Can a ‘Pay as You Go’ Model Work for Higher Education?

We think of the cost of higher education as a series of massive bills — typically twice a year — for a semester’s worth of classes. But could that model be replaced by pay-as-you-go pricing that fits personal budgets better than going into massive debt and finding a way to haul yourself out of it? [...]

We think of the cost of higher education as a series of massive bills — typically twice a year — for a semester’s worth of classes. But could that model be replaced by pay-as-you-go pricing that fits personal budgets better than going into massive debt and finding a way to haul yourself out of it?

New Charter University is experimenting with a subscription plan that mimics what is already familiar to consumers — it’s not unlike a cellphone plan. For $199, a student has access to a month of New Charter’s offerings.

They’re not the only ones changing pricing models. StraighterLine, another ed provider, sells access for $99 per month and an additional $49 per class.

For their part, both the companies say their goals are to offer a quality higher education while lowering costs for families. “Our model isn’t to spend a lot of money on marketing and charge you on the back end,” says Gene Wade, co-founder and CEO of UniversityNow.

The for-profit education sector is forced to think about price in a way that non-profit competitors don’t. Not only is it an integral part of a sustainable, successful business model, but it’s a rapidly-changing landscape as non-profit providers enter the market already having a solid reputation and marketing for traditional, brick-and-mortar education.

77% of public colleges and 54.2% of private nonprofit colleges said so in the fall of 2011, up from 73.6% and 49.5%, respectively, two years prior, according to the Babson Survey Research Group and the College Board. As more nonprofits enter the sector offering lower-cost alternatives, it’s likely that for-profit schools will slash tuition, says MacArthur.

Bottom-line pricing has raised concerns, though, as some wonder if the quality of education is sacrificed as companies try their hardest to come up with the most affordable — but still profitable — solutions.

Many of these providers are reporting rapid growth, as students seem to be signing up in droves to take advantage of more fiscally-sensible options than what they face even at community colleges. Tuition at public universities, which has historically been a bargain compared to private institutions, has been so steadily rising that students are forced to question whether there might be an even better value.

The payoff, though, is far from certain, as there hasn’t been much time to see how online pay-as-you-go students have fared in the job market. But one thing is certain — these students are unlikely to incur the levels of debt that continue to plague college students.

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