The $670 Billion College-Industrial Complex Is Under Threat From Online School
The pandemic and our reappearance are permanently changing the economy, government and business. Read more analysis on how Covid changed the world forever on the journal’s Heard on the Street team.
College Inc. is facing a settlement.
American colleges and universities saw the largest drop in fund inflows in decades for the past academic year, thanks to a sharp drop in enrollments and a lack of room and board income for students who enrolled but took their courses online.
But that was just the beginning. After a generation of college students get used to online learning, the college business is likely to never be the same again.
The schools affected are mostly not for profit, but they represent a huge corporation with total sales of $ 670 billion, more than $ 300 billion in debt, and approximately 3 million employees. At the height of the outbreak, between February 2020 and February In 2021, they laid off about 13% of their workforce. And researchers at the Federal Reserve Bank of Philadelphia estimate that over the next five years, universities will lose revenues between $ 70 billion and $ 115 billion due to the pandemic.
Many schools were facing financial stress even before the pandemic, as they awarded more scholarships to make up for stagnant enrollment. Many were also injured by fewer overseas students paying full freight due to former President Donald Trump’s less friendly visa policy.
With millions of students moving to distance learning, institutions that specialize in online education have received a boost. They have suffered a stigma in the past due in part to the sometimes low standards and predatory behavior of for-profit online colleges, which make most of their money on government-subsidized loans and grants. But more respectable nonprofit schools – like Purdue Global, Southern New Hampshire University, and Arizona State University – are now competing with them for online enrollment.
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“We’ve grown a lot over the past year, partly due to Covid,” said Jon Harbor, director of Purdue Global, Purdue University’s online adult education division. “Many institutions face financial stress.”
The online threat has even appeared on the high end. Minerva Institutes at KGI, which alternate their student body between rented locations around the world but are taught by remote workers and run their own admission tests, received 25,000 applications for the Class of 2024, which allowed for less than 1% – far more selective than even Ivy-League -Schools . It’s cheaper too.
And perhaps most alarmingly for the college industry complex, Google has introduced certification programs that it says will be treated as the equivalent of a four-year college for recruitment purposes.
Any student who opts for an online college degree – or the Google equivalent – is just another student who doesn’t have to pay for the much higher cost of traditional education. And fewer students necessarily mean fewer colleges.
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Residential colleges are not going to go away entirely – many young people are enjoying the experience. Large state universities, as well as well-known brands with global snob appeal and huge foundations, can weather the added pressure of the pandemic. But hundreds of smaller institutions facing precarious finances – yes, maybe even your alma mater – might not be if the study and enrollment pressures outlast the pandemic.
They tried old college, but Covid-19 has forced higher education to face economic realities.
American public university tuition fees have nearly tripled since 1990. While President Biden wants to take some of the pressure off some students, experts explain how federal financial aid programs can actually add to soaring costs. Photo: Storyblocks
Write to Spencer Jakab at spencer.jakab@wsj.com
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Appeared in the print edition of June 26, 2021 as “An existential crisis for higher education”.