As more and more students take classes online, certain institutions – we are dubbing them the National Online Colleges – have a reach and model that is different in nature from traditional colleges. This report focuses on 18 schools with programs that have large enrollments and wide geographic scope built around online learning. Currently, these programs enroll about half a million students, about half of whom are full-time.
One way the group is different is how they operate exclusively online. Purdue Global’s developing online presence is something of an exception here, as it is the only one of the 18 that is majority in-person. Grand Canyon and Brigham Young-Idaho also have robust in-person programs.
Major differences between the national onlines and traditional colleges
They tend to be larger. The biggest one, Western Governors, has the largest enrollment of any single US college. Even the smallest one on our list, Grantham University in Kansas, enrolls a sizable 6,700 students studying online only. 10 of the 18 schools have enrollments above 20,000.
Focus on adult learners. Currently, these programs have limited penetration in the traditional age 18-25 group but a larger one among older students. While one quarter of students across the US system are aged 25 and over, three quarters of national online colleges’ are over 25. Nevertheless, major online schools hold a still small 10% market share within this 25+ market. They are close to a niche player within their market, which is in turn a minority portion of undergraduate students. In the prime market for students younger than 25, they are a bit player with just 1% market share of that segment.
Marginally less expensive than traditional 4-year schools. While they have something of an advantage on price, the advantage isn’t significant enough to be a major motivation for many students. A proper apples-to-apples comparison, matching tuition and fees shows the national online colleges charge on average net tuition & fees of $11,300, 7% lower than the $12,200 for all US 4-year colleges (a projected 2020/21 average). And comparing 2020/21 national online costs to reported figures from 2018/19, it is 11% lower than that year’s average net cost of $12,800 for 4-year colleges.* One exception to this is the large Brigham Young Idaho program, which provides rock bottom pricing of $2,250 for one of its Bachelor’s programs. But the national onlines are in reality quite a bit more pricey than 2-year programs, which charged just $4,400 in tuition in 2018/19 (projected to fall to $4,300 in 2020/21).
* FTE-weighted figures for tuition only. Cost projections use historical data along with proprietary inputs.
Reliance on part-time faculty. 16 of the 18 schools employ fewer full-time faculty as a proportion of total faculty than higher ed does as a whole. This average conceals radically different approaches, though. Western Governor’s strategically uses full-time staff, with 75% of their instructional staff being full-time. Even more extreme, 97% of instructors at the art/tech focused Full Sail in Florida is full-time. On the other end of the spectrum, Southern New Hampshire relies almost exclusively on part-time teaching staff as do schools like UMD Global, Grand Canyon and Ashford (ASU Global).
Transparent pricing. While modern college pricing is complex and dependent on applications and customized aid offers, major online colleges are transparent. Go to one of their sites and you can, within minutes, know how much a year of enrollment will cost you to within a couple of hundred dollars, a major advantage and selling point. The one exception here is Independence University in Utah, which does not publish its prices but will presumably disclose them if you agree to speak with a sales rep.
Open enrollment. All the online-only schools are open admissions.
Less overhead. The national online schools have much higher ratios of students to administrative staff. After including non-instructional staff in the picture along with instructors, major online schools have a ratio of almost 15 students to staff vs the overall US system’s ratio of 5. Due to different institutional philosophies on outsourcing, these statistics need to be seen as directional. Nonetheless, the contrasting ratios are large enough to reveal the different business models in place.
Certain schools with large online programs are not included in this list because of their strong regional focus and continued emphasis on in-person learning. Institutions like the Ivy Tech community college network in Indiana, Rio Salado College in Arizona or the Lone Star College and University of Texas-Arlington systems in Texas all have significant online programs, each with over 10,000 online-only students. They are different from the national online colleges due to their regional focus and continued emphasis on in-person teaching. For example, Ivy Tech educates over 15,000 students online, a larger number than certain of the major online schools. But its focus on its core in-state Indiana population — ~96% of its students come from in-state — with substantial in-person teaching occurring – almost 80% of students attend in-person classes exclusively or in addition to online classes – sets it apart from the major onlines. By contrast, national online universities have broader geographic bases and are often exclusively online, built around their distance offerings.
Eastern Gateway Community College in Ohio plays in an interesting grey area. With a principally part-time student body (87%) that is mostly online only (90%), it serves a local student base and not a national one. Its development, along with Ivy Tech in the neighboring state of Indiana, bear watching as low cost, local alternatives to the national online colleges.
Thoughts about the future
COVID Recession Crisis/Opportunity
Purely online college enrollment has been static at around 2 million the last few years. Will this segment break out of this range of market share?
The answer to this question will be difficult to evaluate because patterns from the Great Recession support expectations of significant increases in adult full-time college enrollment, the major online nationals’ target segment. The national online colleges will thus probably gain enrollment purely from contracyclical trends. But whether this marks a permanent change in students’ perception of purely online college will take years to unpack unless the enrollment and share numbers change dramatically.
We are projecting that 0.8 million more older (25+) college students will be enrolled in college programs by 2022 vs the latest 2018 IPEDS number purely extrapolated from the Great Recession. (Purely extrapolated = no attempt to factor in the unique social and economic features of COVID and the COVID Recession.) As mentioned earlier, national online colleges enroll 10% of adult learners and, just under half million students with no physical classroom time, representing 23% of all US undergrads studying online only. Based on such a market trends, national onlines need to show growth in both categories – penetration in the 25+ and in the general online-only categories – beyond this countercyclical enrollment pattern to demonstrate a meaningful secular change to their role within higher ed.
Disintermediation and unbundling
Disintermediation – which has cut like a scythe across US business – has not yet deeply affected higher education. Colleges have retained their intermediary status between sources of knowledge and students through a combination of bundled services supporting teaching, credentialing, personal development, social life and residential living, and through well-maintained branding in an important area (the reputation of alumni). National online schools are one step along the path of unbundling those services but so far have frankly not had a lot of success in “unwinding the bundle” and separating the higher ed process into more specialized segments.
But we all know that disintermediation and unbundling can arrive little by little… and then all of a sudden. Higher ed has recently been very focused on how traditional age students (under 25) have reacted to the online classes forced on us by COVID. Partly this focus has been to monitor plain old teaching success and student satisfaction. But another background reason is the risk online education represents as a general industry destabilizer, as a precipitant of unbundling. The trends in the national online sector we are reviewing will prove to be a key indicator as the system evolves, along with the evolution of adventurous local efforts such as Ivy Tech and Eastern Gateway.
Industry consolidation
National onlines have significant scale and operating leverage advantages versus traditional colleges, as documented earlier. Is this what students and employers want? Put differently, is the fragmented nature of traditional higher ed the result of consumer preference or a relic of pre-internet physical constraints on teaching?
Several things support large colleges gaining advantages. Our report on industry trends in pricing and enrollment during the 2010s show gathering financial and enrollment evidence that students prefer large schools. (Colleges with over 10,000 full-time undergrads gained enrollment, pricing power and market share during the decade while smaller schools as a category lost ground in these areas.) Consolidation is also in line with trends in US business outside of higher ed – “gargantuanism” as it is sometimes called.
National online college costs are slightly lower but is that how they affect higher ed costs?
National onlines are not significantly cheaper than in-person alternatives, contrary to conventional wisdom. We presented a pretty small 7% 2020/21 cost difference between national onlines and the average for US 4-year colleges. And they are more expensive than 2-year colleges. What they are is much more convenient: enroll quickly, know how much it will cost, do it from where you live now.
But they also may have an indirect impact on the pricing power of selective traditional schools. By 2018, applicants to selective schools received about 4 acceptances on average as part of their application cycle. 4 acceptances generate significant competitive pressure on financial aid offers, but this is intensified because national onlines enroll continuously and present pricing very transparently. All prospective college students have a bid out there – they can literally decline any admissions offer and enroll the next week in an online program at an annual cost of about $11,000. Hey, Western Governor’s is $8k. All college applicants have an open standing offer at all times. The caveat here is that this option is in reality taken up by older non-traditional students while graduating high school seniors are the ones applying to more and more schools and comparing financial aid offers. So a key metric reflecting national online impact is penetration in the age 18-25 group.
The net cost gap between the major onlines and the average for US colleges will be important to watch. With scale and leverage, major onlines will likely live with very limited price increases in the future, as they attempt to grab market share, taking advantage of their scalable teaching and fairly flat marginal cost curves. (They can add students while adding few fixed costs relative to traditional schools.)
Prediction: besides the vagaries of US family’s income in the coming decade, the major onlines will act as an anchor weighing down US college pricing power. That will be testable through the cost differentials between major onlines and US 4-year colleges. We will revisit this issue in the future to learn how this situation evolves.
The future - trends to watch
Will tech improvements and COVID-19 lead the major onlines to break out of their current market share box? Customer surveys of prime age students about online schools and on-campus living are a key metric.
Are they the wedge that will precipitate the unbundling of higher ed? Their size and leverage advantages seem to be in line with evolving consumer preferences and that, combined with continuous, open enrollment policies intensifies cost pressures on all undergrad programs.
Or do they address a niche need and, for social, academic and credentialing reasons, will remain in that role?