No Financial Aid, No Problem. For-Profit University Sets $199-a-Month Tuition for Online Courses

Matt McLoone

Of his tuition pricing for New Charter University, the educational entrepreneur Gene Wade says: "This is not buying a house. This is like, do I want to get cable?"
March 29, 2012

Meet the Ed-Tech Start-Ups

It's a golden age for educational-technology start-ups. The past three years have seen a spike in venture-capital investment in upstart companies, many founded by entrepreneurs just out of college. Last month The Chronicle outlined the trend ("A Boom Time for Education Start-Ups"), but we wanted to dig deeper.

Below are short features on three such companies, focusing on the problems they hope to solve and the challenges they face in selling their unusual ideas. To get a sense of the emerging field, we've included a list of a dozen other start-ups competing for a piece of the action.

It's a higher-education puzzle: Students are flocking to Western Governors University, driving growth of 30 to 40 percent each year. You might expect that competitors would be clamoring to copy the nonprofit online institution's model, which focuses on whether students can show "competencies" rather than on counting how much time they've spent in class.

So why haven't they?

Two reasons, says the education entrepreneur Gene Wade. One, financial-aid regulatory problems that arise with self-paced models that aren't based on seat time. And two, opposition to how Western Governors changes the role of professor, chopping it into "course mentors" who help students master material, and graders who evaluate homework but do no teaching.

Mr. Wade hopes to clear those obstacles with a start-up company, UniversityNow, that borrows ideas from Western Governors while offering fresh twists on the model. One is cost. The for-profit's new venture—New Charter University, led by Sal Monaco, a former Western Governors provost—sidesteps the loan system by setting tuition so cheap that most students shouldn't need to borrow. The price: $796 per semester, or $199 a month, for as many classes as they can finish.

"This is not buying a house," says Mr. Wade, co-founder and chief executive of UniversityNow. "This is like, do I want to get cable?"

Another novelty: New Charter offers a try-it-before-you-buy-it platform that mimics the "freemium" model of many consumer Web services. Anyone can create an account and start working through its self-paced online courses free of charge. Their progress gets recorded. If they decide to pay up and enroll, they get access to an adviser (who helps navigate the university) and course specialists (who can discuss the material). They also get to take proctored online tests for course credit.

The project is the latest in a series of experiments that use technology to rethink the economics of higher education, from the $99-a-month introductory courses of StraighterLine to the huge free courses provided through Stanford and MIT.

For years, some analysts have argued that ready access to Pell Grants and federal loans actually props up colleges prices, notes Michael B. Horn, executive director for education at Innosight Institute, a think tank focused on innovation. That's because institutions have little incentive to charge anything beneath the floor set by available financial aid.

"Gene and his team are basically saying, the heck with that—we're going to go around it. We think people can afford it if we offer it at this low a price," Mr. Horn says. "That could be revolutionary."

Yet the project faces tall hurdles: Will employers value these degrees? Will students sign on? And, with a university that lacks regional accreditation right now­—New Charter is nationally accredited by the Distance Education and Training Council, and is considering seeking regional accreditation—will students be able to transfer its credits?

Mr. Wade banks on appealing to working adults who crave easier access to education. When asked who he views as the competition, his reply is "the line out the door at community college." In California, where Mr. Wade is based, nearly 140,000 first-time students at two-year institutions couldn't get into any courses at all during the previous academic year, according to a recent Los Angeles Times editorial about the impact of state budget cuts.

Mr. Wade himself benefited from a first-class education, despite being raised without much money in a housing project in a tough section of Boston. Growing up there, during an era when the city underwent forced busing to integrate its schools, felt like watching a "train wreck" but walking away unscathed. He attended high school at the prestigious Boston Latin School. With assistance from Project REACH, a program to help Boston minorities succeed in higher education, he went to Morehouse College. From there his path included a J.D. from Harvard Law, an M.B.A. from Wharton, and a career as an education entrepreneur.

The 42-year-old founded two earlier companies: LearnNow, a charter-school-management outfit that was sold to Edison Schools, and Platform Learning, a tutoring firm that served low-income students. So far, he's raised about $8 million from investors for UniversityNow, whose New Charter subsidiary is a rebranded, redesigned, and relocated version of an online institution once called Andrew Jackson University.

Breaking a Traditional Mold

To build the software, Mr. Wade looked beyond the traditional world of educational technology, recruiting developers from companies like Google. Signing up for the university feels more like creating an account with a Web platform like Facebook than the laborious process of starting a traditional program—in fact, New Charter lets you join with your Facebook ID. Students, whether paying or not, start each class by taking an assessment to establish whether they're ready for the course and what material within it they need to work on. Based on that, the system creates a pathway to guide them through the content. They skip stuff that they already know.

That was part of the appeal for Ruben Fragoso, who signed up for New Charter's M.B.A. program three weeks ago after stumbling on the university while Googling for information about online degrees. Mr. Fragoso, 53, lives in Albuquerque and works full time as a logistics coordinator for a solar power company. The Mexican-born father of two earned a bachelor's degree 12 years ago from Excelsior College. With New Charter, he mostly teaches himself, hunkering down in his home office after dinner to read and take quizzes. By week three, he hadn't interacted with any other students, and his instructor contact had been limited to a welcome e-mail. That was fine by him.

He likes that he can adjust his schedule to whatever fits—one course at a time if a subject is tough, or maybe three if he prefers. His company's education benefits—up to $5,000 a year—cover the whole thing. With years of business experience, he appreciates the option of heading quickly to a final test on a subject that is familiar to him.

"You don't have to sit there and read every single lesson, or do every single project, because the base is already there," he says.

At New Charter, even students who don't end up paying offer value to the university. That's because, behind the scenes, the Web site hoovers up data about what they clicked on and how they behaved. That data is used to help serve the next person with a similar profile—to diagnose them faster and recommend the right learning resources.