For-Profit Colleges Taking Steps to Compete on Price

Would pay-as-you-go pricing work for higher education? This is the question being asked by a growing number of for-profit colleges and universities around the country, according to a new report from The Wall Street Journal’s MarketWatch. As students – grappling with ever-increasing college costs – are becoming increasingly interested in finding a higher ed bargain, [...]

Would pay-as-you-go pricing work for higher education? This is the question being asked by a growing number of for-profit colleges and universities around the country, according to a new report from The Wall Street Journal’s MarketWatch. As students – grappling with ever-increasing college costs – are becoming increasingly interested in finding a higher ed bargain, more players in the for-profit sector are experimenting with innovative pricing plans.

At the forefront are relatively new players in the sector – like New Charter University, created by the startup UniversityNow. For $199 a student gets unlimited access to New Charter’s entire catalog of classes, thus creating a model that MarketWatch compares to a cell phone plan. New Charter is following the path laid down in 2008 by StaighterLine – a company that has been charging $99 for monthly access in addition to $49 per each class since 2008.

In a way, these kinds of tuition models closely resemble unlimited mobile data plans that have recently become popular among American consumers. It is also a way for for-profit schools to redefine themselves and find a way to thrive in an economic and regulatory environment that has recently become less than friendly.

In recent years, for-profit colleges have come under fire by students and Congress for their excessive tuition costs and the large number of students who drop out and default on their loans. After growing every year for the past decade, enrollment in private, for-profit colleges fell for the first time in 2011 by 3%, according to the National Center for Education Statistics. As demand drops, so does “their ability to charge high tuition,” says Rob MacArthur, president of Alternative Research Services, which has tracked for-profit colleges.

This revolutionary approach could be a way that for-profit schools can position themselves as providers not only of quality education, but of quality education friendly to a tight budget.

The necessity for reinvention doesn’t just come from Wall Street and Washington. As an increasing number of traditional not-for-profit schools move to offer their own online education alternatives, for-profit schools that have embraced online learning are losing something that used to differentiate them from the competition.

According to MacArthur, competing on price will be a strategy that many in the industry will be forced to embrace.

These lower-cost alternatives can help families save thousands of dollars. Students who take 10 core classes over 12 months at StraighterLine will spend $1,678, 46% less than the average tuition and fees at in-state community colleges this year. The difference is even greater when compared to four-year colleges: Tuition and fees currently average $8,655 and $29,056 at in-state public and private nonprofit colleges, respectively, according to the College Board.

Still, according to many critics of the for-profit education industry, families and students who take advantage of these newly-affordable college degrees might not be getting their money’s worth. Aside from general concerns about the overall quality of online instruction compared to lessons delivered traditionally, there are also issues of how valuable these degrees will be in the eyes of accreditation agencies and, most importantly, employers.

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