Distance education has been very good for the business school at the University of Massachusetts at Amherst. More precisely, the revenue-generating online M.B.A. program has been good for the school.
The 11-year-old online program accounts for just over a quarter of the enrollment at UMass’s Isenberg School of Management, yet revenues from the program cover about 40 percent of the school’s $25-million annual budget. And that’s after UMass Online, the in-house marketing agency, as well as a few other arms of the university have taken their cuts.
The business school’s experience helps to illustrate the economics of distance education and the way one college with a marketable offering is using online education to help its bottom line.
With a total of about 4,830 undergraduate and graduate students and a faculty of 105, the Isenberg school spends an average of about $5,175 per student. The online M.B.A. program, with 1,250 students, generates about $10-million in net revenue, or about $8,000 per student. Looking at it one way, that’s nearly double the per-student revenue that the school generates from all other sources of income for the rest of its enrollment, which comprises about 3,400 undergraduates, 100 full-time, on-campus M.B.A. students, and 80 doctoral candidates.
Mark A. Fuller, the dean, says the profitability of the online program has little to do with any inherent cost savings from offering courses via technology, but quite a bit to do with the high student demand for M.B.A.'s offered by a brand-name public institution in a format and on a schedule made possible by the technology.
The key, he says, is that it’s a new educational product, for which the school commands a premium price. The online M.B.A. costs $750 per credit hour (although the business school gets only 60 percent of that), and students take 39 credits; the price equivalent for the 55-credit face-to-face M.B.A. is $482 per credit hour.
Aside from not having the expense of providing the classroom and keeping it heated or cooled, a college doesn’t necessarily save money providing a course online rather than in a classroom. In some cases, other costs associated with an online course, for technology and student support, can equal and even exceed those savings.
But institutions do have ways to make their online classes more profitable. With no physical-space limitations, they can pack more students into the distance-education courses, so each class generates more revenue. Or they can hire part-time faculty members to teach a packaged curriculum for lower pay. They can also go cheap on the learning-management system or support services for distant students.
The Isenberg school has a single faculty for all its courses; the online-class sizes aren’t any larger than the other ones; and, with few exceptions, all professors teach a mix of undergraduate and graduate courses, including the online ones. “We try to create the same experience” for all students, Mr. Fuller says. (Most students take the M.B.A. online, but they have the option of taking some of their credits at sites in Massachusetts.)
Mr. Fuller says the price is in line with or less expensive than that charged by other public universities offering online M.B.A.'s.
Under this approach, he says, the entire business school participates in the online program, and the entire school benefits.
The online business model takes into account other costs as well. Ten percent of the gross revenues goes to UMass Online, a systemwide organization that helps market online courses and provides the learning-management system that delivers them. The Amherst campus also takes a few other bites, including a charge for overhead and a payment to the provost’s office for other universitywide projects.
In the end, the Isenberg school keeps 60 percent of revenue generated by the program. Still, Mr. Fuller considers it a financial boon for the school. “It opens up new markets, particularly for high-quality students with work experience who are placebound,” he says. About 20 percent of the students are doctors or other health professionals, with a good number of lawyers and engineers enrolled as well—"all the people you would expect who can’t quit their job” and move to Amherst, says Mr. Fuller.
Enrollment in the online M.B.A. program has grown by about 20 percent since 2009. And over the past five years, the online program has gone from supporting about 20 percent of the school’s budget to the current 40 percent, Mr. Fuller says.
But what the market gives it can also take away. Students are interested in a brand-name M.B.A., but “that’s also not lost on the USC’s and Dukes and the UNC’s of the world,” Mr. Fuller says. “The market is increasingly competitive.”
