What’s Really Driving High Tuition In Online College Programs

Most online college programs cost the same as on-campus alternatives. Some even cost more. There’s evidence that pricey online tuitions may be driven by hidden, expensive costs in designing, delivering and marketing those programs.

Still, online programs at some schools are generating profit.

A plurality (45%) of schools surveyed in The Changing Landscape of Online Education (CHLOE2) by Quality Matters and Eduventures/Encoura – a survey of 182 academic and institutional officers in charge of digital learning at their schools – said their online programs were a “revenue generator.” Just 18% said they cost more than they generated.

There’s also, according to CHLOE2, a correlation between the size of the online program, tuition rates and profits. The largest online programs, ones like those at Arizona State University (ASU), for example, are twice as likely to charge higher tuition for online classes as they are to offer lower tuition. ASU does charge in-state students more to take online classes than on-campus ones. Those larger programs are also the most likely to say they are revenue producers.  ASU, for example, told the Arizona Board of Regents that its online programs, “… will also be a substantial source of incremental net revenue for institutional investment” – a number it estimated to be about $40 million annually.

The reality that schools are profiting from their online programs, while charging increased tuition, has sparked some observers to label it a betrayal of what was supposed to be a significant, core benefit of online education – it was supposed to be cheaper for students.

Education investor and author Ryan Craig declared, for example, “… postsecondary providers are pulling a fast one on students by failing to charge less for online programs. The 60% responding [in the CHLOE 2 data] that online costs the same or more to deliver are saddling students with cost of their own incompetence.”

It’s not clear that online programs are cheaper. Nonetheless, it’s impossible to ignore that some, perhaps even most, online programs are generating net revenue while charging higher tuition. In those cases, failing to pass that savings along to students may be incompetence. But it may also be fear. Or necessity. Or greed.

Leaders in the online college industry have openly discussed that one reason colleges don’t lower their online tuition costs is that they’re scared to. If tuition rates are lower for online classes, they worry no one will take on-campus classes. They’re also worried that lower online tuition will signal a lower quality product. If online is the same quality as on campus, as they insist it is, they want to charge for it that way.

It’s also possible that the colleges generating profit from their online efforts are using that revenue to keep the doors open in other programs while public financial support and enrollment are on the decline. That would not be unprecedented or even unusual. Colleges use profitable programs and students to subsidize unprofitable ones all the time.

Motivation and greed may also be keeping online tuition higher than it could be. John Katzman, who has worked with colleges to build, market and deliver their online programs, said that the online program design and marketing companies that sell their services to colleges, “have a good thing going – they have promised their stockholders outsized returns” and need to deliver.

From that view, if you’re a for-profit company taking a cut of the tuition or one selling course design services, or the Dean of an online program that’s making money, there’s simply no incentive to reduce tuition and make less money. Demand is growing, profits are up, times are good.

Consider this quote from an ASU online marketing document, “A number of prior studies focused on the cost of online learning to the student, suggesting that it was more expensive, but they did not fully take into account the operating costs to the institution.” That is true. Almost no one considered what a good deal it could be if online college programs cost the schools less, but they could charge students the same, or more.

Still, if you’re a believer that online classes will eventually have lower tuition, there are signs that may yet happen. A strong majority (62%) of the leaders of programs that did charge their students less for online tuition said they did so because of “Pricing constraints in a competitive market.” And 40% said online tuition was cheaper at their school because of a “Lower cost of delivering online instruction.”

“Online programs are less expensive to give and should be less expensive for students,” Katzman said. “And I’m very optimistic that will happen. Sustainably lower costs with more transparency and more flexibility will translate into lower net tuition,” he said.

Until it does, it’s time to ask whether online tuition is still high because online programs are simply too expensive – as some evidence suggests – or whether colleges and for-profit companies are simply too scared or too greedy to lower tuition – as some evidence also suggests. Either way, what we have now – high costs, high profits and inflated tuition – is not the future that online learning promised.