrant captures the established leader’s market from the bottom up.
The classic example is the personal computer that supplanted the more expensive mini-computer created by once-leading companies including Digital Equipment Corp. and Wang. While Digital, Wang and others were defending their up-market turf, cheap competitors such as the Commodore 64 were luring new consumers to the scene.
“Disruption makes it so much more affordable and accessible that whole new populations of people have access to it,” Christiansen said in a
As the quality of innovative technology improves, as with online courses, the new product begins to attract customers who previously were priced out of the traditional classroom or needing additional education in mid-career, Christiansen said.
No campus, no problem
“Some online programs are structured to offer such flexibility that a student never has to go on campus,” notes Fitch Ratings analyst Emily Wadhwani.
For the pure online universities, such as Western Governor’s University, no bond issues or state funding are needed for infrastructure. The growth of online education coincides with a continuing decline in state support for public universities. All of WGU’s funding comes from tuition, said spokeswoman Melissa Luke.
WGU is a private, nonprofit, online university based in Salt Lake City created by the Western Governors' Association to meet the demands for a college-educated workforce not being fully met by traditional higher education.
"In 1999, WGU enrolled its first student," Luke said. "In 2005, WGU awarded its 500th degree. Over the past decade, more than 140,000 graduates, spanning all 50 U.S. states and military veterans overseas have graduated from WGU."
WGU was founded in 1997 by 19 U.S. governors and now enrolls more than 110,000 students with an average age of 36. WGU’s compound annual growth rate over the past five years has been 21%, according to its 2018 annual report.
WGU’s annual budget for FY19 is roughly $800 million, Luke said. WGU is completely self-sustaining on student tuition, which is $6,790.
The founding governors agreed to each contribute $100,000 to launch the university. WGU also received gifts from private foundations. From 2000 to 2007, WGU received roughly $19 million in grant funding from the U.S. Department of Education to launch the first national Teachers College. WGU is the only university that licenses teachers in all 50 states.
Some say not so fast
Standard & Poor's does not see WGU and other pure online universities replacing the traditional campus.
“Rather, we believe universities are scrambling to establish themselves in this sector in order to achieve a variety of goals, including enhancing their brands and expanding educational opportunities to new target audiences, increasing headcount, and sometimes as a precautionary move, to avoid the perception they are falling behind their peers,” according to an S&P Global Ratings report.
Wadhwani said more partnerships are occurring such as 3+1 programs where a student takes three years of classes at one college, and the fourth is taught at a partner university.
“There are really more bricks and mortar institutions offering online programs than needed,” Wadhwani said. That’s because population growth has flattened and the birth rate is down. At the same time, some universities outside the U.S. are doing better at enticing students, such as in Singapore and Toronto.
“We’re also seeing some schools close programs,” she said.
Higher education generally “is facing unprecedented challenges from demographic trends, mounting enrollment and financial pressures, a growing disparity between student expectations and willingness to pay, and increasing questions about the value of its offerings,” S&P analysts led by Ying Huang noted in a March 14 report. “We believe some of these issues stem from the revolution of technology and the raised expectation for higher education, which have intensified competition among institutions to invest in human capital as well as in facilities to transform the way they provide their services.”
Incumbents jump in
Sensing the sea change in education and employment models, states and universities — public, private and for-profit — have stepped up their games in recent years.
Purdue University’s acquisition of for-profit Kaplan University last year was a shock to the traditional system, both within the Indiana-based university and in the competitive arena.
“It opens a new era for our institution, with the opportunity to expand our land-grant mission to millions of adult students around the country,” said Purdue President Mitch Daniels in March 2018, facing backlash from some Purdue faculty. “That opportunity brings with it the responsibility to provide the highest quality online education, not only to our new adult learners, but to all residential and online Boilermaker students. Starting today, Purdue University hopes to take a leading role in online learning nationally.”
University of Massachusetts President Marty Meehan
The new venture, he said, would be separate from the online courses already in place at the university’s five campuses.
“Systems like UMass are looking to offset declining enrollment demographics,” said Howard Lurie, a principal analyst with Boston-based consulting firm Eduventures Research.
“UMass Online has been around for a while and it’s well-respected, but they haven’t been building it out the way others have, such as ASU [Arizona State] or University of Maryland’s University College.”
Meehan attributed the demographic crisis to plunging birth rates during the 2008 recession, which experts say will result in a dramatic decline in the number of college-aged students in New England beginning in 2026.
Student loan debt in the U.S. has reached $1.46 trillion, and as many as 20% of borrowers may not be earning enough to pay it back, according to the
The student shortage, Meehan said, will leave universities with overcapacity and insufficient demand while the economic model in higher education is already strained.
Online powerhouse Southern New Hampshire University, a private nonprofit across the state line, enrolls more than 93,000 students from around the world, including an estimated 15,000 from Massachusetts.
While the Amherst-based UMass system has high bond ratings, Moody’s Investors Service cited a “highly competitive student demand environment, with projections for declining numbers of Massachusetts high school graduates” as a credit weakness in its Aa2 rating. Fitch Ratings rates UMass bonds AA, andS&P Global Ratings assigns its AA-minus rating.
Its purchase last year of the assets of Mount Ida College, a small liberal arts school in Boston suburb Newton, could also strain UMass’ assets. UMass issued $37 million in bonds to help pay for the acquisition.
Meehan said the new college will become a key workforce development partner to Massachusetts employers, increase economic mobility for Massachusetts residents and generate revenue.
“Workforce training tends to be a popular area and a bipartisan area,” said Roy Eappen, a senior director at Wells Fargo Securities.
According to Eappen, the online reputation stigma is beginning to soften with the involvement of established institutions such as New York University and Columbia University. “The brand aspect is still important,” he said.
No silver bullet
Fully online programs widen achievement gaps and often are unaffordable, according to a
“More than a decade after Congress allowed online colleges full access to federal student aid programs, and despite a subsequent explosion in their enrollment, a growing and powerful body of evidence suggests that online learning is far from the hoped-for silver bullet,” they wrote.
“Online education has failed to reduce costs and improve outcomes for students. Faculty, academic leaders, the public, and employers continue to perceive online degrees less favorably than traditional degrees," wrote Baum and Protopsaltis.
“Moving heavily into online isn’t likely to save an organization from failing,” Fitch's Wadhwani said. “If you have weak demand or brand value that probably isn’t going to get solved by moving into the online space.”
Wadhwani cited University of New England in Biddeford, Maine, as an example of a college that has successfully grown enrollment through a combination of new or expanded graduate and professional programs as well as an increased online presence. Fitch assigned UNE a positive outlook for its A-minus debt rating in September 2017 citing growth in online students nearly 40% of its total enrollment coupled with stable traditional undergraduate programs.
Brick-and-mortar v. online
Competition also comes from corporations that have designed their own online training academies and from professional organizations that provide continuing education.
Motivation is the key ingredient to get students to a degree, experts say. A ranking of the universities with the highest retention rates is dominated by elite universities.
A student anywhere in the world can get a bachelor’s degree from Arizona State University indistinguishable from one earned on campus, but the student on campus might still have an advantage, some experts say.
“The advantage clearly lies with the person who attended the traditional bricks-and-mortar university,” said Anthony Sabino, a Mineola, New York, attorney and a St. John's University law professor, when asked which of two otherwise equal job candidates he would hire. “While my view might change 10 years from now, that is how I view it today.”
David Fiorenza, economics professor at Villanova School of Business and former chief financial officer of Radnor Township, Pennsylvania, has a different view.
"Most of my teaching experience with online courses have been students who are working full-time or part-time and are already in the field of public finance, so I do not have a problem hiring them if they meet all the qualifications and requirements of the job description, and a good fit for the municipality."
At Georgia Tech University, computer science professor Ashok Goel and his team began adapting IBM’s Watson Artificial Intelligence into an online teaching assistant that they named “Jill Watson” without telling 350 students that it was AI. Jill was just one of several teaching assistants for the course on programming artificial intelligence. After initial difficulties and some coaching from her human peers, Jill became adept at answering questions that required subtle interpretation, Goel told a TedX
“I envision a future in which all of us will have access to teaching assistants like Jill Watson anytime, anywhere for any task,” Goel said. “I envision a future where education will be affordable and accessible to all, but teaching and learning will also be personal and fun.”
Bond Buyer reporter Andrew Coen contributed to this report.
