Why Ivy League schools can laugh off the disruption “threat”

July 28, 2014
July 28, 2014

The online education revolution won’t disrupt Harvard Yard any time soon.

In recent years, much has been made of new online educational offerings—from for-profit distance learning companies to absolutely free online courses open to the unwashed masses. Boosters such as the well-connected Silicon Valley venture capitalist Marc Andreessen—who has backed some online education ventures—have argued that education is due for some fundamental disruption by the forces of software and technology.

That’s probably true. (What sector isn’t?)

But in the world of higher education, America’s elite colleges and universities are the least likely to be disrupted, argue analysts from Moody’s Investors Service in a new note about the impact of online education.

The most vulnerable to the threat of online education are less selective schools that are more reliant on tuition to pay the bills and keep the lights on. “Colleges with high acceptance rates also tend to be most reliant on student charges and have relatively modest wealth,” Moody’s writes. “They will be most vulnerable to long-term disruption from technology.”

It makes sense. If a degree is commoditized because it’s so easy to get, why not just go for a cheaper online option? Over time, decisions to opt for free or online education offerings eat into the tuition and fees that finance the schools. That could force some to shut down. (Moody’s analysts are primarily interested in the creditworthiness of colleges and universities.)

But the business model of America’s elite, selective schools—the Ivy League crowd, Stanford, and others of their ilk—works completely differently. Those schools don’t depend on tuition. They live mostly off the fat of their endowments, Moody’s explains.

The business model of elite universities, which is highly reliant on long-term returns on gifts from
successful alumni and friends of the university, highlights the importance of careful selection of the
student body. As a result, global and national market leading universities will not significantly grow enrollment in degree granting programs, keeping admission rates very low and contributing to a high perceived value of their degrees. The cachet of attending a highly selective university, limited reliance of these universities on student charges, and wealth compared to operating expenses help insulate them from the competitive threats of technological advancements.

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