I do enjoy Barron’s. I read it every week. I read it not because of the insight that I gathered but because I should have gathered about six months ago. Typically, I find that when Barron’s is pumping a trend, it’s the end of the line. It’s time to short or fade or sell options premium to the upside. This weekend, the newspaper wrote about a topic dear to my heart: Higher education. As you know, I’m an academic glutton for punishment. And if I didn’t have a daughter, I’d probably be back getting a Ph.D. right now.
The story this week centered on Education Technology or EdTech. With schools back in session, the question is whether education technology will supplant traditional in-school instruction or act as a complement to it. Many companies are profiting from the COVID-19 trend and the need for greater technological innovation. Given that there will be more than $6.1 trillion spent on college education alone this decade, the story is worth your attention.
The article centers more on the fact that educational technology can help people accelerate their development should they get stuck and can’t find help. According to Chegg (NYSE:CHGG) CEO Dan Rosensweig, it turns out that this inability to find such help is the No. 2 reason people drop out of school. The number one reason: Cost.
College Gets More Expensive
I believe that college education is dead as we know it. I don’t say this lightly. Not only are higher education schools unable to teach people meaningful skills in life (why on earth do half of the majors available exist), but the cost continues to explode. Costs have risen in a straight line since the 1970s. Between 1977 and 2020, the price of tuition and fees increased by 1,412%. That’s more than four times the increase of the consumer price index (+329%).
There are many reasons why this price explosion occurred. But the most obvious is that universities have been able to get away with it. This is because the U.S. government took over the student loan industry in 2010 with the passage of the Dodd-Frank Act. Since then, the government has guaranteed loans, allowing schools to raise tuition at will. So students are left on the hook for a more expensive education that doesn’t generate jobs that can pay off these nosebleed level costs.
Want to Know How Bad It Is?
If you need evidence on how bad things have gotten, take a look at a school down the road from my childhood home. The Maryland Institute College of Art – or MICA is a popular school in Baltimore for artists, graphic designers, and other creative disciplines. It’s also where one of my favorite musicians, David Byrne of the Talking Heads, went to college.
Right now, the total cost of school for four years is north of $205,000. Now keep in mind that many skills learned can now be found on YouTube channels and Masterclass subscriptions. But, no, that piece of paper has sentimental value. What sort of return on investment can a MICA student receive?
Last year, PayScale analyzed the financial outcomes of 62 MICA graduates and compared them to their tuition and interest costs. After 20 years, these students had a negative return on investment. It was so bad – people who went there – after 20 years – we’re still $90,000 behind anyone who didn’t attend any university. That’s right… people were better off just not going to college. MICA is a microcosm of the problems in the university space.
So, when I look at Barron’s saying that hybrid learning is a test of the future… I think they’re behind the curve. It’s brutal out there for students. Forget what the edtech companies do to help students achieve. Yes, it’s important. But focus more on what they can achieve: reducing the exploding costs of education and potentially leading to new business models that improve total outcomes for students. I’ll discuss a company that I like in this space on Thursday.