Popping the Higher-Education Bubble
A new strategy to improve college access while reducing the taxpayer burden.


President Obama has called for more Americans to attend college, setting a goal that the United States lead the world in its percentage of college graduates by 2020. The administration has called for dramatic increases in federal subsidies for student aid. His 2011 budget request includes $156 billion for such programs.

But experience shows that increasing student aid has failed to solve the college-affordability problem. Some economists have even found that increased spending on student aid contributes to rising costs.

Over the past decade, federal spending on student aid has grown by 99 percent. But, as these economists would predict, college costs continue to rise. Since 1982, college tuition has increased by 439 percent — more than four times the rate of inflation and twice the rate of increase for medical care. The College Board reports that the total costs of attending four-year private and public universities this year were $35,600 and $26,700 respectively.

Despite his faulty strategy, President Obama may get his wish of dramatically decreased tuition. A combination of trends may lead to the “popping” of what some observers have called the higher-education “bubble.” The first is the growing popularity of online learning. The second is the increasing availability of free higher-education content online. The third is the emerging market of credit-by-examination options that allow students to work toward a college degree through independent study.

College students are increasingly taking classes online. According to the Sloan Consortium, total enrollment in online college courses grew by 17 percent in 2008, with more than a quarter of all students taking at least one class online. To date, most of the online programs have sought to compete with traditional universities, and they charge roughly the same amounts. Yet there is reason to expect that the cost of learning online will quickly fall.

A growing number of universities are placing instructional content online and making it available for free. For example, MIT has done this with “virtually all” its course content through its OpenCourseWare initiative. The school reports that the website has received 90 million visits, with hits from “virtually every country.” The Apple iTunes program even offers a “university” section that offers free downloads of lectures from many universities, including Yale, Stanford, UC-Berkeley, Oxford, and Cambridge. As more content becomes available online for free, students will have the option of receiving instruction at any time and at any place from some of the best professors in the world at zero cost.