All Commentary
Monday, October 21, 2013

Higher Ed Will Transform Fundamentally in the Next 20 Years

By Michael Gibson

Two guys in a garage. In early 1998, back when Microsoft appeared to be a juggernaut and the Justice Department was sniffing around for an antitrust case, that’s who Bill Gates said he feared. Journalist Ken Auletta recalls visiting Gates in Richmond, Washington, that year. What competitive challenge, Auletta asked, did Gates most fear? “Gates did not recite the usual litany of prominent foes—Netscape, Sun Microsystems, Oracle, Apple. Instead, he said, ‘I fear someone in a garage who is devising something completely new.’”

Later that year, in Susan Wojcicki’s Menlo Park garage, Larry Page and Sergey Brin founded Google.

One canonical measurement for technological change is Moore’s Law, which forecasts that the performance of microprocessors will continue to improve on a logarithmic scale while costs plummet. In an ideal competitive market with low barriers to entry—as is the case for fabricating microprocessors—quality ought to increase and costs ought to decrease. This is why smartphones and tablets get better and cheaper every year. It is why Bill Gates feared two guys in a garage in 1998.

For higher education over the last three decades, nearly the opposite has been true. In real terms, the cost of a college degree has risen more than fourfold, a faster clip than both housing (even counting the run-up to the 2007 financial crisis) and healthcare. Total outstanding student loan debt has surpassed $1 trillion. According to a study by economist Richard Vedder, about 17 million Americans with college degrees work in jobs that the Bureau of Labor Statistics says they are overqualified for. More than 40 percent of students fail to graduate from four-year colleges within six years. No new, credible, tier-one universities have been founded in over half a century.

If we define innovation and technological progress as doing more with less, then it is undeniable that higher education has been stagnating for over 30 years. Indeed, we seem to be accomplishing less for ever-larger, more staggering sums—an anti-Moore’s Law of sorts. Who do current colleges fear in the competitive landscape? It is quite telling that if you were to ask this of Drew Faust, the president of Harvard, or of L. Rafael Reif, the president of MIT, they would not say some brilliant starving technologist toiling on something new in a garage.

But they should.

The future of higher education—whatever else it may be—will involve reversing the woeful, stagnant trends of the last 30 years.  Happily, it will be a future shaped by gales of Schumpeterian creative destruction set in motion by entrepreneurs, a force that universities have held at bay thanks to government protections and the limits of old technology. To help get a sense of where things are going, Alex Tabarrok recently drew an insightful analogy in a Marginal Revolution post. He posted a TV Guide schedule from 1963, when viewers only had one shot to watch their favorite shows: the one time it aired on a weeknight.

We now think of this situation as laughably archaic. Yet higher education has been like this until very recently—students have had to attend a lecture by a professor at a particular time, or else miss it forever. Now, with the advent of Khan Academy, Coursera, Udacity, and other massively open online courses, we are seeing the beginning of the end to the Howdy Doody era of education.

But college, some traditionalists say, is more than just learning. It is above all . . . an experience . . . that must be had on one particular sacred geographic plot of land . . . an obligatory rite of passage, the crucible of friendship, and so on and so forth. Against these arguments, I’ve taken to analyzing the college experience by its four main architectural elements: (1) the clock tower, (2) the stadium, (3) the frat/sorority house, and (4) the admissions office.

What these buildings will look like after the next decade will determine how education will have changed.

The clock tower. The clock tower, the most prominent architectural element on campus, represents the amount of time spent studying a subject. Here, as I intimated, colleges have a lot to fear. In four or five years, online offerings paired with man-machine tutoring services will outperform the best course at Harvard in terms of content and the rate of knowledge transmission.

For far too long, the hour chime from the clock tower has been the indirect, substitute measure for skill and knowledge acquisition. Consider that to this day, classes are measured in hours per week, exams are given in hour-length chunks, and students need some requisite number of hours in any subject to signal mastery. A degree is granted based on how many years you walked around a clock tower accumulating hours of study.

What the fireplace, another medieval invention, is to the cold, the clock tower is to learning. Proximity and a schedule used to matter. Now they don’t. Central heating is better.

The stadium. The stadium represents the tribal element of the college experience. It refers to the social ties that bind alumni for life. They buy the t-shirts, they wear the war paint at football games, they cheer the team on in arctic air, and from time to time they riot when the enemy is crushed in a high-stakes match.

The love of the college tribe is big, big business. For example, college basketball and football together generate more than $6 billion in annual revenue. Two years ago, the NCAA and CBS/Turner Sports agreed on a $10.8 billion deal to broadcast March Madness basketball games until 2024.

To call college sports “amateur competition” is a cruel joke. If America were to treat college sports as the multibillion dollar professional league it is, then the demand for this portion of the so-called college experience would diminish.

The frat/sorority house. At their core, colleges are great real estate companies with dating sites attached. A key offering, the Greek house, represents friends and community and network. It represents all those serendipitous collisions, the parties and the hookups.

No direct competitor to this benefit of college has emerged. But gathering a large number of young, talented people into a small area to hang out does not appear to be an intractable problem on par with proving the Riemann hypothesis. It certainly should not cost $55,000 or more a year.

The admissions office. Simply by sending an acceptance letter, the admissions office imprints an identity and perhaps a higher income on a student for life. To be sure, entry to college helps sort quality in the labor market. But as alternatives to learning on campus sprout up, I predict the resemblance between Harvard and Greenwich Country Club will make many people uncomfortable. Instead of being an exclusionary sorting mechanism based on status, the diploma will become an updatable record of a student’s skills and experience.

In sum, the bonds of tribe, status, and friendship are very strong. It may be that the fans of the college experience will continue to pay hundreds of thousands in 2025 for these consumption- and exclusionary status goods, even when learning occurs rapidly and cheaply by other means.

On a panel in Davos, Switzerland, this past year, Reif did at least acknowledge that the current economics are unsustainable. “How can MIT charge $50,000 for tuition going forward?” he asked, “Can we justify that in the future? We see three components to MIT: First there’s the student life, then there’s the classroom instruction, but for us, the projects and labs activity is where real education occurs. But I don’t think we can charge that much for tuition in the future.”

Somebody in a garage is working right this minute to ensure he’s correct. 

A proud Oxford University dropout, Michael Gibson is a policy associate at Thiel Capital and a vice president at the Thiel Foundation.