Follow the money
By Susan Meisenhelder
Investors and corporations want to make big profits off MOOCs. Where do the needs of students fit in the picture?
In much of the public commentary about technology, innovation and disruption in higher education, online education is touted for its promise to dramatically increase access. To be sure, broad access to high-quality higher education is a valuable goal that should inform higher education policy in any democratic society. However, in many ways, access is not the primary goal of those promoting online higher education.
Increasingly, online higher education is big business with huge profits being made by many private companies. None other than Rupert Murdoch, for instance, has opined that education in the United States represents a potential investment opportunity of $500 billion.
“Ed tech” is itself a huge sub-area in the “education industry.” According to GVS Advisors, an ed tech consulting group, investment in that sector hit $1.1 billion in 2012, a figure almost as big as that in the dot-com market. Profits are following for many investors in this market area. For instance, in just one year (from the second quarter of 2011 to the second quarter of 2012), investors in 324 companies offering ed tech products and services made $1.43 billion.
For-profits: A cautionary model
Online higher education has also become a hot spot for corporate growth. During the first part of the 2000s, stand-alone for-profit entities, such as the University of Phoenix and Kaplan University, were the leaders in the online higher education business world. And they were hugely successful. During that time, five of the top 25 growth companies in the country were education entities heavily involved in online education. In fact, reported Slate’s Anya Kamenetz, between 2000 and 2003, online higher education providers were the darlings of Wall Street and the highest-earning stocks of any industry.
Later in the decade, however, the American public learned why the profits were so huge. After a series of scandals about fraudulent practices, shoddy degrees, dismal graduation rates and a host of other issues, the U.S. Senate Health, Education, Labor and Pensions Committee, under the leadership of Sen. Tom Harkin (D-Iowa), investigated. Its report, “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success,” revealed that these for-profit providers spent more on advertising and recruitment than on instruction. Profits in 2009 alone were more than $3 billion, with a whopping profit margin of 19.4 percent, the committee found.
These profits primarily came from federal financial aid dollars (and still do), courtesy of the American taxpayer. As the Harkin report detailed, the amount of public money involved is enormous. In 2011 alone, $32 billion in federal financial aid—25 percent of all Department of Education financial aid funds— was funneled to for-profit colleges. Pell Grant money going to these companies grew from $1.1 billion in 2000-2001 to $7.5 billion in 2009-2010, twice as fast as the overall increase in the program. In just four years, from 2006 to 2010, veterans’ educational benefits flowing to for-profits increased 683 percent.
The latest for-profit online innovation, massive open online courses, known as MOOCs, seems poised to make a big revenue leap as well. Despite having no significant profits at this point and a product that is being given away for the most part, investors seem confident that profits are in their future and are prepared to put up the money necessary to explore the possibilities. The three big MOOC providers, Coursera, Udacity and edX have “cash to burn,” according to an Inside Higher Ed article, “How Will MOOCs Make Money?” by Steve Kolowich: Udacity has received at least $21.5 million of investor money and Coursera, $43 million. EdX, while technically a nonprofit, has been generously bankrolled with $60 million from MIT and Harvard.
The rationale presented to the public for this latest online learning innovation is high-minded and even utopian. With no acknowledgment of the dismal completion rates for MOOCs or the digital divide impediments to online learning even in the United States, MOOC promoters promise unimagined-before access to higher education and the dawning of a new age.
For instance, Daphne Koller, CEO for Coursera, writes in “How Online Education Can Create a ‘Global Classroom’ ” that MOOCs can erase “barriers between people of different cultures,” give students a chance to learn “without the limits imposed by physical or socio-economic circumstances,” and offer teachers everywhere “the ability to transcend boundaries.” Sebastian Thrun, head of Udacity, sees MOOCs as “the beginning of something magical” and somewhat more prosaically predicts “a tenfold increase in the market for higher education,” reports Don Clark in the Wall Street Journal.
Yet, for parents, students and the general public who focus primarily on what education means for people’s futures, for social mobility, a healthy economy and a robust democracy, a dip into the insider talk of MOOCs, their investors and industry analysts is both instructive and disorienting.
What online-industry insiders say
The burning questions in the for-profit education industry focus squarely and exclusively on what will make money for particular companies. Will Pearson be able to make massive textbook sales off of its involvement in MOOCs? Will charging successful students for placement services work as a viable profit-generator for MOOCs? What price will the market bear for MOOC student certificates of completion? MOOC companies are even exploring the possibility of making money by referring students, if they fail in their courses, to traditional colleges and universities where they might do better.
In the insider talk, Udacity and Coursera are not judged by the quality of the actual educational experiences they provide students, the degree to which they tear down barriers for students and instructors around the globe, or any of the goals so passionately discussed in public. The bottom line is business—which company looks positioned to make the most money, as George Siemens writes in “Quality Control in MOOCs” on the xEd Book blog. In the cases of Udacity and Coursera, it seems a tough race to call because “Udacity has a better range of monetization strategies—content, teaching, platform, recognition,” while “Coursera as a brand will rely heavily on their [highly respected, elite] university partners.”
Even Moody’s is in the mix with angles few industry outsiders would predict. Moody’s has projected, for instance, that MOOCs will be good credit news for elite institutions by allowing them “to use their powerful brand reputations to get ahead of rapid technological changes that could destabilize their residential business models over the long-run.” By offering MOOCs, elite institutions will further “benefit from favorable publicity, in the form of enhanced name recognition and political good will.” In fact, the biggest bottom line benefit for them has nothing to do with education: “The most significant short-term benefit to the top-tier universities is blunting public criticism that wealthy universities do not provide enough service to fulfill their public mission and, therefore, maintain their tax-exempt status in the United States.”
In ways outsiders rarely ponder, industry analysts are also blunt about how larger political and social factors affect markets and profits. Insiders are keenly aware, for instance, that keeping tuition up and public funding down is not the horror for them that it is for American families. In fact, as finance analyst Gregg Bayes-Brown makes clear, that situation helps online companies expand their markets and increase their profits:
“As costs continue to mount in higher education, online courses will undoubtedly appeal to cash-strapped students looking to dodge a lifetime of debt. Furthermore, as governments continue to scrabble for money in the on-going financial stalemate, other forms of income may dry up, leading to some universities running out of gas.”
Whatever one’s feelings about whether private companies are a plus or a minus in higher education, broader access to the full range of facts about corporate interests is a fundamental requirement for a discussion that leads to sound higher education policy.
Only when the public also “follows the money” in online higher education will we be able to make the best decisions about the future of higher education in our country.
The Campaign for the Future of Higher Education
This article is an adaptation of “The ‘Promises’ of Online Higher Education: Profits,” the first of three working papers issued this fall by the Campaign for the Future of Higher Education. CFHE is an organization of campus-based and national faculty and staff organizations, of which the AFT is a member. It came together in 2011 to fight for access, affordability and funding in higher education, and to ensure that the voices of faculty, staff, students and families are heard when administrators and policymakers talk about “education reform.” To read this paper in its entirety, go to futureofhighered.org.
Susan Meisenhelder is professor emeritus of English at California State University, San Bernardino, and former president of the California Faculty Association, which represents the 23,000 faculty who teach on the 23 campuses of the California State University. For the last several years, she has been working with the Campaign for the Future of Higher Education.
Reprinted from the Winter 2013-14 issue of On Campus.