Summary

The article proposes five disruptive business model changes aimed at reforming the broken higher education system, emphasizing performance-based pricing, life-long subscriptions, geographic accessibility, vocational focus, and academic mobility as key strategies.

Abstract

The higher education sector is widely recognized as being in crisis, with high costs and stagnant quality damaging its value proposition. The article suggests that to fix this, a radical shift in the business model is necessary. It outlines five innovative proposals that could revolutionize the industry: first, implementing performance-based pricing where colleges collect a percentage of future earnings instead of upfront tuition; second, offering life-long educational subscriptions for continuous skill development; third, abolishing traditional campuses in favor of satellite schools that cater to underserved areas; fourth, broadening access to higher education but increasing the rigor and accountability for students; and fifth, introducing a transfer system similar to European football leagues, where students can move between institutions based on performance. The author argues that these changes would create a more equitable, efficient, and effective educational landscape by aligning incentives among students, institutions, and employers.

Opinions

The current state of higher education is described as a "cash cow" due to government funding, which reduces incentives for innovation.
There is a lack of accountability in the education system, with few channels for students to voice complaints.
The industry perpetuates socio-economic inequality by maintaining an "educational scarcity" that favors those who attend elite colleges and later hold positions of power.
The all-out war on the middle class is exacerbated by the soaring costs of college without a corresponding increase in the quality of education.
The author criticizes the failure of tech-driven disruption in higher education, particularly in preparing young adults for the workforce post-pandemic.
It is suggested that the education industry has more responsibility for socio-economic issues than even the tech industry.
Performance-based pricing is proposed as a method to reduce student debt and incentivize schools to ensure employability of their graduates.
Life-long subscriptions to higher education would keep the workforce competitive and provide schools with a steady revenue stream.
The abolition of traditional campuses is advocated for in favor of satellite schools, which would democratize access to education and halt the brain drain from rural areas.
A more rigorous academic approach is recommended, where schools have higher acceptance rates but also higher standards for remaining enrolled, thus fostering meritocracy.
The adoption of a transfer system similar to sports leagues could provide second chances for students and ensure that opportunities are available to those who show improvement and dedication.
The author posits that for these reforms to be successful, there must be a collaboration between educators, companies, and policymakers to change the status quo and diversify the recruitment pool beyond just top-tier colleges.

To Fix Higher Education, Change Its Business Model

5 ways to disrupt a $500B market

The higher education industry is absolutely broken; we’ve known this for a few decades. There are so many different ways to teach young adults, yet few of them have been considered, much less adopted, over the past 40 years.

There are three reasons for this. Primarily, the government often pays the bill, in the form of grants. As such, no one in the industry has any incentive to disrupt what is essentially a cash cow. Secondly, little is done to keep schools accountable. There are virtually no channels for students to complain through. Finally, educational institutions have succeeded in creating and maintaining a vicious circle of educational scarcity. A few people manage to get a place at top colleges. They later attain positions of power thanks to the value of their diploma. Once at the top of their industry, they have no reason to degrade their perceived worth by demanding their Alma Matter be more inclusive. And so we uphold and reproduce socio-economic heritage.

Unchecked, prices have gone up and quality has stagnated, in what is essentially an all-out war on the middle class. Only the Tech industry has more blood on its hand than the educational industry in that regard.

Source : the college board annual survey of colleges

How do we fix this? Disruption through tech has failed — young adults entering the workforce post-pandemic will be the least equipped cohort to ever do so. The answer thus lies in Business Model disruption. Below are five proposals, any of which would shake the market to its core.

1. Implement Performance-based pricing

By using the billions the government already spends on education, we could make classes virtually free for students. At first. A few years after graduation, the college would collect a fixed percentage from students’ earnings, over a set amount of months.

This would have many positive benefits. Students would begin their careers unburdened by debt, and would be able to buy homes and start families. Schools would also have an incentive to provide great teaching to ensure students are employable in the future. Finally, this would ensure the admission process remains a meritocracy, as there would be an incentive to prioritise the hungry and talented over the rich and well-connected.

In a way, we’d be putting colleges on the hook for student debt, as opposed to letting families, banks and the government deal with it among themselves.

2. Implement life-long subscriptions

By implementing performance-based pricing over many years, we also open the door to life-long subscriptions. The theory is simple: for a nominal yearly fee, you get the right to go back to school for a few months to acquire new skills whenever you wish. This could be no more than a small addition on top of a performance-based contract, which I describe above.

This model is a win all around. Employees would remain competitive in a fast-changing world. Employers would be sure their workforce remains up-to-date at no cost. Colleges would benefit from life-long recurring revenues, and campuses would become much more inclusive places. Finally, governments would be able to lighten their balance sheet and reduce taxes.

Why are we not doing this, again?

3. Meet students where they are

Geography is stupid, and we don’t need campuses. They are totems of a bygone era. Pictured below is where I theoretically went to school. Looks cool, right? Except that I only spent 6 months there — the rest of my time was spent in a different country, watching classes online.

What we need is small satellite schools all over the country. This would allow the education industry to target underserved communities, reaching talented students that may not be able to leave their home city. It will also ensure that talented individuals are more likely to stay in their communities, thus stopping the brain drain that has divided the political world into a rural/urban brawl.

Fancy buildings provide a halo effect, that will always be true. But a strong brand could still perdure in many places as long as the quality and rigour remains undeniable. This is possible if colleges get their priorities straight.

4. Many are called, few are chosen.

Higher education is not for everyone. A generation of over-qualified, under-employed millennials has shown us that. Meanwhile, millions make a great living having learnt a trade. Germany is a great example of these facts working for society at large.

But everyone should have a chance at higher education.

This is why we should open the door wider. Increase the acceptance rate to great schools. But we should also make it much harder to stay in said schools. By this, I mean making the tests more rigorous, and exclusions for poor performances more regular. By only letting the most motivated students succeed, we would stop social reproduction at the source. This would also ensure institutions are able to recoup their investment later, as per the previously described performance-based agreement. Here, too, we are in front of a clear win-win scenario for society at large.

5. Transfer up / transfer down

This one is a little out there, but worth considering. I advocate above for kicking students out of schools for poor performance. This may be too harsh. We could instead put in place a system like that of European football leagues. If a student is not up to the required standards after a year, they get automatically demoted to a less rigorous university, leaving a space for a hard-working student who has earned a ticket up the ladder.

This would help late bloomers correct the mistakes of their late teens, while stopping others from coasting on previous achievements. Here too, the aim is to give opportunities to the most people, while limiting social reproduction.

Of course, we would need to create backstops to ensure someone going through a health or family crisis is not unfairly punished.

None of the above can happen without two factions that have yet to be mentioned in this article.

We need teachers to rebel against the hand that feeds them. They are the ones who can spearhead the change from the inside. We also need recruiters to realise that they can recruit from more institutions that just the top 10 colleges. One way to do this is for Apple, GE, Microsoft, Nike… to ensure through clear rules that their new hires come from different educational backgrounds. Only then will students be open to new business models. The teachers will follow, and so will the institutions. Nothing happens without companies making the first step.

Good luck out there.

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