The disruptive potential of online learning: Comparing the cost and quality of online and traditional education

David Deming, Claudia Goldin, Lawrence Katz, Noam Yuchtman

With the potential to bring higher education to the masses, online learning has been hailed as revolutionary. The worry is that the quality of education will be diluted. This column presents evidence that online learning can bring substantial cost savings without much drop in quality – but employers do not value an online degree as highly, especially when coming from a private institution.

Online learning has been viewed as the disruptive innovation in higher education today, with traditional classroom instruction at risk of being replaced by superstar professors teaching elabourate courses developed by teams – or by Massive Open Online Courses (MOOCs) offering instruction to students worldwide (see, e.g., Christensen and Eyring 2011, Cowen and Tabarrok 2014). Even if they do not revolutionise higher education, online courses are a potentially important source of cost savings in higher education, with the primary channel being reduced labour costs through larger class size and less face-to-face interaction (Bowen 2012).

The potential for disruption can be seen in the tremendous recent growth in the granting of online bachelor’s degrees – 2012 saw 23 large for-profit online campuses award nearly 75,000 bachelor’s degrees in the United States, more than 5% of the total and nearly twenty times as many online bachelor’s degrees as were granted just a decade before. Although the growth of online education has until recently occurred mostly in the for-profit sector, public institutions are increasingly competing for students online – perhaps in response to cost pressures (Hoxby 2014).

What do we know about the performance of online education thus far? Scholars have been stymied in evaluating online education because:

Data on the granting of online degrees has been limited, and

Comparing the outcomes of students enrolled in online programs with those of students in traditional programs is plagued by differences between online and traditional students other than their degrees.

In two recent papers we have begun to fill the gap in our knowledge, collecting evidence on both the cost savings of online education, and employers’ perceptions of the quality of online degrees (Deming et al. 2014, 2015).

The most basic question about online programs is whether they can actually reduce the cost of tertiary education. To answer this question, we use data from the Integrated Postsecondary Education Data System (IPEDS) of the U.S. Department of Education to examine the relationship between a school’s tuition (and fees) and the fraction of students enrolled in an online program (Deming et al. 2015). We find evidence that there are modestly lower prices charged at schools at which more students are enrolled online. A 10% increase in the fraction of students enrolled online is associated with roughly a 1.4% reduction in tuition. We also find that from 2006 to 2013, the price of a full-time undergraduate online education (among private non-profit and for-profit schools) declined by 34%. For comparison, over the same period, the price of a traditional education at a large for-profit or private non-profit school dropped by about 8%, and tuition at all non-selective four-year public institutions increased by 9.2%.

Thus, we find some evidence that colleges are charging lower prices for online coursework, suggesting that advances in online learning technology might be able to ‘bend the cost curve’ in higher education.

This finding raises another question: does the quality of education suffer when content is delivered online? An initial randomised trial of a college statistics course found no difference in student achievement in online versus in-person course sections (Bowen et al. 2014). But two recent studies have found negative impacts of switching from in-person to online instruction on course final grades in an introductory economics class (Alpert et al. 2014, Joyce et al. 2014).

One would also like to know how employers view online degrees compared with traditional degrees. An important challenge in any study of labour market outcomes associated with the degree an individual acquires is that individuals select into their degree programs (or are selected into them) based on a range of characteristics that might also determine labour market outcomes. It may not be possible to control for these differences to the extent that they are not observable to the researcher.

To learn how employers view online degrees – while holding other characteristics of applicants constant – we recently conducted a ‘resume audit experiment’ in which we submitted more than 10,000 ‘synthetic’ (fictional, but very realistic) resumes to real job openings, with the type of degree randomly assigned across otherwise identical resumes (Deming et al. 2014). This setup allows us to isolate the effect of just the degree on employers’ likelihood of calling an applicant back.

We find that for business job vacancies (the largest group of job postings) that require a bachelor’s degree, employers strongly prefer applicants with degrees from (nonselective or selective) public institutions as opposed to applicants with degrees from for-profits. The biggest callback ‘penalty’ is imposed on the applicants with an online for-profit degree. Callback rates were 8.5% for the resumes with (randomly assigned) nonselective or selective public institution bachelor degrees and around 7.8% for ‘brick and mortar’ for-profits. But they were only around 6.3% for the online for-profits. Thus callback rates were 26% lower for the online for-profits than for the publics (22% in the regression-adjusted figures).

Overall our findings suggest that online education is indeed a technological advance that can succeed in cutting the costs of a college degree. But preliminary evidence suggests that – at least for the time being – the new technology comes at a cost of quality: it does not produce a product perceived by employers to be as good as one from the traditional, more expensive mode of production.

References

Alpert, W T, Kenneth A. Couch, and Oskar R. Harmon (2014). “Online, Blended and Classroom Teaching of Economics Principles: A Randomized Experiment.” Working paper, University of Connecticut, Stamford.

Bowen, William G. (2012). “The ‘Cost Disease’ in Higher Education: Is Technology the Answer.” The Tanner Lectures, Stanford University.

Bowen, William G., Matthew M. Chingos, Kelly A. Lack, and Thomas I. Nygren (2014). “Interactive Learning Online at Public Universities: Evidence from a Six-Campus Randomized Trial,” Journal of Policy Analysis and Management, 33(1), pp. 94-111

Christensen, Clayton M., and Henry J. Eyring (2011). The Innovative University: Changing the DNA of Higher Education from the Inside Out, New York, NY: John Wiley & Sons.

Cowen, Tyler, and Alex Tabarrok (2014). “The Industrial Organization of Online Education.” The American Economic Review, 104 (5), pp. 519-22.

Deming, David J., Claudia Goldin, Lawrence F. Katz, and Noam Yuchtman (2015). “Can Online Learning Bend the Higher Education Cost Curve?" National Bureau of Economic Research Working Paper 20890.

Deming, David J., Noam Yuchtman, Amira Abulafi, Claudia Goldin, and Lawrence F. Katz (2014). “The Value of Postsecondary Credentials in the Labour Market: An Experimental Study." National Bureau of Economic Research Working Paper No. 20528.

Hoxby, Caroline M. (2014). “The Economics of Online Postsecondary Education: MOOCs, Nonselective Education, and Highly Selective Education.” The American Economic Review 104(5), pp. 528-33.

Joyce, Theodore J., Sean Crockett, David A. Jaeger, Onur Altindag, and Stephen D. O’Connell (2014). “Does Classroom Time Matter? A Randomized Field Experiment of Hybrid and Traditional Lecture Formats in Economics.” National Bureau of Economic Research Working Paper 20006.