10:17am

Tue June 26, 2012
Education

What's Driving College Costs Higher?

Originally published on Wed June 27, 2012 7:47 am

Just days before student loan rates are set to double for millions of Americans, President Obama and congressional leaders haven't reached an agreement on legislation to keep those rates at 3.4 percent.

The debate reflects the growing concern over the debt burden many take on to get a college education. About two-thirds of bachelor's degree recipients borrow money to attend college, and collectively, student debt has topped $1 trillion.

Kevin Carey, the director of the Education Policy Program at the New America Foundation, believes the student debt crisis reflects larger, troubling trends in higher education — among them excessive spending by colleges and universities, which drives up tuition, and declining government support for public universities as state and local governments face budget crises.

In the past three decades, Carey says, college tuition has consistently increased much faster than both inflation and incomes.

"Every year, [it increases] 2 or 3 or 4 percent above the inflation rate, to the point where college is now four times more expensive than it was, say 20 or 30 years ago," he says.

Where does that money go? To all sorts of things, including administrative and teaching costs, scholarships, sports teams and elaborate new construction projects.

"[Colleges and universities] compete with one another not to make money, but for status and prestige, so they buy things that increase their status and prestige in relation to their competitors," Carey tells Fresh Air's Dave Davies. "They're big on construction. ... They're always building things."

College campuses may be expanding but that doesn't necessarily mean their teaching staffs are growing. Carey points out that the number of full-time professors has shrunk across the country — and that less than 40 percent of students are now taught by tenure or tenure-track professors.

"[Professors] are not the beneficiaries of large increases in college spending that has gone on," he says. "In fact, the percentage of all students taught by non-tenure-track professors — adjuncts, teaching assistants — has gone up and up and up."

Meanwhile, university administrations have grown — meaning colleges are now employing more provosts, deans and assistant deans than ever before.

"I'm sure that most of those people are working hard at real jobs," he says. "But that doesn't necessarily mean that it's a good idea to increase spending and pass along many of those costs onto students in the form of higher tuition. ... And the more the prices go up, the more that these students who are squeezed out of opportunity are middle-income students, low-income students, and the net effect over time is to make our college and university system no longer the engine of economic mobility that it once was."

The Burden Of Student Loan Debt

The average college senior in the U.S. now carries $25,000 in student loan debt at graduation. Those figures rise when graduate degrees are figured into the equation, Carey says.

"No one planned for that to happen," he says. "No one thought that was a good idea because in fact, it's a very bad idea. The reality is that as college tuition has consistently outpaced the ability of people to pay out of pocket, debt has been the safety valve of our higher education system. It is what has allowed everything to keep running because people know they have to go to college — they don't feel they have any choice — so they just continue to borrow and borrow and borrow."

Those debts will follow students around for decades, Carey says.

"Democrat or Republican, liberal or conservative, if you want a quality college education, there's a good chance you're going to spend most of your 20s in a state of indentured servitude to a lender or an employer you hate but can't quit, because the loan bills — undischargeable in bankruptcy, thanks to industry lobbying — will follow you to the end of time," he writes in a recent New York Daily News op-ed. "Literally: The Washington Post has reported that $36 billion in loan debt is held by people over 60 years old."

To change things, Carey says, colleges need to rein in spending — and perhaps modify their educational models. He points to Harvard, MIT and Stanford's recent experiments with noncredit online classes, which anyone can take around the world.

"These are courses that are being taught to hundreds of thousands of students around the world and they don't cost anything," he says. "There is now no doubt that certain kinds of students can learn a lot online. But people don't just go to college to learn; they go to college to get a job. That's the difference between a library and a college."

Stanford is now experimenting with giving class participants certificates noting that they took the class and scored in a certain percentile within the class, Carey says.

"And in the end, all a college degree is is a piece of paper saying, 'Dear such-and-such, you took these classes and here's how you did in them,' " he says. "Nothing more, nothing less. It's a piece of paper that has the seal of approval from an institution that has itself been approved through accreditation, but the essential act of communication is the same."


Interview Highlights

On university space

"Universities don't do a good job of using their space. Go to any college campus on a Monday morning or Friday afternoon and you'll find empty buildings because professors and students don't like to go to class on those days."

On how universities work

"Universities are run for the benefit of the people who work there. That's different than a for-profit corporation, which is run for the benefit of shareholders or a regular public agency that is run for the benefit of elected officials and the public. Our colleges and universities exist in an odd position. I think the closest analogy is organized religion, where you have nonprofit institutions that have been around for a long, long time. ... They sustain themselves. They have their own set of values. If you look at the decisions they make, those values are quite apparent. Particularly our four-year colleges and universities, the professional status is bound up in academia, in scholarship. And so these universities are organized in such a way that reflects that."

On professor recruitment

"Professors are recruited and paid on their academic reputations, not whether they're any good at teaching. And there is a desire for status. There is a constant competition with one another. And the thing with reputational competition is that there's no end to it. You don't ever reach some point where you're as good as you can be because the only question is, 'Are you as good as the university in the next state?' So there's no ceiling to how much money colleges and universities can spend competing with one another."

On rankings

"They simply made numbers out of a value system that was already in place. They empiricized a sense of higher education quality that revolves around three things: wealth, exclusivity and fame. It's the wealthy institutions that have the smallest admissions rate and are the most well-known for their students and their professors that always stay atop the list. It's not a coincidence that every year Harvard and Princeton go back and forth between 1 and 2. US News didn't invent the idea or the thought that status was a function of wealth, fame and exclusivity. You could say that about lots of things. What they have done is let fuel to the fire and created a mechanism by which universities that haven't been around for hundreds of years to climb up through the ranks and claw their way past their competitors from a status standpoint."

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVE DAVIES, HOST:

This is FRESH AIR. I'm Dave Davies, in for Terry Gross, who's off this week. Just days before student loan rates are set to double for millions of Americans, President Obama and congressional leaders haven't reached an agreement on legislation to keep those rates at 3.4 percent.

The debate reflects the growing concern over the debt burden many acquire to get a college education these days. About two-thirds of bachelor's degree recipients borrow money to attend college, and many struggle to find jobs after they graduate. Unpaid student debt has now reached a trillion dollars.

Our guest, Kevin Carey, believes the student debt crisis reflects larger, troubling trends in higher education; among them excessive spending by colleges and universities, which drives up tuition, and declining government support for public universities, as state and local governments face budget crises.

Kevin Carey is director of the Education Policy Program at the New America Foundation, and he's written on education issues for the New Republic, Washington Monthly, the American Prospect and the Chronicle of Higher Education. Well, Kevin Carey, welcome to FRESH AIR. You know, you write that the burden students come out of college with really represents an intergenerational betrayal. Let's talk about some aspects of this.

One of them is the rising cost of tuition. Just how much has college tuition risen, say, compared to inflation?

KEVIN CAREY: Well, for the past three decades, starting in the early 1980s, college tuition has consistently gone up much faster than inflation, faster than family income, really any - faster than any kind of standard measure one could come up with, every year two or three or four percent above the inflation rate, to the point where college is now four times more expensive than it was, say, 20 or 30 years ago.

DAVIES: And you write this is driven a lot by college and universities' spending. What are they spending money on?

CAREY: Well, all kinds of things. Colleges and universities are complicated organizations. They've been around for a long time. They are in the teaching business, the scholarship business, the - I would argue professional sports business in many cases. They spend money on administration, they spend money on new buildings.

Most of them are nonprofit, and so they compete with one another not to make money but for status and prestige, and so they buy things that increase their status and prestige in relation to their competitors.

DAVIES: Like what kinds of things?

CAREY: Well, sometimes they buy the services of well-known scholars so they can look good among themselves in the scholarly community. They're big on construction. You see a lot of - sort of an edifice complex is the term they use sometimes in higher education where they always want to build new structures that make the university campus look good.

They compete for the, quote, "best students," particularly at the high end of the higher education market. There's an intense competition for students with high SAT scores. Anything that reflects well on the greater glory of the institution, most of those things can be bought.

DAVIES: You know, I always say that when you go to any city, you can find the university by looking for the construction cranes because they're just always building. And, you know, I guess one thing they might say is look, the population of the country is growing, there are more kids, more educated kids looking to go to college, and we've got to build these buildings because we need new classrooms, new labs to teach them.

CAREY: Well, that's partially true. Universities don't do a very good job of using their space. Go to a college campus on a Monday morning or a Friday afternoon, and you'll find a lot of empty buildings and empty classrooms because professors and students don't like to go to class those days.

At the same time, it's true the population of the country has increased over time. The percentage of people graduating from high school who go to college has gone up, and that's because the economy has changed. It used to be that you could get a job by just getting a high school diploma or not even that, and joining a union, going to work for a big company, and you could earn a living for your family.

Well, we don't really - we don't live in that world anymore. Parents and students understand that, and so there's an intense desire to send people into higher education.

DAVIES: On the other hand, I guess if they're going to admit another, you know, thousand or 1,500 students than they did 10 years ago, that's more tuition income. You might expect that they could find the facilities and teachers they need out of those additional tuition payments.

CAREY: Well, I mean, it's the case that even as the college-going population has increased over time, the number of tradition nonprofit and public colleges and universities has pretty much stayed the same. America went through a great period of expansion of our higher education infrastructure in the middle of the 20th century, we built out a whole system of community colleges, we built big regional public universities, but that all pretty much came to a finish in the mid- to late 1970s.

You find a few places in Sunbelt states that are still building new universities every now and then, but mostly we have the universities that we have. Meanwhile, the population got larger, demand for higher education got stronger, and so the existing universities were in an advantaged position, where they could charge more for their services, and really people had nowhere else to go.

DAVIES: Now what about - are there more administrators than there used to be, deans, assistant deans, that kind of thing?

CAREY: Very much so. And that has been one of the interesting things that has come from studies of how colleges and universities spend their money. It turns out professors aren't really doing all that well. They're not the beneficiaries of the large increase in college spending that has gone on. In fact, the percentage of all students taught by non-tenure-track professors, adjuncts, teaching assistants, has gone up and up and up.

So it used to be the majority of all students were taught by someone who was either tenured or tenure track, and now I think that's less than 40 percent of students. And so, colleges and universities really haven't been passing on all this new revenue and this new spending to their teaching workforce, but they have been expanding the ranks of university administration; more provosts, more deans and vice deans and assistants to the vice dean and so on.

DAVIES: Right and I know that when this interview airs, we're going to get emails from people who say you don't know what I do, we do important work in these positions. What are they doing? Do you feel like you know enough to safely say that this is unnecessary?

CAREY: Well, it's - it may be necessary by some way of thinking. I'm sure that most of those people are working hard at real jobs. They're not sitting around watching television all day. But that doesn't necessarily mean that it's a good idea to continually increase spending and pass many of those costs on to students in the form of higher tuition.

Higher education is really the only gateway to opportunity in the economy in which we live now, and the more the prices go up, the more that these students who were squeezed out of opportunity are middle-income students, low-income students, and the net effect over time is really to make our college and university system no longer the engine of economic mobility that it once was.

DAVIES: I wonder if you could talk a little bit about what drives these decisions. I mean, when universities decide to spend a lot of money on things that aren't related to education, like building big buildings or expanding, you know, a Division I sports program or getting some prestigious - who are running these universities, and why do they make those choices?

CAREY: Well, in the end, universities are run for the benefit of the people who work there. And that is different than, say, a for-profit corporation, which is run ultimately for the benefit of shareholders, or a regular government agency that is run for the benefit of elected officials and presumably the public that they serve.

Our colleges and universities exist in kind of an odd position. I think probably the closest analogy is organized religion, where you have nonprofit institutions that have been around for a long, long time whose nonprofit status is a function of an assumed and in most ways quite real sense that these are organizations that serve the public good but aren't really accountable to the public.

They sustain themselves; they have their own set of values. If you look at the decisions they make, those values are quite apparent, particularly our four-year colleges and universities. The professional status is bound up in academia, in scholarship. And so these universities are organized in such a way that reflects that.

Professors are recruited and paid based on their academic reputations, not on whether they're any good at teaching. And there is a desire for status. There is a constant competition with one another, and the thing about reputational competition is that there's no end to it. You don't ever reach some point where you are as good as you can be because the only question is are you as good as the university in the next state or somewhere else in your athletic league.

So there's no ceiling to how much money colleges and universities can spend competing with one another, and that's one of the reasons they continue to spend and spend.

DAVIES: Is there a, I don't know, a classic case of poster child for this kind of activity?

CAREY: There's a certain class of university that has arisen, I would say, in the last 20 years or so. I live in Washington, D.C., and I think one of them is here in Washington, D.C., George Washington University. They tend to be located in urban areas, I would point to New York University in New York, University of Southern California in Los Angeles.

These are private research universities that have taken advantage of their fortunate geographic position as part of dynamic urban areas to really rise through the ranks of status in academia basically on the backs of student tuition. So George Washington, GW as people call it here is one of the most expensive colleges and universities in America. They charge I think north of $55,000 a year in tuition.

And because they're not as wealthy as, say, Georgetown University, which is just right up the street, and they don't attract as wealthy a clientele, a fair amount of that tuition comes from borrowing. Debt levels are unusually high at GW. They're unusually high at NYU.

DAVIES: Student debt levels.

CAREY: Student debt levels, that's exactly right. So they charge a lot of money, and they use that money to again build the buildings and buy the professors and recruit the students and get a better basketball team and all the markers of status in the profession, and it works.

Look at the US News rankings, US News & World Report rankings. These are institutions that have risen through the ranks over time. The students who attend have higher SAT scores. Everything seems to be going well, but again, there is a cost to that, and the cost is borne substantially by the students and families who attend.

DAVIES: How influential are the US News & World rankings of colleges and universities? They've been around for a while.

CAREY: I think they're quite influential. Now, this is a topic of debate sometimes in academia, and people will say, well, students don't really look at those, and there are other things that we care about. And the thing to understand about the US News rankings is that they, they simply made numbers out of a value system that was already in place.

They empiricized a sense of higher education quality that revolves around three things, I would say: wealth, exclusivity and fame. If you look at all the components of the US News rankings, it's the wealthy institutions that have the smallest admissions rate and are the most well-known for their students and for their professors that always sit atop the list.

It's not a coincidence that every year, Harvard and Princeton go back and forth between number one and number two. Now, US News didn't invent the idea or the thought that status was a function of wealth and fame and exclusivity. You could say that about lots of things other than higher education. It's perhaps just a fundamental element of human society.

What they have done is I think lent fuel to the fire, and they've given - they've created a mechanism by which universities that haven't been around for hundreds of years are able to climb up through the ranks and kind of claw their way past their competitors from a status basis.

DAVIES: And are public universities engaged in this kind of competition as much as private colleges?

CAREY: They are, although it's difficult for them because they have more of a public mission. They're obligated to enroll larger numbers of students from the states in which they are located. They are dependent on public funding, which particularly in the last few years, has been very difficult for public universities as they've seen their public funding cut.

But they definitely inhabit the same value system. If you look at the professors who teach at public universities, a lot of them went to school at the best private universities because we churn out a lot more graduate students in this country than we have room for in our tenured faculty. And so what tends to happen is people don't get jobs at universities that are as good as the university where they trained.

They tend to, on average, gets jobs maybe one or two rungs below. So they bring that value system with them, and on some level they always want to go back. So I think that our public universities would like to compete with private universities, but it is becoming increasingly difficult for them.

DAVIES: Kevin Carey is director of the Education Policy Program at the New America Foundation. We'll talk more after a short break. This is FRESH AIR.

(SOUNDBITE OF MUSIC)

DAVIES: If you're just joining us, we're talking about the high cost of tuition and the burden of student loans. Our guest is Kevin Carey. He is the director of the Education Policy Program at the New America Foundation. He has written widely on education policy for a number of publications.

You know, you make the point that as colleges have increased their spending, and tuitions have risen that the experience for particularly, you know, freshman and sophomore undergraduate courses hasn't improved in quality, that you still have big, huge lecture halls. And I guess it raises the question of whether those classes are, in effect, profit centers for pursuing the other goals of these institutions.

CAREY: The large lecture classes are definitely profit centers. I mean, it doesn't take a rocket scientist to do the math. If you have, say, 400 students sitting in a large room, each paying $5,000, $6,000, $7,000, $8,000 in tuition for the class, multiply $8,000 by 400, and then you have the person standing down in the well of the lecture hall is an adjunct professor who's being paid maybe $5,000 or $10,000 total for the class, or maybe $15,000 if they're on the tenure track.

But, of course, those are definitely profit centers for colleges and universities, and the entire enterprise of higher education is based on obscure and complicated pricing mechanisms where the price of what you're paying for often has nothing to do with the cost of providing that service, and so for example in general - there are exceptions, in sciences in particular - but in general, you pay the same tuition irrespective of what course you take.

And so, what that means is that there are massive systems of cross-subsidization inside the finances of a college and university, and one of those systems certainly is one where freshmen and sophomores are essentially subsidizing the cost of teaching juniors and seniors and graduate students and probably paying for some of the building and the football coach and all the rest of it.

DAVIES: We've talked about how college tuition has risen dramatically, and the importance of getting a college education in the modern economy has increased, and therefore there is more pressure for students to borrow more, and that's one of the reasons we're seeing such high burdens of student debt.

But there's another thing going on, and that's the diminished support from government for public institutions. Let's talk about that. What are the ways in which, you know, higher education has been subsidized, and how is that changing?

CAREY: Well, the higher education is subsidized in a variety of ways. In the private nonprofit sector, it's subsidized through tax preferences. You don't pay taxes. And it's subsidized through financial aid. So if the federal government - and the federal government is the main provider of financial aid - is subsidizing students through grants and loans, then that is essentially a subsidy to the institution.

In the public sector, for community colleges and our public four-year universities, there is a direct public subsidy. These are institutions that are on some level or another governed by the public and receive large direct subsidies, a check every year from the state government.

The state subsidies have been declining relative to the size of university budgets over time. Now, there's an important distinction here. When you talk to colleges and universities, what they will always say is, well, in 1980, for example, we got, say, half our money from state government, and now it's only 15 percent, and that represents a sort of dramatic decline in support.

Now, the thing to keep in mind is that that is partly a function of the fact that university spending has increased very quickly. So until about 2008 or so, there was a 25-year period where state governments basically kept up with inflation and population growth when it came to spending money on higher education.

They didn't keep up with the amount of money that higher education was spending on itself, but they did keep track with inflation and how many students were going to college. An important caveat to that is that that support was not consistent. It tended to go down dramatically during economic down times.

There's a consistent pattern where every time there's a recession, state revenues decline, state spending declines, and spending on colleges and universities is disproportionately cut, and it's because state legislators know that colleges and universities can raise tuition on the back end. So it's kind of a way of raising taxes without raising taxes.

The problem of course is that when the economy recovers, nobody ever cuts the tuition back. So we have kind of a ratchet effect going on, where tuition goes up steeply during recessions and then goes up not quite as steeply during economic good times.

Now from 2008 until now, during the great recession, I suppose, as we have come to call it, there has been a serious overall decline in funding per student by any measure from states to their universities, and that has resulted in some dramatic tuition increases in states like, for example, California and Arizona.

DAVIES: Right, you know, I mean, I went to the University of Texas in the 1970s, and I spent more on my living expenses than I did on my tuition and fees. It was a really cheap place to go. And I guess that was a fairly common experience in a lot of public universities then.

CAREY: Yeah, it was - there was for quite some time, a matter of decades, there was I think a basic bargain in place in this country, which said that if you wanted to go to college, and you were willing to go to a public university, you could work your way through college, or your parents would be able to pay out of pocket.

And in fact until - I went to college in the 1980s, and that was certainly the case for me. My parents paid I think $3,000 a year in tuition for me to go to a very good public university. And as late as the early 1990s, the majority of all undergraduates left college with no debt.

Today, about two-thirds of all undergraduates leave college owing money, and on average they owe over $25,000. I would call it an intergenerational betrayal in the sense that the good deal that government provided to one generation was not transmitted onto the next generation. Instead, in a lot of cases, I think tax cuts became more of a priority than funding higher education.

But we no longer live in a world where that bargain is available to students, I think. You can find places, but the average student has to borrow now, and that is a big change.

DAVIES: Kevin Carey is director of the Education Policy Program at the New America Foundation. He'll be back in the second half of the show. I'm Dave Davies, and this is FRESH AIR.

(SOUNDBITE OF MUSIC)

DAVIES: This is FRESH AIR. I'm Dave Davies, in for Terry Gross, who's off this week. We're talking about why so many American students are taking out loans to get college educations, often graduating with heavy debt burdens and struggling to find good jobs.

Our guest Kevin Carey says there's been dramatic growth in college spending, which has driven big increases in tuition. At the same time, government support for public universities has declined. Kevin Carey is director of the Education Policy Program at the New America Foundation, and he's written on education issues for The New Republic, Washington Monthly, The American Prospect and the Chronicle of Higher Education.

So we have a situation where, over the last couple of decades, tuitions have risen dramatically - far more than inflation - and governments have cut back on subsidies for public universities. And a college degree is more important than ever, so students are borrowing. Let's talk about student debt. Just how much of it is there these days?

CAREY: Well, there was a dramatic figure released last year by the U.S. Treasury indicating that the total amount of outstanding student debt now exceeds $1 trillion - trillion - and in fact, that amount exceeds the total amount of debt owed on credit cards. No one planned for that to happen. No one thought it was a good idea because, in fact, it's a very bad idea.

But the reality is that as college tuition has consistently outpaced the ability of people to pay out of pocket, debt has been the safety valve of our higher education system. It is what has allowed everything to keep running, because people know they have to go to college. They don't feel they have any choice, and so they just continue to borrow and borrow and borrow.

DAVIES: A typical senior graduates with - what's the number? About $25,000 in debt?

CAREY: So, the typical senior who graduates with debt - they don't all do - but about two-thirds. And so, of borrowers, the typical senior graduates with over $25,000 in debt.

DAVIES: And they cannot be discharged in bankruptcy. And that was the result of the bankruptcy act a few years back, right?

CAREY: Yes. Yeah. It used to be that you could discharge student loans in bankruptcy. And there was heavy lobbying by the loan industry in the 2000s, and gradually, over time, those protections were eaten away to the point where now, you cannot discharge any student loan in bankruptcy. So, basically, this is just an example of an industry hiring - using the money it makes - the money it made, by the way, through public subsidies - to hire a bunch of lobbyists to come to Washington, D.C. and push through a provision that frankly, is not in the public interest, but is in the interest of the private companies.

So it - I mean, we live in a country now where you can have your Social Security check garnished in order to pay a loan that you might have taken - a student loan that you might have taken out 20 or 30 years before. A lot of debtors end up in a situation where their loans are passed from collection agency to collection agency. Every time it happens, new fees are tacked on. You could borrow $10,000 and end up owing $50,000. Your disability checks can be garnished. It is one of the very few things - other than basically being a murderer - where there's no statute of limitations on some thing that you did a long, long time ago. And there's a real human cost to that.

DAVIES: So you've written about how college tuitions has risen dramatically and education is more important than ever. So many, many more students are coming out with - heavily burdened by loans that will follow them forever. But you've also written about some new educational models that could change the way things work. And let's begin maybe by just talking a little bit about kind of how the traditional educational system has worked. And you've noted that, you know, the colleges that were around, you know, 50 or 100 years ago are mostly the ones that are around today, and we aren't seeing new ones there to sort of, in effect, expand the supply of education. Why is that?

CAREY: Well, partly because building a traditional college or university is very expensive. You can just go to one and look around. And there are tons of buildings and people and infrastructure, and those things cost a lot of money to get off the ground.

And it really - there is no more stable part of our society than our higher education system. If you were to go back a hundred years and say, what are the best universities in America, it would basically be the same list as if you asked that question today. Maybe one or two would have fallen out and one or two would've come in, whereas, if you asked that question about almost anything else, certainly private industry, you would have - maybe General Electric is still around, and other than that, it is an entirely different group of people.

And so these are institutions whose basic design was fixed in place in the late 19th century when colleges like Harvard and Johns Hopkins decided to adopt the German research university model. This is a model that is built around independent scholars with PhDs, around organizations that have the dual purpose of conducting both research and education at the same time. That is a complicated and expensive way to organize things.

It works in a lot of ways, obviously, because these institutions are still around and many of them are extremely prosperous. And we shouldn't lose sight of the fact that the American higher education system is envied around the world for its productivity and its greatness. But it is an increasingly expensive model, and I don't think that institutions that have been around that long really have that much capacity to reorganize themselves.

And so if we're going to think about how are we going to provide lower cost alternatives to students, what might bring this unsustainable trend of constantly increasing prices to an end, I think it will have to be new organizations that look very different than the ones we have today.

DAVIES: So let's look at some of the alternative models. Just take one of these innovative programs that you've seen and described, you know, how it might change things.

CAREY: Well, of course, at the same time that the college has been getting more and more expensive over the last 15 years, we've had the information technology revolution, where other industries have been absolutely transformed by brand new actors, new companies, new ways of service delivery, often at radically lower prices, often that have major disruptive impacts on existing institutions.

And yet, higher education seems to have largely escaped that so far, and in fact, you can look at certain predictions and pronouncements that were made in the midst of the dot-com enthusiasm in the late '90s, where people said, oh, you know, brick-and-mortar institutions - universities, that is - they'll be out of business by 2010. Well, it's 2012, and none of them are out of business, or at least very few.

But I do think that that is beginning to change. The process of education is one that is substantially a process of the exchange of information. And when you have incredibly new and more efficient and more powerful ways of exchanging information as we do now, in the long run, it is inevitable that the structure of education will change accordingly. And what we have just seen in the last six months or so is some real changes in the online higher education space.

For most of the 2000s, the online higher education was synonymous with for-profit education. You had companies like the University of Phoenix and Kaplan Universities getting much, much larger and making an awful lot of money by enrolling students online. I think online education was seen as kind of declasse by traditional colleges and universities who thought that they had - that was beneath them somehow.

Just this year, however, we've seen very, very large online classes taught at universities like Stanford, MIT. Harvard has announced recently that its getting into the game of sponsoring online classes that will be sort of associated with Harvard. These are courses that are being taught right now to hundreds of thousands of students around the world, and they don't cost anything. So if you want to talk about a radical competitor to the expensive college degree, try zero.

DAVIES: Right. Now let's talk about this. There was the case of the Stanford course, which was in, I forget what subject...

CAREY: Artificial intelligence.

DAVIES: OK. And it was available to anybody for free. And how many people followed the course or participated?

CAREY: Well over 100,000.

DAVIES: OK.

CAREY: I think getting up to 200,000, perhaps.

DAVIES: Now, no doubt they learned a lot, but they don't end up with a college credit, do they?

CAREY: No. It's...

DAVIES: How does this get translated into something that society recognizes as, you know, an - you know, a real education, a real credential?

CAREY: Well, that is the question that everybody is thinking about now. There is, I think, now no doubt that certain kinds of students - not everybody, but certain kinds of students can learn a lot, as you say, online. But people don't just go to college to learn. They go to college to get a credential that could help them get a job. That's the difference between a library and a college, or one of the differences.

And I think recognizing this, the professors that taught this class at Stanford - and it should be said that they - the Stanford professors kind of just did this on their own. They didn't even ask for permission ahead of time. They just opened their class up to the Internet. And as it turns out, while Stanford, the university was very enthusiastic about this kind of innovative, broadly reaching class being taught by one of their professors, they were also very, very concerned that there be no confusion about the fact that students who were not paying Stanford to take this class, those students were not going to receive Stanford credits.

Stanford credits are very expensive. Only a small number of students are allowed to get them. So what happened was the professors who taught the class for the students who satisfactorily passed the class based on tests that they took online got a letter from the professors saying: Dear such and such, this letter officially certifies that you took this class and - or something along those lines, and in some cases perhaps graduated or scored in the top 10 percent of the class. Sincerely, such and such person who is a professor at Stanford.

So we're really getting into the realm of semantic distinctions now, because in the end all a college degree is is a piece of paper saying that: Dear such and such, you took these classes and here's how you did in them - nothing more, nothing less. It is the piece of paper that has the seal of approval from an institution that has been itself approved through a process of government endorsement and accreditation, but the essential act of communication is the same.

DAVIES: We're speaking with Kevin Carey. He is director of the Education Policy Program at the New America Foundation. We'll continue our conversation after a short break. This is FRESH AIR.

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DAVIES: If you're just joining us, we're speaking with Kevin Carey. He is the director of the Education Policy Program at the New America Foundation and has written widely on education policy.

Well, are there cases where institutions are offering online learning and people are getting college credit for, you know, little or no cost?

CAREY: There are companies out there, yes, that are very much trying to offer extremely low costs - not free, but extremely low-cost college classes that do lead to college credits.

So, for example, there is a company called StraighterLine, not an accredited university. All they do is offer online classes in introductory courses. So these are the courses that colleges and universities currently make a lot of money on by charging high tuition for what are often large, impersonal lecture classes - algebra, economics, accounting, biology. They offer these classes for a flat subscription rate of, I believe, $99 a month, plus another $20 or $30 for textbooks.

And they have an arrangement with accredited colleges, where once you take these classes, you can transfer them in to an accredited college for credit, and then use those credits to pursue a degree. So they've kind of hacked the system. It's a workaround, because StraighterLine isn't accredited. They can't offer credits, but accredited colleges can accept StraighterLine classes and students can proceed from there.

DAVIES: It's sort of curious that an accredited institution would enter into a relationship with, you know, with a company like StraighterLine because if, as you said, they do very well charging people tuition for these big introductory, you know, lecture classes, why would they have an arrangement with StraighterLine?

CAREY: Well, you can't use your StraighterLine credits to transfer into Harvard or University of Virginia or, you know, University of Michigan or the elite institutions. What you can do is use your StraighterLine credits to transfer into more mid-tier, but still, in many ways, probably very good institutions that provide kind of solid, affordable education - institutions that are not turning students away. And we should keep in mind that most colleges and universities are not all that selective.

So institutions that are not turning customers away right and left actually have an interest in trying to enroll more students. So I think they see the connection to StraighterLine students as a way of connecting to a new market - students who might not otherwise have known about them, and they can bring them in and enroll them in more advanced classes. And that's still a good financial proposition for them, and they become graduates.

DAVIES: Now, how are accredited universities reacting to this?

CAREY: I think that accredited universities look at new competition from online providers with a fair amount of apprehension. They are, by and large, run by smart people and they understand that information technology has a powerful, disruptive potential to change business models and provide new ways of services that can shake up the economics of a long-establish industry.

On some level the fact that they are accredited is what is keeping them in business. It's important to understand not anybody can just be a college or university. You have to go through a system of approval which happens to be run by non-profit organizations that are comprised of existing colleges and universities.

The federal government doesn't itself decide who can accept federal financial aid money, and federal financial aid money is playing an increasingly important role in financing American higher education. It outsources that job to non-profit accrediting organizations, which are membership organizations of existing colleges and universities.

So there's a bit of a fox guarding the henhouse situation going on, where if you come with a new, much less expensive business model and you want to compete on a level playing field with universities that are getting implicitly large government subsidies because they can accept Pell grants and they can accept student loans, you have to get the approval of your competitors to do that.

And so far the competitors haven't been all that eager to grant that approval. What they more or less do is make you demonstrate that you have the cost structure of a traditional university. So they'll ask you questions about, well, how big is your library and what credentials do your professors have, and so on. Even if your model doesn't involve having a library or employing professors at all.

DAVIES: You know, I can imagine folks hearing about online learning and thinking, well, that's great. I've seen ads for these institutions that will, you know, give me degrees. I mean there are plenty of for-profit institution out there offering, you know, online courses. Do you have any advice for people, anything they should consider and whether they want to enroll in one of these places?

CAREY: Well, I would look at - certainly look at the price. If the institution is encouraging you to borrow a lot of money, I would think pretty hard about whether that's the right place to go. If you go on - the federal government has a website called College Navigator. You just do a search for College Navigator.

You can look up these institutions and you can see what percentage of students who enroll graduate and get degrees. You can see how often students borrow, how much they borrow, and whether they tend to default on their loans.

Interestingly enough, this week the federal government is scheduled to release a bunch of new information about mostly for-profit colleges that are the result of a new regulation that was put in last year where the U.S. Department of Education is going to rate for-profit colleges by looking at how much money graduates make after they finish and comparing that to how much money graduates of for-profit colleges borrow.

And if the ratio is too far in one direction - if students are borrowing a lot of money and they're earning very little in the job market afterwards - those for-profit colleges will be kicked out of the federal financial aid system. So that data also will be available and that is also something that consumers should take a look at.

DAVIES: You know, you've said that the Internet, it took a while but it radically changed the media industry, and newspapers, you know, suffered a serious decline.

CAREY: Mm-hmm.

DAVIES: What's higher education going to look like in 15 years? Will we have more students being able to get an affordable college education without being burdened by so much debt?

CAREY: I think so. Yes. The long-term price trend and debt trend cannot continue going this way forever. A wise man once said the thing about unsustainable trends is that they end, by definition. So too with the long-term trend of college always getting much more expensive and students borrowing more and more money.

There has to be a breaking point and I think that pressure from high quality - and again, I emphasize that - high quality online lower cost alternatives or hybrid models that combine in person and online classes at a much lower cost, as people become more comfortable with this kind of education, as credentials from these kinds of universities become more widely accepted, that will be the thing that really starts to put pressure on traditional institutions and drives them to adapt on some level, or go out of business.

And there will be some of both.

DAVIES: Well, Kevin Carey, we're out of time. Thanks so much for speaking with us.

CAREY: Thank you.

DAVIES: Kevin Carey is director of the education policy program at the New America Foundation and writes on education issues for the New Republic, Washington Monthly, and the Chronicle of Higher Education. Coming up, Ken Tucker listens to Fiona Apple's new album. This is FRESH AIR. Transcript provided by NPR, Copyright NPR.