S1E50 / The Post-Pandemic College Experience / Scott Galloway & Michael D. Smith

Our diplomas are no longer going to be as valuable as they've always been because employers are going to have different signals available to them to evaluate how smart and how well-motivated students are.

There's this toxic cocktail of low endowment per student, high tuition, low experience, low certification. Those universities could be out of business in a year.

Welcome back to Epidemic, the podcast about the science, public health, and social impacts of the coronavirus pandemic. I'm your host, Dr. Celine Gounder. Okay, I've got to say, I love the movie Good Will Hunting. It takes me back to my residency days in Boston. In case you've never seen it, Matt Damon plays a young self-taught math genius who works as a janitor at MIT.

Do you like apples?

Yeah.

Well, I got a number. How do you like them apples?

I did my residency at Mass General, and there was a bar just across the river that I used to go to in Cambridge. A famous scene from the movie was shot there. Matt Damon's character, Will, stands up to a snobbish bully who tries to embarrass one of his friends.

You dropped $150 grand on a fucking education you could have got for $1.50 in late charges at the public library.

Yeah, but I will have a degree. And you'll be serving my kids fries at a drive-through on our way to a skiing trip.

Yeah, and that, that scene's so crushing, right?

This is Michael Smith.

Will Hunting has a world of talent, but he doesn't have the money to demonstrate that talent to the, to the market. Will Hunting is not alone in, in our current world.

Michael is a professor at Carnegie Mellon. His research focuses on technology and how it affects the way markets and industries work.

Anytime you've got a talented person who can't show their talent in the marketplace, that's bad for them, and it's bad for me and you too.

University education has gotten even more expensive since Good Will Hunting was released in 1997. And diplomas, especially from elite schools, are a big leg up when it comes to high-paying jobs and social mobility in the United States. But this system has been rocked by the pandemic.

After starting the school year with high hopes, the persistent threat of a highly infectious virus shattering many college plans.

From every corner of the country, there are new announcements like Columbia's canceling in-person learning, postponing sports, and that's as some schools who have reopened fight sprouting outbreaks.

For many students, their classes have moved online during the pandemic, and this is creating big problems for many colleges and universities. One of the first schools to take dramatic action was Ohio Ohio Wesleyan University. Reduced revenues from students staying home drove the university to eliminate 18 majors. Ohio Wesleyan previously announced it was cutting 44 non-faculty positions as part of a multimillion-dollar cost-cutting measure. And some colleges have already closed their doors. Many universities reopened this fall with a mix of in-person and online learning. But with coronavirus cases surging as we record this episode in November, It's unclear how many schools will offer in-person classes this spring. But the pandemic is also creating new opportunities to reimagine what higher education could look like. This episode is the first in a series looking at how the pandemic has disrupted different sectors of the economy. Education startups and big tech have been eyeing traditional higher education for years. And the pandemic may be the shock that pushes these alternatives into the mainstream.

What we're missing is the ways that online education can actually deliver new sources of value for our customers. That's where the threat's going to come in.

And hit the reset button on higher education in the United States.

So I think there's an opportunity to dramatically expand enrollments using small and big tech, dramatically decrease costs, and move back to where we were at the last half of the 20th century, where education was the primary vehicle for upward mobility.

Today on Epidemic: How the coronavirus is disrupting higher education. Before we get too far, let's talk about what a student pays for when they go to college. Is it the coursework? The networking? The parties?

Well, all of that has tremendous value, but if you look at it economically, if you want to justify the return on investment you're making, it's first and foremost the certification.

This is Scott Galloway. He's a professor of marketing at the Stern School of Business at New York University.

I almost didn't graduate from UCLA. I got a job at Morgan Stanley, and I had a fifth year, and I thought, you know, I'm not doing that well. I had terrible grades. I almost got kicked out. I almost left. But they wanted me to stay there one more semester, smoke a lot more dope, watch Planet of the Apes another 300 times, and get that certification of a degree. Was I much better graduating 3 months later? No. But that certification that corporations in a modern economy love is what is where the real return on investment is.

A diploma is a signal to employers about who you are and how qualified you are. And getting that certification, especially from an elite school, makes the $150,000 that guy in Good Will Hunting paid look like a bargain. Incoming freshmen paying full-price tuition, room, and board at some elite universities today may end up paying nearly half a million dollars over 4 years.

It's worth it because that Yale certification, that stamp on your forehead for the rest of your life, it says to the marketplace that you're one of two things. You're either freakishly remarkable at the ages of 15 to 17 and be incredibly productive in corporations ranging from Google to McKinsey to the World Bank, love those people, or your parents are rich. And corporate America also loves rich kids. If you wanna go into private wealth for Goldman Sachs, they love rich kids because it means that kid's parents have friends who are rich.

Scott says these institutions maintain the value of their diplomas through brand recognition and exclusivity.

People say Apple and Nike are the strongest brands in the world. No, they're not. Strongest brands in the world are, you know, Harvard, MIT, Michigan, and Stanford. Nobody, nobody gives $100 million to Apple to put their name on the side of a building on the Apple campus in Cupertino.

This system hummed along for decades until the pandemic.

My observation around COVID as it relates to our economy is that it's more of an accelerant than a change agent. And there's a lot of trends in place. Our tuition increases are unsustainable. Keeping admission rates low, a dependence upon international students who pay full freight to subsidize the cash flow of the university, exploding administrative costs. I just thought none of this is sustainable.

The immediate risk to a lot of these schools during the pandemic is financial.

And if you're a parent paying $58,000 just in tuition, maybe $80,000 including room and board, and your kid's going to be taken to Zoom classes, You reevaluate the purchase.

This has already started. Northeastern University in Boston faced a class action lawsuit from students after campuses closed and classes moved online last spring. Nearly a third of the student body at Kutztown University in Pennsylvania left campus in favor of remote learning because of COVID concerns.

When you have 10 or 20% fewer students, you go from having $5 or $10 or $20 million to put in your endowment to losing $10, $20, $30 million, and you're in a state of financial financial crisis. And a lot of these universities, if they can't offer the Dead Poets Society, leafy football, amazing adult child care experience, the people aren't going to pay a Mercedes price for a Hyundai. I mean, the reckoning is coming.

And the reckoning won't be evenly distributed. Scott thinks the top-tier schools— Ivy League institutions and flagship state schools like the University of Michigan— will be fine in the long run. Scott says that community colleges will also do okay.

The community colleges are more resilient than you might think. If you're Cal State, you have half a million kids, you charge $7,000 and $17,000 for in-state and out-of-state tuition respectively, 83% of your students are commuters. So they're paying a fairly reasonable cost and they have never paid that money in exchange for this typical collegiate experience. They're paying for education and some certification at a low price.

Their value proposition is largely intact or remains intact in an era of COVID The real trouble is going to be what Scott calls Tier 2 and Tier 3 schools, colleges that don't have strong brand name recognition, whose students don't graduate into well-paying jobs, but still charge Tier 1 tuition.

Those universities could be out of business in a year.

And there's something else besides the bottom line pressing down on transitional higher education during the pandemic: big tech.

I am confident one or more of them is going to go directly into the business of education/certification. If Google were to partner with the University of Washington or Berkeley and offer a 2-year intensive programming curriculum. There's a large job market for that.

Google's former CEO Eric Schmidt has already announced plans to help the U.S. government create its own university certification program for AI and cybersecurity. Many tech giants are already looking elsewhere to find their top talent.

So Google very publicly says that they've looked at their data, and what they discovered is that the school you graduated from and the grades you got at that school, even, even the major you had at a school, isn't all that valuable for them when they try to predict whether you're going to be a good Google employee. What is valuable to them is how well you do on their entrance exam.

Another example Michael gave was a website called Kaggle. Basically, it's a crowdsourcing platform for very difficult data analytics problems. Companies, government agencies, and researchers post problems on the site, and anyone can try to solve them. Back in 2015, the number 1 ranked data scientist on the website was an engineer in Brazil.

And all of a sudden he was getting job offers from Silicon Valley companies, not because of his degree, not because of his job experience, but because they could see based on his Kaggle rating that he was a really good data scientist.

So if big tech and alternative certifications are on the heels of traditional universities during the pandemic, What changes could help universities survive and meet the needs of their students beyond the pandemic? That's after the break. The pandemic forced a lot of universities to go online all of a sudden, but that hasn't been a good experience for a lot of students. As an instructor, Michael has had his own gripes about online education.

Lots of things suck about online education. I miss the energy of students in the classroom. The other thing that sucks about online education today is we're doing exactly what every other industry has done when they saw new technology. So iTunes became a way to sell the CDs I've always sold in a digital format. And it was fine, but it wasn't really making the best use of the medium. It really took Spotify and Netflix to think hard about, you know, We don't actually want to sell albums. We want to give you access to all the world's music. What we haven't created yet is the Netflix or Spotify of education.

One educational startup that's getting a lot of attention is called Outlier.

I hope this course can be a gateway to help students from different backgrounds to start their college career.

Calculus has been taught the same way for 100 years. It hasn't changed. And calculus is like a $7 billion business. Find the best calculus instructor in the world, put in place incredible production values, and teach it for a tenth of the cost, and let the kids get credits from the University of Pittsburgh, you pay $400 for calculus instead of $4,000.

Welcome to Calculus 1. Let's get started.

Let's get started.

Let's get started.

Whether it's Outlier or another company, remote learning needs a killer app to break into the wider market. Until then, people aren't too wild about online learning. The Pew Research Center reported in October that only 30% of U.S. adults surveyed thought online courses offered the same educational value as in-person learning. But Michael says that 30% might be an important tipping point.

New online platforms don't have to be as good as the residential experience. They just have to be good enough while costing less than $100,000 and taking less than 4 years of a student's time.

Michael says this is a great example of disruptive innovation, the theory coined by Clayton Christensen.

To me, the, the real genius of his disruptive change theory is he noticed this pattern where companies would fail because they were too focused on the needs of their existing customers. They ignored how new technologies could serve the needs of a whole new customer group. And then they ignored the fact that those new technologies would get better fast enough so that it would start to siphon away some of their existing customers.

In the near future, residential college experience may be better than online, but there's a large group of potential students out there, maybe the Will Hunting's of the world, who don't have the time or the money to attend a 4-year institution.

We ought to be thinking really hard about the people who don't have the opportunity to come to our campus and what are they going to do in this new technological world.

Michael says this kind of disruption looks a lot like what happened to the music industry as MP3s were starting to become popular. He interviewed someone who created a platform that would allow record companies to sell digital music online before iTunes.

And when he showed this to a record exec, the record exec listened to the audio quality of the file, the digital file, and he said, "No one's gonna listen to that crap." He actually used a slightly more colorful word than that, but that was the basic idea, is that this doesn't have anywhere near the audio quality that my consumers demand from CDs. Even though the audio quality wasn't as good, The experience actually was much better for the consumer, even though it had lower audio quality, created value for consumers in a whole bunch of new ways. And that's the lesson of the music industry is that by focusing on the traditional way quality was delivered, they missed the point about the new quality that could be provided.

And this disruption has already started in academia. Michael has been studying how technology transformed one university, and destroyed another. In 1996, Paul LeBlanc became president of a small liberal arts college in Vermont called Marlboro College. The college had been struggling with enrollment, and Paul wanted to implement his vision to reinvent the college for the age of the internet. The board was not impressed. In 2003, Paul left Marlboro to become president at Southern New Hampshire University.

Today, Southern New Hampshire University is one of the most powerful universities when it comes to online education. Paul LeBlanc increased their enrollment from 3,000 students to 135,000 students, and Southern New Hampshire projects that it'll have 300,000 students by 2023. So Southern New Hampshire, by being willing to change their business model to pursue their mission of educating students students is doing really well.

What happened to Marlboro College? It ceased all operations in August. When it closed, it had just 150 students. Michael is bullish on online education.

It's invigorating because I think these new platforms are going to open up a lot of opportunity for, for students.

But he has his doubts too.

It's terrifying because I am worried that we're going to get away from some of things that have created, you know, some common body of knowledge in our students.

Degrees or certifications that are narrowly tailored may be better for students' time and wallets, but it runs the risk of creating the same kinds of echo chambers as social media.

I am a little bit worried we're going to lose out on some of those opportunities to broaden people's horizons.

There are also practical limitations for online learning.

It's very hard to teach someone how to place a syringe using Microsoft Teams. So nursing schools, welding schools, esthetician schools, the vocational schools, you know, just get taken such a beating. And by the way, who typically on average goes to university? Kids from middle and upper income households. Who typically goes to more vocational training? Kids from lower and middle income households. So we have some very unhealthy trends that continue to thrust into the future on income inequality.

But despite these drawbacks, Michael and Scott both think the disruption caused by the pandemic could have a positive impact on higher education in the long run.

So I think there's an opportunity to dramatically expand enrollments using small and big tech, dramatically decrease costs, and move back to where we were at the last half of the 20th century, where education was the primary vehicle for upward mobility, that we weren't as freakishly in love with the top 1% But we said to people, maybe there's an opportunity for you to get into the 1% at some point in your life. And we're going to take risks on people.

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