As College Costs Rise, Has Competition Arrived?

US News

In last week's review of The Project on Student Debt's recent report, "Student Debt and the Class of 2011," the Student Loan Ranger briefly noted the important role of transparency regarding schools' costs and outcomes. A lack of transparency harms borrowers who have difficulty comparing colleges to assess their value and abets the continuing rise in tuition.

Greater transparency increases the competitive pressure on institutions of higher education and incentivizes them to focus on student outcomes and reduce costs.

[See which colleges are cutting or freezing tuition.]

There are, of course, other avenues to lower costs. One that has become almost a cliché is "disruptive" online startups that force inefficient brick and mortar companies, such as Borders, to either dramatically reduce costs or go out of business.

Now, as Kevin Carey reports in a recent Washington Monthly article, "The Siege of Academe," numerous Silicon Valley startups are aiming directly at what they consider another overpriced and inefficient brick and mortar business: higher education.

To be specific, it's about a $1 trillion business, which makes it eminently worth pursuing.

Carey describes higher education from the point of view of an Internet entrepreneur as "publicly subsidized, heavily regulated" and "culturally entrenched." These advantages have allowed higher education to shield itself behind a protective moat and "stubbornly resist digital rationalization."

Since these advantages aren't going away anytime soon, Silicon Valley, according to Carey, is most likely to succeed not by directly challenging the current system but by building a "parallel higher education universe" in the private sector.

What will this parallel universe look like? Carey is upfront in admitting that he doesn't know, but he does review a number of intriguing possibilities.

On a large scale are projects like the new "massively open online courses," (MOOCs) that provide free online courses for hundreds of thousands of students. Some, like Udacity and Coursera, are being created by AWOL professors from universities like Stanford University, Princeton University, the University of Michigan, and the University of Pennsylvania.

[Read more about free online courses.]

Others, like MITx and edX, are being created by universities like the Massachusetts Institute of Technology, Harvard University, the University of California--Berkeley, and others, in what may be defensive moves.

Another ambitious project is Minerva, an attempt to create a new elite university of 10,000 or more undergraduates complete with "rigorous admissions standards" a "nail-tough academic curriculum" and primarily online courses attended by students who "live together in shared housing units in cities around the world."

Smaller but no less audacious--and no less determined to grab a slice of the educational pie, online businesses described by Carey include Udemy, which helps users design online courses, Quizlet (online learning tools), OpenStudy (online study groups), and Chegg (cheap online textbooks).

The upshot is that, with a trillion dollars at stake, Silicon Valley isn't likely to stop trying. And while relatively few elite universities may be able to join in or fend off the disruption without losing value, the majority of institutions of higher education and ancillary business that support them, such as textbook publishers, may have to adapt by lowering costs to compete. It's an uncharted path to lowering the cost of college, but we may find ourselves traversing it sooner rather than later.

[Find out how to save money on textbooks.]

In the meantime, the Student Loan Ranger is doing its best to disrupt the debt collectors and ensure that everyone concerned with the student debt they borrowed (to attend a brick and mortar institution of higher education or any other kind) has the tools they need. You can attend a free online webinar, follow us on Twitter (use #studentdebthelp), and read our new E-book, Take Control of Your Future, on Kindle.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works' educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.