Paul L. Caron

Wednesday, October 14, 2020

The Free Market Can Deliver Free College (And Free Law School)

Wall Street Journal op-ed:  Free Market Can Deliver Free College, by Daniel Pianko (University Ventures):

Free TuitionStudents and parents can’t be faulted for suspecting that an online education should cost next to nothing.

At some institutions, it already does. Primarily online Southern New Hampshire University recently announced a free first year for incoming students in light of the pandemic. ...

Can the pandemic finally bring the traditional college pricing model to its knees? Or will these examples remain outliers?

Insight into the future of higher education may come from an unlikely source: the brokerage industry. Like higher ed, stock trading is a highly regulated field with massive barriers to change. ... For years, the traditional brokerage industry was considered too difficult to replicate with technology. How could the internet replace a white-shoe adviser who not only took trade orders but also answered the phone, offered personal advice and took part in estate planning and other higher-order wealth-management tasks?

The mighty were felled quicker than expected. Over 30 years, technology reduced the cost of trading a stock from hundreds of dollars to virtually zero. ... Today, almost no large brokerage firm is charging for stock trades. Firms make money from new revenue sources, like selling order flow to market makers. It’s not unlike the way Gmail is free for users, whose data then helps Google sell targeted advertising. ...

Higher ed is where the brokerage business was in the late 1990s: poised for transformation.

Even before the pandemic, momentum was building in the education market away from high-cost operators and toward low-cost ones. Southern New Hampshire University and Western Governors University, nonprofits that charge less than $10,000 a year in tuition, have already become some of the largest and fastest-growing institutions in the country. They each serve more than 100,000 students by using online delivery and competency-based instruction to drive down costs dramatically without sacrificing quality.

These mega-universities will leverage technology to drive tuition revenue to zero over time. Some are already on the way, and the pandemic may accelerate the shift for many others. Rather than collecting tens of thousands of dollars from students up front, colleges might make money by forming partnerships with employers, by charging students a percentage of their postgraduation income, or via government-issued social-impact bonds tied to successful outcomes like graduation rates. ...

Technological change affects industries in deep, novel ways that established players ignore at their own peril. New education models are already driving tuition down, but there’s still room for massive, structural price-driven disruption in this industry. In the wake of the pandemic, the winner will be the institution that takes the cost of online learning down to free.

Just as no one 30 years ago could have foreseen what would befall brokerage fees, few now can imagine what will befall colleges in a world without tuition revenue. But that world may be coming. If it is, the debate over free college will become an anachronism. Will you greet it with disbelief or a twinkle in your eye?

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If I recall correctly, they said that about nuclear electric generators half a century ago: electricity so cheap that it wouldn't even be metered. The WSJ seems to have forgotten the basics of Econ 101: the supply curve in a perfect market reflects a market return on all input factors. In English: nothing is sold for below cost. How the WSJ expects education to be provided at zero cost escapes me.

Posted by: Ted Seto | Oct 14, 2020 9:45:35 PM

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