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The College Cartel
From the March 19, 2012, issue of NR

(Darren Gygi)

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State governments would be wise to pursue two complementary strategies:

First, break up existing higher-education cartels. State governments often insulate incumbent schools from competition. For example, State X might prevent the University of State X from competing with State X U by barring it from opening a campus on the other school’s turf. This might make sense if our goal were to preserve the market share of both schools, but it does not make sense when our goal is to foster robust consumer-friendly competition. Prices are often fixed by the state so as to eliminate any potential for competition. States should let their individual public colleges freely compete with one another. Some colleges will be winners and others losers, but the consistent winner will be the student, who will get lower tuition and a higher-quality education.

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Second, level the playing field. State higher-education subsidies are generally paid only to state-owned colleges, giving such schools a huge competitive advantage over private colleges: State colleges can spend just as much as a private colleges, but then charge a substantially lower price, because of the subsidy. States should instead allow private colleges to receive the subsidy as well. One approach would be for state governments to develop partnerships with private colleges. For example, private colleges located within the state could become private charter colleges, akin to K–12 charter schools. In return for the state subsidy, private charter colleges would agree to charge in-state students a lower tuition than the most expensive public college currently charges. The goal of leveling the playing field would be to pressure the most expensive public colleges to spend public resources responsibly, not to run the public colleges and universities out of business.

Not all states will take such steps, and very few will take them quickly. But the federal government might contribute to breaking up higher-education cartels by providing an alternative route to accreditation. The aforementioned Kevin Carey of Education Sector has called on the federal government to create a mechanism through which high-quality providers of instruction — for example, a program exclusively devoted to teaching college-level calculus or Mandarin — can get approval to accept federal loans. Carey would require that such educators offer their services at low cost and provide transparency regarding their effectiveness. If they meet these criteria, any college or university that accepts federal loans would have to accept the credits they provide. While some may find Carey’s approach heavy-handed, it has the potential to strongly encourage the adoption of low-cost business models in higher education. Existing schools that can’t compete with the new providers will die out as they see their business cannibalized. Those that rise to the challenge will do so by improving the quality and cost-effectiveness of their offerings.

There have been a number of promising recent developments in higher education. The most impressive may be the rise of Western Governors University, a highly innovative institution built around entirely online delivery and a competency-based degree — i.e., WGU grants credits based on test performance, and does not require class attendance. A WGU student who is already very knowledgeable about software programming, having worked as a coder before starting work on her degree, might secure a credit in computer science by passing a final exam without actually taking a course. In essence, WGU offers the equivalent of a CPA exam for every subject.

Moreover, WGU charges its students based not on the number of credits they complete, but rather on an “all you can eat” basis over two semesters: If you can demonstrate competency in seven or eight semesters’ worth of credits in only two semesters, you pay the price for two. The beauty of the WGU model is that it allows students to seek instruction anywhere they can find it — they can read independently, study with a tutor, enroll in some other school, etc. — while turning to WGU to certify that they’ve mastered the relevant material.

In a somewhat similar vein, the Massachusetts Institute of Technology has sponsored MITx, a program through which students who take free online courses offered by MIT can, for a modest fee, secure an MITx credential by demonstrating a thorough understanding of the material.

It’s not just online programs that show promise. Grace College, a small institution in northern Indiana, uses a much more traditional, residential model. But it has recently trimmed some unnecessary spending and moved summer school totally online. As a result, a Grace degree can now be earned in three years for total tuition of $38,000, about the same as an Indiana resident pays over four years to get a degree from Purdue or Indiana University Bloomington.

The combination of low profit margins and innovation-encouraging models might even allow higher-education costs to fall well below 1980 levels — and if current levels of state-government subsidies were maintained, higher education could even be tuition-free. Through competition and innovation, we can achieve the dream of left-wing higher-education visionaries — but without breaking the bank. 

 — Vance H. Fried is the Riata Professor of Entrepreneurship at Oklahoma State University and the author of Better/Cheaper College: An Entrepreneur’s Guide to Rescuing the Undergraduate Education Industry. Reihan Salam writes National Review Online’s domestic-policy blog, The Agenda, and is a policy adviser at the economic-research think tank e21. This article appears in the March 19, 2012, issue of National Review.



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