Universities Are Alive & Well

The impending demise of the university has been greatly overstated.

Since the launch of the first massive open online course (MOOC) back in 2006, a vocal group of university-dislikers have taken to social media aggressively to declare the university model obsolete and dead. The latest round of vitriol was seemingly spurred when Lambda School, a trade school that teaches coding to students online and uses an income sharing agreement in lieu of tuition, announced that they closed a $30M Series B funding round. University naysayers see new alternatives like Lambda School as attractive drop-in replacements for an outdated higher educational model.

Meanwhile, the data suggests that universities are alive and well, with most meaningful metrics moving up and to the right. Detractors rip the increasing toll of loans on graduates; a recent report from the Institute for College Access and Success claims that the average graduate takes on $28k in debt to attend school. But figures from a survey conducted by the Bureau of Labor Statistics show that attaining a university degree increases average annual earnings from $35k to $59k, dwarfing the cost of loan payments and showing that the broad financial value proposition of higher education is extremely attractive. Student demand for universities continues to skyrocket, particularly at top-tier schools. For example, the University of California Berkeley received 108k applications for admission in 2018, up 120% from the 49k that the university received in 2009. Demand from employers for graduates of top universities is also high. PayScale data shows that the average mid-career salary for a Stanford graduate grew from $112k in 2012 to $157k in 2018, an increase of 40% in just 6 years.

If students are turning out in record numbers to attend universities and the job market continues to place increasing value on a diploma from a high-caliber institution, why are people so quick to hate on schools and look for a new model? There are several good reasons. The first is that the current model is hitting scaling limits. 207M students around the globe are currently studying at higher-education institutions according to a paper published by UNESCO, but that’s still a relatively small fraction of the total population of 1B people between the ages of 16-24 and it would take decades to increase capacity by 2-4x with the current model. The College Board reports that the 10-year average tuition cost increase is roughly 5% per year, which is well ahead of inflation and will continue to make it even harder to make higher education accessible in poor areas. The second reason to challenge the current model is that it negatively impacts upward mobility by providing a disproportionately large opportunity for people from wealthy families. A report released by Opportunity Insights last year showed that 38 universities, including 5 of the 8 Ivy League schools, admitted more students from families in the top 1% of the income scale (families that earned more than $650k per year) than students from families in the bottom 60% (families that made under $60k per year).

Software scales infinitely, so it’s not surprising that people have embraced software platforms like MOOCs and software-powered coding boot camps as a means to make education scalable, provide access to all, and increase upward mobility. The problem is that current offerings like Lambda School that are being touted as university replacements are only offering a subset of what universities provide. The caliber of schools obviously varies wildly, but a good university offers students the following:

1. Courses that provide deep knowledge in a subject of specialization. This includes the theory behind a subject, not just the practical. The theory is important because it provides a platform to understand the state of the art as practices evolve.
2. Courses that provide broad knowledge in other subjects. Most innovation is going on at the intersection of multiple domains (eg. computer science and biology, cryptography and game theory) and jobs that are further from the bleeding edge will be earlier targets for automation. A general understanding of math, science, philosophy, ethics, and other subjects is more important than ever.
3. An environment that encourages learning, innovation, and launching new ideas. There’s an unparalleled sense of energy that comes from dropping a group smart and ambitious students from multidisciplinary backgrounds into the same physical space. It’s not a coincidence that so many companies are founded on university campuses.
4. A strong and diverse network. It’s impossible to overstate the importance of a strong network in business, and universities provide a unique channel to connect with fellow students and alumni to build a network.
5. A credential. Achieving a degree from a university means that with some probability, the credential holder can work hard, is intellectually curious, can work in a team, and has achieved at least a base level of the kind of broad/deep knowledge mentioned above.

At best, current university competitors are offering bits of #1 (focused on practical knowledge, not theory) and a less valuable version of #5. That doesn’t mean that those competitors won’t ultimately be successful in disrupting universities over the long term. Lambda School is currently following Clayton Christensen’s disruption theory formula by serving customers at the low end of the market (students that don’t want to pay up front for tuition, so universities don’t want them) in a way that is “good enough”. But the combination of technical differentiation through software distribution and business model innovation through different payment models won’t be enough for those companies to go upstream into the broader market until they start thinking about the value proposition of universities more broadly and looking for creative ways to deliver on #1-5 above.

As a fan of both universities and Lambda School, I hope this happens because competition will ultimately result in a better product. We should all be cheering for innovation that increases access to education and levels the playing field for students. But the people that are proclaiming that universities are dead have jumped the gun.