DEREK BOK, a former president of Harvard, once observed that “universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires.” This is a bit hard on compulsive gamblers and exiled royals. America's universities have raised their fees five times as fast as inflation over the past 30 years. Student debt in America exceeds credit-card debt. Yet still the universities keep sending begging letters to alumni and philanthropists.

This insatiable appetite for money was bad enough during the boom years. It is truly irritating now that middle-class incomes are stagnant and students are struggling to find good jobs. Hence a flurry of new thinking about higher education. Are universities inevitably expensive? Vance Fried, of Oklahoma State University, recently conducted a fascinating thought experiment, backed up by detailed calculations. Is it possible to provide a first-class undergraduate education for $6,700 a year rather than the $25,900 charged by public research universities or the $51,500 charged by their private peers? He concluded that it is.

Mr Fried shunned easy solutions. He insisted that students should live in residential colleges, just as they do at Harvard and Yale. He did not suggest getting rid of football stadiums (which usually pay for themselves) or scrimping on bed-and-board.

His cost-cutting strategies were as follows. First, separate the funding of teaching and research. Research is a public good, he reasoned, but there is no reason why undergraduates should pay for it. Second, increase the student-teacher ratio. Business and law schools achieve good results with big classes. Why not other colleges? Mr Fried thinks that universities will be able to mix some small classes with big ones even if they have fewer teachers. Third, eliminate or consolidate programmes that attract few students. Fourth, puncture administrative bloat. The cost of administration per student soared by 61% in real terms between 1993 and 2007. Private research universities spend $7,000 a year per student on “administrative support”: not only deans and department heads but also psychologists, counsellors, human-resources implementation managers and so on. That is more than the entire cost of educating a student under Mr Fried's scheme.

Veteran university-watchers may dismiss Mr Fried's ideas as pie in the sky. (“The only part of college not mired in tradition is the price,” grumbles Ben Wildavsky, a co-editor of “Reinventing Higher Education”.) Yet some universities are beginning to squeeze costs. The University of Minnesota's new campus in Rochester has defined teaching as “job one”. The Harrisburg University of Science and Technology has abolished tenure and merged academic departments. Regents at the University of Texas are talking about a $10,000 undergraduate degree.

Mr Fried fails to mention an obvious source of savings. Americans could complete their undergraduate degrees in three years (as is normal elsewhere), instead of four. In practice, most American students take even longer than four years, not least because so many work to pay their tuition. Surprisingly, America's future chainsaw-wielding corporate titans take a leisurely two years to complete their MBAs; most Europeans need only one.

Shai Reshef, an educational entrepreneur-turned-philanthropist, is pioneering an even more radical idea. His University of the People offers free higher education (not counting the few hundred dollars it costs to process applications and mark exams), pitching itself to poor people in America and the rest of the world. The university does this by exploiting three resources: the goodwill of academic volunteers who want to help the poor, the availability of free “courseware” on the internet and the power of social networking. Some 2,000 academic volunteers have designed the courses and given the university some credibility. Tutors direct the students, who so far number 1,000 or so and hail from around the world, to the online courses. They also help to organise them into study groups, and then supervise from afar, dropping in on discussions and marking tests. Mr Reshef pays for incidental expenses with $2m of his own money and donations.

There are plenty of questions about Mr Reshef's project. Can you really build a university on volunteerism and goodwill? Can students really be relied upon to do most of the teaching themselves? Will free courseware remain free? (Newspapers that used to give away content online are now putting up pay barriers.)

Mr Reshef's university has yet to win accreditation, which could take years. But he can take comfort from Clayton Christensen's classic book “The Innovator's Dilemma”. Mr Christensen points out that innovators often start by offering products that are cheaper, but markedly inferior. Quickly, however, they learn how to improve their offerings. Even if Mr Reshef fails, there are plenty of other disruptive innovators around. In America, one tertiary student in ten already studies exclusively online. One in four does so at least some of the time, and a growing number of bodies, including elite universities, think-tanks, governments and international organisations, are putting first-rate material online.

The coming campus rumpus

Sometimes when academics grouse that there is “never enough money”, they are justified—big science costs big bucks. But higher education is nevertheless marred by inefficiencies and skewed incentives. Students pay to be taught, but their professors are rewarded almost entirely for research. Mr Fried's calculations suggest that one can slash costs without sacrificing much that students value. Mr Reshef's experiment may fail, but there is no doubt that universities need more experimenters. The cost of tuition cannot forever rise faster than students' ability to pay. Industries that cease to offer value for money sooner or later get shaken up. American universities are ripe for shaking.





Economist.com/blogs/schumpeter