The Future of Education: Is Your College Going Bankrupt?

empty classroom
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Are governments leaving educational responsibilities to the private sector? This article was inspired by a panel discussion hosted by The Futur called “Education 2020: How colleges and universities are adapting.

If you’ve been a college student in 2020, chances are you attended class at home for most of this year, and your college might be in trouble.

The classical college formula vanished abruptly during the peak of the pandemic, and this might be the toughest hit to the system in decades. According to the report from the American Council of Education (ACE), the estimated financial impact of COVID-19 pandemic is over US$120 billion for the US alone. 

With lockdown measures being implemented all over the world, colleges have faced dozens of logistical challenges to solve in a few weeks. 

Transferring physical classrooms into a digital working environment was probably the biggest of them. Restructuring the system has had a cost, and most school systems have had little to no experience operating this kind of change. Colleges have had to make sure that they must preserve the health of their students and employees. Still, there has been a widespread feeling that the beginning of the pandemic, in particular, wasn’t adequately dealt with by education systems which were slow to adapt, with classrooms rapidly became major COVID clusters.

With many having to close down promptly, institutions started to see their earnings plummeting, with school administrations acknowledging that 2020 was destined to be a bad year financially. Observing losses in multiple directions, drops in enrollment have been identified as one of the most worrying factors for them.

Where does college money come from? 

If you are enrolled in a public institution in the US, most of the money needed to keep your institution running comes from the government and state taxes. In contrast, a much smaller portion comes from students, making it “virtually free” for them.

On the other hand, if you are studying in a private college, your tuition is a significant contributor to your institution’s funds. Private college funds come from two primary sources: tuition and endowments. Ivy-League structures understand well how to manage tuition costs. Universities like Harvard may cost you up to $50k a year. The other source, endowments, are external sources of revenue for private colleges coming from alumni and the private sector.

Adding to this, of course, is revenue coming from on-campus activities and services such as dorms, food halls, libraries, sports fields, and so on.

In the years following the 08’ financial crisis, the price of education skyrocketed. The price hike led some to argue that colleges have transitioned into businesses that focus on making money. While state funding decreases across most parts of the world, colleges may need to rely more and more on those endowments.

Ivy-League Princeton College, USA. Source: Harshil Shah

This system began to show its limits at the beginning of 2020 when no students were allowed on campuses. No physical presence, no physical activities and no services meant cash flow was at a standstill.

International students, who were usually paying a premium on their tuition fees, were unable to fly to the US. Unprepared or underpaid teachers struggled to adapt to the new online class systems, therefore lowering the overall quality of teaching.

Beneficiaries of the higher education system started questioning what they were paying for, and the value they received, all while colleges chose to maintain or increase tuition for their students.

« It is true that between 2008 and 2019, state funding per student fell by $259, but tuition rose, not by $259, but by $2,233 per student — nearly nine times as much. Even correcting for inflation, total spending per student was rising, with no evidence that this spending was funding improved learning outcomes or research breakthroughs. Interestingly, tuition fees were rising also for private schools not even receiving state subsidies. » – Andrew Gillen, Texas Public Policy Foundation (TPPF)

Are you paying a premium for the “Harvard experience” when this had been reduced to attending online classes? If so, you might want to start to reconsider the competitive advantage of physical campuses. Colleges are built for the experiences and the networking you can receive. The reputations of such establishments are not just based on the raw quality of teaching once you’re in, especially at the undergraduate level.

On top of putting traditional colleges on a problematic financial path, the whole situation has accelerated the discussion around the real value of the classical “college experience” and opened gaps in the education market where new solutions are now emerging.

Opportunities for the online education market

Universities have finally been pushed online, and one may argue that the change was long overdue, but they still appear to struggle to adapt rapid changes in innovation and structure. The size of institutions affects their ability to move rapidly, while smaller and more flexible structures are benefiting.

The gap in the education market pushed by the pandemic allowed hundreds of EdTech (Education Technology) companies to enter the game or to consolidate their positions. Companies like Skillshare, Coursera and edX are offering large amounts of education materials for a fraction of the price of a college degree. Understandably, as the COVID crisis stretches ordinary families financially, prospective students will turn to new opportunities, as they begin to question the value they’re getting for the deal offered by classical higher education.

With the internet, it has been said that there are no borders and that education is available in all languages everywhere. EdTech companies are now directly competing with traditional educational systems, and some countries’ job markets are adapting faster than others to this trend, while companies like Google, Apple and IBM among others are starting to officially question the value of a college degree.

Educational background is irrelevant, I don’t care if you even graduated high school” – Elon Musk on CNBC

Elon Musk speaking during a Ted talkSource: James Duncan Davidson

Considering student debt, expensive miscellaneous college costs, and the new opportunities and solutions for education that have arisen, what should you choose?

Bear in mind that these new platforms bring with them their uncertainties. Are these new educational platforms well-regulated? What quality are you getting for the price compared to a regular college? Are the teachers real teachers?

A challenge: mental health and human interaction

There are other enormous challenges for the online education world, whether for classical colleges or the new EdTech platforms. These, primarily, have to do with access to digital devices, mental health and human interaction.

Such difficult times have also further uncovered the problem of depleting student mental health. There is tremendous stress exerted on young people to come to terms with navigating a complex world, getting a job, and wondering if the overall economy will be able to support their aspirations later on. 

You probably experienced Zoom calls during lockdownSource : Wikipedia Commons

We need fast solutions to avoid a new “digital misery” epidemic. When human interactions that usually take place on college campuses drop to zero, what will happen to the people who study with you? How can you get to know them like you would on a physical campus? This, then, might be the real value of traditional schools: the experience of being with people that reinforce your potential. Even if tech is dramatically changing the game, can you really give students memorable collaborative and learning experiences through a Zoom call?

So, should we say goodbye to college?

All these challenges will have to be faced in order to transform education successfully. We need to involve the students as part of the solution because the human element must stay at the centre of this evolution.

Collectively, we need to arrange new solutions to solve this complex issue. What will the future of education look like? Should governments allow more funding for the public education system, or let the private online sector take over?

One might even make a case for a sort of educational Darwinism/creative destruction whereby the system that identifies an efficient solution will become the new gold standard.

So in the end, is COVID a disaster or an opportunity in this area?

Universities will face a financial crisis as parents and students recalibrate the value of the fall semester (spoiler alert: it’s a terrible deal)” – Scott Galloway, NYU Stern School of Business

We would love to hear from you! If you have been a student of an online education platform during COVID-19, please share your experience with us in the comments section!

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official position of SparkTogether or its members.