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Prelude to a Pricing Paradigm Shift

Prelude to a Pricing Paradigm Shift

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degree pricing Boston

Ryan Craig’s opinion piece in Inside Higher Ed last week queried why tuition for online programs hasn’t tumbled given the benefits of technology and scale amassed by some of the largest online institutions. He cites several sources, including the BMO 2019 Education Industry report and a 2017 survey by WCET, noting that the average per credit, in-state cost for an online bachelor’s program is 14% higher than on-ground and that 54% of institutions are charging online students more than those on-ground.

Craig states that regardless of which survey you find most credible, few institutions are charging less for online students. He ponders why this hasn’t happened, stating that some colleges and universities are operating subscale online programs which precludes the benefits of cutting tuition. Others spend as much as $5,000-plus in marketing costs to attract and convert a person to an online student.

Pondering what could happen if a market disrupter cuts online tuition cost, Craig writes about the mobile telephony market in India where 10 companies competed for most of the market. A new company, Jio, entered the market with a dramatically different pricing schedule. Six months later, the company had 100 million customers. Only three of those 10 companies have survived.

“Could there be a Jio of higher education?” Mr. Craig asks. He notes that the marginal cost of online higher education is much lower than people think and could get lower if certain functions, including teaching, were outsourced. He states that like the Jio example, revolutionary pricing would attract many virally without requiring millions more for marketing. Institutions could also subsidize lower tuition by developing relationships with employers yielding better career prospects for graduates.

Craig concludes that the Jio of higher education is unlikely to be a traditional higher institution, citing Trace Urdan of Tyton Partners who says that it “may be impossible due to the constraints that exist within the context of a public university.” As a leader of a large online university that has pursued tuition affordability as part of its mission and whose tuition favorably compares to many public institutions, I think it’s worthwhile considering the constraints. The first is economic. If a university has 100,000 online students and considers reducing its tuition by 20%, most of that reduction impacts its operating cash flow because of the low marginal cost to operate online programs at that size. Perhaps a university could reduce the tuition for newly-admitted students only to minimize the impact of the cut, but that move is unlikely to be well-received by existing students. Unless that reduction makes it the lowest priced online option, some students not receiving the new rate are likely to leave. Another constraint that is likely blocking massive pricing cuts is the most favored nation’s clause that many corporations or the government has in tuition pricing agreements. A lower price for new students has to be passed through to all entities with these contractual agreements or expectations.

Craig implies that the Jio of higher education could capture substantial market share like Jio did. I believe that a substantial portion of the higher education market is not as price-sensitive as consumers buying mobile phones in India. Some would argue that lower tuition equals lower quality. Craig rebuts that argument by noting that by combining lower tuition with better employment outcomes, a lower-cost provider would immediately attract talented students. While there are existing online programs with great employment outcomes, I cannot think of a large online university (over 50,000 students) that touts its overall employment outcomes or that believes they could scale substantially without a dramatic increase in marketing expenses if they doubled their online enrollments. Chasing the better employment outcomes on a 50,000+ scale is a task that Craig admits might not be possible for existing colleges with large online enrollments.

I previously tweeted that Craig might be able to achieve his goal when tuition discounting becomes rampant within online programs. Given market complexities, I think a well-marketed tuition discounting scheme might succeed quicker than building the product from the bottom-up like Jio.

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Wally Boston Dr. Wallace E. Boston was appointed President and Chief Executive Officer of American Public University System (APUS) and its parent company, American Public Education, Inc. (APEI) in July 2004. He joined APUS as its Executive Vice President and Chief Financial Officer in 2002. In July 2016, he retired as APUS president and continued as CEO of APEI. In September 2017, he was reappointed APUS president after the resignation of Dr. Karan Powell. In September 2019, Angela Selden was named CEO of APEI, succeeding Dr. Boston who will remain APUS president until his planned retirement in June 2020. Dr. Boston guided APUS through its successful initial accreditation with the Higher Learning Commission of the North Central Association in 2006 and ten-year reaccreditation in 2011. In November 2007, he led APEI to an initial public offering on the NASDAQ Exchange. During his tenure, APUS grew to over 100,000 students, 200 degree and certificate programs, and approximately 90,000 alumni. In addition to his service as a board member of APUS and APEI, Dr. Boston is a member of the Board of Advisors of the National Institute for Learning Outcomes Assessment (NILOA), a member of the Board of Overseers of the University of Pennsylvania’s Graduate School of Education, a board member of the Presidents’ Forum, and a board member of Hondros College of Nursing and Fidelis, Inc. He has authored and co-authored papers on the topic of online post-secondary student retention, and is a frequent speaker on the impact of technology on higher education. Dr. Boston is a past Treasurer of the Board of Trustees of the McDonogh School, a private K-12 school in Baltimore. In his career prior to APEI and APUS, Dr. Boston served as either CFO, COO, or CEO of Meridian Healthcare, Manor Healthcare, Neighborcare Pharmacies, and Sun Healthcare Group. Dr. Boston is a Certified Public Accountant, Certified Management Accountant, and Chartered Global Management Accountant. He earned an A.B. degree in History from Duke University, an MBA in Marketing and Accounting from Tulane University’s Freeman School of Business Administration, and a Doctorate in Higher Education Management from the University of Pennsylvania’s Graduate School of Education. In 2008, the Board of Trustees of APUS awarded him a Doctorate in Business Administration, honoris causa, and, in April 2017, also bestowed him with the title President Emeritus. Dr. Boston lives in Owings Mills, MD with his wife Sharon and their two daughters.

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