MOOC’s Could Hurt Smaller and For-Profit Colleges, Moody’s Report Says

The rise of massive open online courses, or MOOC’s, could improve the financial prospects of leading universities while posing financial challenges to lesser-known institutions and for-profit colleges, a new report from Moody’s Investors Service predicts.

The report, released on Wednesday and available only to subscribers of the credit-rating agency, is called “Shifting Ground: Technology Begins to Alter Centuries-Old Business Model for Universities.” It says that offering free online courses will help well-known universities bring in new revenue, heighten brand recognition, and reduce operating costs.

The report paints a much bleaker picture for smaller universities and for-profit colleges, however. Regional universities that chiefly attract students from surrounding areas could use MOOC’s to broaden their brand recognition and cut their costs, but they could lose market share to stronger universities over the long term, the report states.

Using MOOC’s produced by other universities could also lead to faculty and staff cuts, said Karen Kedem, vice president and senior analyst at Moody’s and the report’s author.

The report also predicts that MOOC’s will most hurt the bottom line of low-cost local colleges, primarily commuter campuses, and for-profit colleges.

“The real threat is when other institutions are providing credit for MOOC’s and really overlapping with the demographics of the for-profits,” Ms. Kedem said.

Even though the courses are free, the report says, highly ranked universities could find new revenue streams from them, such as selling academic content to other colleges or establishing fee-based course certificates.

“This trend of elite universities’ investing so heavily in this strategy and the scale of the courses being offered just eclipses anything we’ve seen to date,” said Ms. Kedem. “The technology has caught up with the vision these institutions had long ago—that’s what makes this a pivotal point.”

But making money from the online courses may not be elite universities’ primary motive, said Richard Ekman, president of the Council of Independent Colleges. He thinks it is too early to speculate on the long-term financial impact of MOOC’s.

“I believe they are genuinely committed to sharing knowledge widely but also trying to learn something about the pedagogy of teaching online,” he said. “I think those are much bigger factors than wanting to make money.”

Ms. Kedem described the report as a “thought piece” and said she had drawn perspectives from five universities involved in producing MOOC’s. But the still-nascent nature of the teaching medium means it’s too early to predict its effect on institutions’ creditworthiness, said Trace A. Urdan, an analyst at Wells Fargo Securities who focuses on education businesses.

“I think the conclusions of the report are a little silly—there is no business model at the moment for MOOC’s,” he said. “I watch with bated breath to see if someone can build a business around this phenomenon, but at the moment the MOOC’s are basically leveraging the existing brand and existing talent employed by the universities.”

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