The Higher Education Business Model Start To Crack

Right now I think that conditions in the higher education industry are unsustainable. Fueled by nearly unlimited money from loans, colleges have been conducting an arms race to get their ranking high and attract even more money. The flaw in the plan is it requires fresh customers each year willing to pay ever increasing prices. Economics dictates that there is an optimum price for any product beyond which people will do without. As long as high school graduates thought the only way to get a decent job was with a college degree, then the model worked. Now that is starting to crack and enrollments are down again this year.

H/T Minding The Campus

Everything created by humanity is subject to a cycle of creation and destruction. Humans live 70-80 or sometimes even 100 years; their business enterprises rarely last that long. A generation ago, there was no Facebook or Google, but Enron and Eastman Kodak were going strong. Even buildings seldom last more than 200-300 years.

Until recently, higher education has seemed immune from this reality, as few colleges or universities ever died or closed. The perpetual gain of college enrollments, combined with increasing government subsidies and private philanthropy, shielded higher education from the discipline of market forces that lead private businesses to face relatively high mortality rates. That’s changing. As tuition revenues and outside subsidies stagnate and cost-saving innovations fail to materialize, more and more schools are facing serious financial problems.

So what happens now? Well, the door opens wider to innovative business models to take parts of the market from traditional higher ed.

The author of the article goes on to list five reasons why this time it may actually be the end of the current higher education business model. We will see, probably sooner than later. For more on what may happen next see my post: Are Universities Too Big To Fail?

 

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