The economically absurd increase in education costs

My degree in Economics and Business Administration from Universidad Complutense de Madrid cost me US$ 3,500 of dollars of 1972-1977. It included tuition costs in a private College called Colegio Universitario San Pablo. My MBA at IESE cost me US$ 3,600 from 1977 to 1979. My first job gave me a net income of US$ 2,000 in 1980. So the payback of all my Higher education, in dollars of those years, was worth 4 months of income.

My son has just graduated from College in Universidad de Los Andes, one of the top private Universities in Chile. Only to pay this tuition, he needs 27 months worth his initial net salary. If he made an IESE MBA, he could earn twice as much, but the cost of IESE now is 20 times higher. And he would need 35 months of his first salary to pay back all his Higher Education (pre and post grad). That, before he even thought of buying himself a car or a home. Barely put, today Higher Education it is not as profitable as it was thirty three years earlier. I doubt it is profitable at all.

This is not a trouble within my country. From all I have read from papers and media from the US, it’s pretty much the same there, if not worse. I could say it’s universal. Students that go to higher education come out with a huge debt that mortgages their life, or at least, it severely handicaps their future.

Clearly, neither Higher Education today is seven times better than it was thirty years ago, nor salaries are seven times higher. I have estimated that the total Education in Chile, if you take your kid to a private school (public schools are bad), and a good University, amounts to approximately US$ 140,000 each. I have five children. Do the math. No wonder young couples think it over twice before having children.

According to a Mc Kinsey paper[1], 80% of the new jobs which are created today in the US require a degree, but with all the existing Universities only a 30% can be delivered. So, it’s a simple matter of basic economics: the price rises, no matter if the University is a non-profit organization or not. In my country, it is the same thing. Public University tuition fees have risen as much as private ones, despite that they receive money from the Government (and yet, still are in red numbers). So the actual discussion in Chile about profits in High Education is pointless. It will not arrange the problem.

One of the reasons is the cost of teachers. Since there is a higher demand for professional work labor and there is not a rise in teachers available, their price has risen. Universities have responded by hiring part time teachers, for one subject only, downloading their numerus clausus. Paycheck is around US$ 600 per subject (and less!).

The issue is that the actual players cannot give an adequate answer to the needs of the market. The very model of Education (lecturing for a limited number of students) makes it non-viable. One answer you could expect would be to build more Universities. But that would not do. The market is innovative, and is already giving innovative answers to the dilemma, which we will increasingly see in the coming years.

The answer, as Tom Vander Ark puts it in his book, is customized learning[2]. With a change in the role the teacher plays in the model and the learning methodology (it’s learning methodology, not teaching methodology… stupid!) In his book, Tom gives a vision on how that is already happening and will be accelerating as all what happens in the Internet which finally makes a “killer application”, by giving a much more smart and cost effective solution to actual problems. 3.5 million Students “attended” school from home in 2010, a 12% of all K12 base. Digital learning is growing at a rate of 40% per anuum. Tom forecasts that by year 2020 half the States will have adopted the new paradigm (which is not 100% online, but rather b-learning).

Universities, though resilient to the changes, are giving way as well. That is how Harvard and M.I.T. have joined together and launched eDX, a platform that will offer quality contents for free, so as to reach millions of students around the world. I guess the monetization of the effort will be in the accreditation or the use for accreditation, but at a fraction of the actual cost. New online universities, such Open University (with 250,000 claimed Students) are breaking the otherwise solemn and reactionary Academia sector. 

In both cases (school or Higher Education) each student will be able to create his customized “curriculum digitae” where demonstrated competencies will be accredited, with a customized curricular program, which will be available for prospecting employers. 

This way, each Student will be able to focus on those subjects where he or she is more talented and likes the best, so that the ultimate paradigm of which I have been writing lately begins to become a reality: that everyone can work where most talented and likes the best, boosting personal productivity, creativity, innovation, and wealth. The best way, in my opinion, to beat poverty. I strongly believe that Planet Earth is gifted with enough talent to solve all its problems and give a worthy life to all its inhabitants. Only we have since the dawn of humanity pursued the easy riches of natural resources, laying waste to our homeland.

Since the Web was born it has been forecasted that it would have a huge impact on Education, and until now that had not happened. “e-learning” was more kind of “e-reading”, but there had not been a change in methodology or in paradigms in education. That is changing and will change even faster, without the incumbent players having the time to understand how it happened nor why – even if you explain them very clearly as I try to do in this article. Those countries that do not adopt the new paradigm will be left outside of the Knowledge Society and all its benefits, for the simple reason that they will continue creating standard work force at absurdly high costs.

The comfort zone of Education business is ended. No matter if it is non-profit or not. The economic foundations on which it was created and has dwelled ever since are not sustainable in the long term, for the simple reason that the return on investment of Education has dropped to scandalous levels.

Now, in order for this new paradigm to happen, you need three things [3]: 

• First, companies need to say they will hire students and invest in their workers who get online degrees with certification. That will create real market demand for alternative college education and lifelong learning services. 
• Second, the government needs to define certification in new regulation. That will enable a market for certification. 
• Third, the regulation should permit students who take online tests to use any tools available. That should create a market for tools that should support alternative customized education and lifelong learning.  

Experience with innovation has revealed that the blocking factors in a minimal solution have to be eliminated or real change doesn’t happen. 

I really feel sorry for this generation of Students. They will have to pay a huge price for something that will cost a fraction not long from today. Governments will have to deal with that unfair matter of things, and with the savings that the new paradigms will bring on Public Education, leverage the financial burden of Students of different ages.

Alfredo Barriga

---

[1] Mc Kinsey Global Institute: Help Wanted: the future of job in advanced economies, March 2012

[2] Getting  Smart: How Digital Learning is Changing the World, Tom Vander Ark, Jossey-Bass, 2012
[3] Contribution by William Miller