A new higher education online business model: Open and non-profit

By Cate Long
September 15, 2012

Online higher education 2.0 has arrived. It is open source, open enrollment and often provided by non-profit colleges. It has the potential to greatly expand access to higher education and to rapidly improve the knowledge base of global citizens. It is the antithesis of high-priced, online for-profit schools like University of Phoenix.

The momentum in online education is being captured by schools like University of California Berkeley, which recently joined Harvard and MIT in a not-for-profit online learning collaboration supported by edX, an open source technology platform.

Online collaborative platforms support massive open online courses (MOOC), which are often offered for free (or for small fees) and allow students from around the world to register for coursework from top tier schools. In a recent report, Moody’s described the potential for universities using MOOCs:

Massive Open Online Courses enable colleges to experiment and refine electronic delivery methods, evaluate scalability, identify best suited faculty, gauge the quality of student learning outcomes, and assess demand. MOOCs diverge from traditional online courses which sought to duplicate the classroom experience, including approximate class size. In addition, the availability of open platforms enables a university to post content without incurring the cost of developing and maintaining the platform.

Online learning technologies will play an increasing role in creating new efficiencies and lowering the cost per student. Successful adoption enables educators to expand and diversify their student bodies and increase faculty scheduling flexibility and productivity.

Moody’s sees several possibilities for schools to earn revenue from MOOCs:

Potential new revenue opportunities are clear for the market leaders. Growth potential includes charging tuition for certificates or degrees, selling courses/content to other colleges, attracting paid advertising to the web site, and increased philanthropic/foundation support for these innovative initiatives. The use of proctored exams to verify a student’s identity and to reduce cheating paves the way for fee-based certificates or course credits. As an example, Udacity and edX have partnered with Pearson VUE testing centers to certify the learning outcomes of MOOCs.

It is easy to see the potential for MOOCs, but their lack of barriers to entry like application screening and fees can mean enormous up-front enrollments. This may not be a problem due to the automation of the technology platform, but graduation rates tend to be low.

Inside Higher Education addressed the issue:

This was particularly true of edX’s first course, a virtual lab-based electrical engineering course called Circuits & Electronics: 155,000 students registered for the course when it opened in February, but only 23,000 earned a single point on the first problem set, and 9,300 passed the midterm. When the course ended, 8,200 students took the final. Just over 7,000 earned a passing grade and the option of receiving an informal certificate from edX.

But that complication was easily offset by the reach of the online course which had broad age diversity in enrollees. From Inside Higher Ed:

The age distribution of students who stuck it out with Circuits & Electronics favored what higher ed would call “nontraditional” students: Half of them were 26 years old or older. About 45 percent were traditional college-aged students, and 5 percent were in high school. The oldest probable-completer was 74; the youngest, 14.

Residence based programs at colleges generally attract traditional age students (18-22) so MOOCs, like their for-profit counterparts, can reach a much broader population of students.

Moody’s cautions residential, less selective colleges that don’t differentiate themselves:

The extent of longer term credit impacts on individual universities will vary widely. Most universities will likely gravitate to a mixed model that will increasingly feature online course delivery, though some colleges may choose to create a niche by remaining focused solely on the traditional residential classroom experience. The residential college model will certainly remain viable for reputable undergraduate institutions. Less selective, smaller colleges that are unable to join emerging networks or carve out an independent niche will likely experience credit stress driven by declining student demand.

The efficiencies offered through new technology have the potential to transform a university’s operations, academic and social programming, and pedagogical approach.

If Moody’s is accurate in its forecast, enormous changes in higher education will be coming down the pike:

The increasing prevalence of MOOCs, with enrollment that is exponentially larger than traditional residential classes or online courses, will drive explosive growth of online enrollment. In fall 2011, Stanford had courses with more than 100,000 students enrolled. While only 10% of the participants completed the courses, a single course reached more students than are typically enrolled in most private colleges and universities (median full-time equivalent enrollment for Moody’s rated private universities of 3,439 in fall 2011).

Online higher education 1.0 consisted of for-profit and non-profit colleges and universities providing virtual education that mirrored the classroom experience. It also included elite universities like Harvard and MIT providing free classes via YouTube and other platforms with no feedback loop or credentialing process. Online higher education 2.0 will likely see open classes combined with testing and credentialing processes resting on massive open source platforms. Imagine if this sparked a second renaissance for Western education.

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