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Freemium Higher Education?

The present for-profit higher-education industry is largely an artifact of federal financial-aid policy. Students have the right to sign over their federal grant and loan dollars to any accredited college, and if you look at how much the big publicly traded for-profits charge, you’ll see a tight distribution of price points that not coincidentally track closely with the maximum amount of federal loan money students can borrow. Because accreditation is difficult and time-consuming to get if you start from scratch, clever for-profits simply bought up existing accredited colleges, which is what led to the absurd spectacle of Bridgepoint Education, which runs a large for-profit online college out of an office building in San Diego, paying students to attend a Potemkin College in the middle of Iowa for the purposes of maintaining accreditation and therefore access to hundreds of millions of dollars in federal funds.

Last week, a new online for-profit venture was announced, called New Charter University. At first, the story seems familiar: They, too, bought an existing accredited institution, an online provider previously called Andrew Jackson University. They will exist entirely online, cater to the working adult demographic, and offer associate’s, bachelor’s, and master’s degree programs in the same huge white-collar labor markets that other online schools target: business, management, IT, and health care.

But there’s one big difference: New Charter U isn’t going to accept federal financial-aid money. Instead, they’re going to adopt a pricing model pioneered by companies like Straighterline, where students pay a low monthly fee to take as many self-paced courses as they like. They won’t be subject to the debt/earning-ratio calculations that form the heart of the U.S. Department of Education’s controversial “gainful employment” regulations, because their students won’t borrow any federal funds. Last year, Texas Governor Rick Perry was wrongly ridiculed for suggesting that public universities develop an online bachelor’s degree program that would cost $10,000. New Charter U estimates an average cost of $6,500, with no public subsidies.

I make no claims about the quality of New Charter U’s courses, since they just opened for business last month. What you see on their Web site is the clear influence of recent trends in online commerce: an ultra-clean user interface, the ability to sign up with your Facebook or Twitter account, the influence of “gamification” in the way the course experience is designed, and so on.

More intriguingly, at least from an business perspective, is that New Charter U has adopted a “freemium” service model. Anyone can start work on their M.B.A. without paying a dime. You only have to give New Charter U money if you want access to real people who serve as academic mentors (a big part of the successful Western Governors University model) or if you want to sit for a proctored exam and receive academic credit.

This is consistent with other recent developments in Silicon Valley and elsewhere, like the MITx model of giving courses away for free and charging small sums for assessment, or the Udacity model where the courses are free and the company makes money connecting its top students to employers. The unavoidable differences between what colleges do and what they sell are intersecting with the changing economics of online education and the rise of “open educational resources” to create things that haven’t existed before. New Charter U may be new (in fact, they’re new.edu) but they won’t be the last to go this way.

P.S. Whenever I write a post on this topic, I usually get comments along the lines of “This entire conversation is ridiculous and distasteful because online higher education can’t possibly be as good as the higher education that I once received and/or am currently employed to provide.” Short response: There is incredible diversity within our higher-education system. I have personally witnessed a class taught by a full professor to two (2!) undergraduates at a wealthy liberal-arts college and read senior theses produced in close collaboration with full-time research faculty that would put most graduate work to shame. Online higher education can’t touch that. But I’ve also seen—and participated in—big lecture classes that are worse than well-designed online courses. The difference between what higher learning should be in theory and what it really is in practice (and what’s feasible given the current economic and funding environment) is vast. And it’s in that space that new organizations are going to thrive.

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