Online Education Essay

nline education has been a remark- able development in higher edu-

cation. The connectivity of the Internet and the concept of distance education is a natural combination. However, noth- ing before has been so controversial and at the same time widespread and quickly driven by rapid investment and expanding program offerings. Despite lingering controversies regarding qual- ity and costs, the technology is now deeply integrated in higher education, and the basic process of online deliv- ery has already become an ubiquitous feature of most universities (Survey of Higher Education, 2005). Millions of students are now taking courses via dis- tance education, mostly online (Carlson, 2004; Carnevale, 2005).

Nevertheless, some schools’ adminis- trators discovered that online programs were more costly than had they expected, and so they retrenched. The online quest of Columbia University closed after 2.5 years, whereas Caliber, the online part- ner of the Wharton School, filed for bankruptcy. Many major schools such as Temple University and New York University discontinued their online programs (e.g., Virtual Temple, NYU Online; Kyle & Festervand, 2005). How- ever, at the same time, several nonrank- ing universities have leaped ahead with rapidly growing enrollments in their escalating and profitable online degree programs. One of the most amazing

examples is the for-profit Apollo Group, which owns several for-profit schools, including the University of Phoenix. The for-profit University of Phoenix is now the largest university in Amer- ica, with an enrollment of more than 300,000 students. Moreover, this for- profit university is expanding globally: in Mexico, Canada, Puerto Rico, China, and India (Survey of Higher Education, 2005). The question is: Why do some institutions find online programs to be less profitable, whereas other institu- tions discover online programs to be highly profitable?

An analytical inquiry using economic theory and a small set of experimental data can answer the question of cost comparability. For example, the Copen- hagen Business School’s experiments (Pettersson & Heede, 2000) provide evidence from which researchers can draw compelling general conclusions. We also present our recent survey of online business degree programs. The survey explains the behavior and quality of competing institutions. The answers become clear as we examine the eco- nomics of opportunity costs, economies of scale, quality considerations, and marginal costs.

Distinguishing Characteristics

Online courses are essentially distance education because the students are phys- ically separated from each other and the

Investigation of Higher Education: The Real Costs and Quality of Online Programs DAVID E. SMITH DARRYL J. MITRY NATIONAL UNIVERSITY LA JOLLA, CALIFORNIA

OABSTRACT. In this article, the authors describe an analytical inquiry into the cost and quality issues of online pedagogy

in university education. Using economic

theory, pedagogical insight, survey find-

ings, experiments, and other studies that

researchers have reported in the literature,

the authors address these issues, identify

answers, and present findings, implications,

and recommendations. The authors con-

clude that educators and students will not

realize the true potential of e-learning until

the administrators of all universities adhere

to the higher academic standard of full-time

faculty expertise.

Keywords: costs, online courses, quality

Copyright © 2008 Heldref Publications

January/February 2008 147

148 Journal of Education for Business

professor. Distance education degree- granting programs are not a new phe- nomenon (Huntley & Mather, 1999). The disadvantage of these pedagogical alter- natives relative to traditional classroom- based education has always been that learning associated with self-study lacks any extensive dialogue with the expert faculty (Perelman, 1992). How- ever, the interconnectivity of the Inter- net does provide opportunity for exten- sive dialogue, whether synchronous or asynchronous.

During the past few years, many researchers have made great promises about reshaping education through the Internet. Nevertheless, the truth is that many online programs do not use the intrinsic potential for real interactivity (Young, 1998). Essentially, the major missing ingredient is usually meaningful dialogue and deliberation with appro- priately credentialed faculty members. Therefore, many online courses are no more than a simple computerization of the correspondence course (Hjortkjær, 1998). Although the use of virtual facili- ties such as chat rooms and downloadable overhead presentations with speak pro- grams has become widespread (Carlson, 2004; Huntley & Mather, 1999), they are still inadequate substitutes for high-level cognitive interactivity (Drucker, 2000; Duus & Nielsen, 1999; Pettersson & Heede, 2000).

Analysis of a European Business School

The Copenhagen Business School (CBS) in Denmark took an early leader- ship role in technology-assisted learn- ing experiments (Smith, 1995). The fac- ulty conducted an extensive review of pedagogy before initiating their online experiments and developing their online programs. They recognized that the Internet provided opportunities and chal- lenges to the traditional learning format (Duus, 1996). CBS established carefully planned online-learning studies (Duus & Nielsen, 1999). In the present article, we present some important results from our research and survey of online learn- ing. The students who enrolled in online courses and in on-ground classrooms were analyzed. Variables that we col- lected included gender, ethnicity, age, grades, and academic background. A

profile of the students showed that the online students were homogeneous with the general student population. During the experiments, Duus and Nielsen kept the same curriculum and faculty mem- bers as in traditional courses to ensure consistent comparability of online cours- es with on-ground classroom courses. Academic rigor was further scrutinized and maintained by the additional moni- toring of a CBS faculty academic study board. The same full-time faculty mem- bers who were responsible for the on- ground courses developed and taught the online courses.

In measuring and comparing the out- comes of the e-learning and the tradi- tional learning experiences, Duus and Nielsen (1999) based course compari- sons on identical learning goals, con- tent, and curriculum. Table 1 shows a comparison of academic outcomes for the online and traditional on-ground courses. Duus and Nielsen found no significant differences in outcomes between classroom and online learn- ers (p < .05) with this equal-standards pedagogical model.

Essentially, this finding is the same as from numerous U.S. university studies (Merisotis & Phillips, 1999). However, Duus and Nielsen (1999) controlled for variables very carefully and were more thorough than most other studies. These findings are particularly impor- tant because the meticulous attention to detail in the CBS studies left little room for doubt about the findings. Although this e-learning approach is not an exact replication of the dialogue-based semi- nars in the traditional classroom setting, it is a close approximation. By using this equivalent approach, it is possible to raise the quality of online education to a level at which it equals the standards

of seminar-type classroom pedagogy. However, this is possible only by main- taining the intensive faculty-student interaction based on problem-solving and applications-oriented assignments.

Comparative Costs

This equal-quality-conscious approach to online learning, which has identical academic standards and a high level of interactivity, requires a similar invest- ment in faculty time and support in com- parison to equal-sized on-ground class- rooms. However, analysis of the cost of operating the program reveals that it is more expensive in comparison to larger classrooms on-ground, as researchers would expect. This finding agrees with what other academicians believed to be the case: Equal-quality online programs will never be as cost effective as large classrooms (Navarro, 1998). This is true because the per capita cost of providing online learning, where class sizes are necessarily limited to a smaller number of students, is substantially higher than providing on-ground classrooms with larger class sizes. For universities, the fixed cost of classrooms is not a consider- ation in the comparison of online classes versus on-ground classes. The buildings have previously been amortized. What remains are the variable costs of instruc- tion of which the primary expense is faculty compensation. Furthermore, no significant economies of scale exist for online programs because the major cost is not infrastructure but the variable cost of the hours spent by faculty members.

The primary factor in online programs is the expert faculty time per student, which translates into faculty salaries. A previous report of six studies commis- sioned by the Alfred P. Sloan Founda- tion found similar empirical findings

TABLE 1. Comparison of Not-For-Profit and For-Profit Schools of Business Offering Online Education

Variable Not-for-profit schools (%) For-profit schools (%)

AACSB accreditation 53 0 Residency requirement 23 0 Latest technology 63 30

Note. AACSB = Association to Advance Collegiate Schools of Business International.

January/February 2008 149

(Carr, 2001). It should not be surprising that the single largest cost component for online programs is faculty salaries. Therefore, in the scope of a quality- conscious educational system, expense comparisons will always show that the equal-quality online approach is more expensive if the student-to-faculty ratio is smaller for online programs (all other things being equal). A faculty confer- ence at the University of Illinois made similar conclusions (Young, 2000). According to Young, “good teaching is possible online only by lowering student- to-instructor ratios and taking other steps to counteract the disadvantages of teaching at a distance” (p. A48).

We find that the answer to the question of comparative costs between on-ground and online delivery is straightforward. With equal quality in all academic stan- dards, including equal quality of fac- ulty credentials, the comparative costs between on-ground and online delivery will be approximately the same between same-size enrollments, but the costs of small classrooms will be higher in com- parison to those of large classrooms because the per capita variable costs are lower in large classrooms. This finding is because the largest costs are for the academic expertise—the appropriately credentialed faculty—which must be the same for either online or on-ground programs to claim real equivalency, but the potential for a quality faculty-to- student ratio is limited by the online environment (Perreault, Waldman, & Zhao, 2002). Therefore, there are no significant economies of scale in equal- quality online academic programs.

Economies of scale would exist if educators could somehow distribute the instructor’s expertise and interactivity over a much larger number of students. However, serious reflection would indi- cate that the assumption that one can somehow develop economies by record- ing the faculty expertise for mass dis- tribution is illogical. Such an assertion requires that the on-ground classroom could also be recorded and be equiva- lent to live classrooms, by all standards. Would the on-ground student’s contact with faculty be limited to prerecord- ed content? Is prerecorded, text-based learning equivalent to a live faculty content expert being readily available?

The answer is no. If it were otherwise true, then any sort of text-based cor- respondence format would satisfy, and we would be back to the correspon- dence experience of the early 1900s. Is an audio track or a recorded videotape equivalent to communicating with a real live professor? If that were the case, then equivalency could be claimed for solely video courses on ground as well, and this idea has proved untrue. Previ- ous pedagogical research has supported the possibility that learning and student satisfaction are always positively cor- related with the extent and the quality of the dialogue (Bloom, 1956; Specht, 1985). The major input responsible for the learning output of the educational process is the living faculty. Indeed, fac- ulties are the primary resource (Bocchi, Eastman, & Swift, 2004).

Sufficient evidence is available to con- clude that equivalency is possible, but the per-student outcome is constrained by the faculty-student ratio for real equivalency in online education (Bocchi, Eastman, & Swift, 2004). There should no longer be controversy on these issues of equiva- lency or costs. However, the academic community still needs to address some important issues.

Profits at the Expense of Quality

Educators can lower costs, but only by lowering the quality of the primary resource, thereby reducing the variable expense. If all teaching faculty mem- bers have earned doctoral degrees from ranking universities—not lesser degrees from nonacademic universities or cred- its from the workplace—then costs may appear higher for online programs ver- sus on-ground programs. Currently, the general landscape of online degree pro- grams is littered with deceptive prac- tices. For example, one may assume that a highly reputable faculty member, a recognized expert in his or her field, is capable of designing the initial tex- tual online course content. However, the issue then becomes a question of who interacts with the students. Does the online instructor need to have this same expertise of academic equivalency? If not, then the institution can hire lower cost labor (e.g., adjunct instructors, facilitators) to assist in the online cours- es. By significantly limiting the involve-

ment of the original content expert or equivalently credentialed instructors, the program administrators can easily reduce the cost by hiring less quali- fied facilitators. These facilitators or instructors would rarely be considered for full-time faculty positions at schools of quality and would certainly not be considered for tenure-track positions. Currently, the lower cost of delivery is accomplished by hiring fewer full-time faculty members with terminal degrees from ranking universities and replac- ing them with less qualified part-time facilitators with inferior or question- able credentials. Unfortunately, this is happening on a large scale at many schools that are enjoying large profits from online degree programs.

At first glance, the situation with this substitution of less qualified instructors might appear similar to the situation of a large lecture-hall classroom, where stu- dents can listen to a faculty member’s lecture, but hold discussions or interact only with doctoral students acting as teaching assistants. However, there are real quality differences between the on- ground doctoral-student teaching assis- tants and many of the current online facilitators. A facilitator with only a master’s degree is not the same as a better trained, research-oriented doctoral candidate. Furthermore, in the traditional classroom environment—regardless of whether it is large or small—a professor is available and has the academic freedom to change his or her presentation and the communication with the students, imme- diately and continually, because it is not recorded and it is interactive in real time. Moreover, this freedom is exercised with the faculty member’s judgment, as the student-professor interaction dictates. Such flexibility and academic freedom for immediate judgment is not possible in a recorded online distance-education format, especially when the instructors are not authorized to make changes and when only the course developers are authorized to do so.

Fundamental Economic Considerations

For existing brick-and-mortar univer- sities, if the classroom buildings are fully amortized, a similar average cost per student up to the limit imposed by

150 Journal of Education for Business

quality considerations may be achieved on the basis of comparisons of small classes of equal sizes. This process requires a straightforward microeco- nomic analysis. However, because we have determined that no economies of scale are possible in online programs, the only advantage of online learn- ing becomes the ability to reach more students in diverse locations and cir- cumstances. Therefore, from a mac- roeconomic standpoint, another set of variables must also receive appropriate attention: the full cost and benefits to society. Researchers have not consid- ered the full cost to society in previous analyses. The full cost of educational programs must take into account not only the cost to the institution, but also the opportunity costs of the students and those of potential public sponsors (Green & Baer, 2001). For example, economic theory suggests that in devel- oping countries, such a cost-benefit relation would reveal opportunities for online programs, because the Internet- based programs can reach potential stu- dents over vast distances and in very remote locations where deployment of conventional resources (classrooms and faculty accommodation) would be expen- sive. Here again, straightforward econom- ic theory answers the question a priori.

Therefore, very small online classes may actually be socially cost effective in certain regional areas, especially in developing countries. For example, the Virtual University of Monterrey, Mex- ico, successfully uses the Internet and telecommunications to reach students in diverse locations (Tecnológico de Mon- terrey, 2007). Nonetheless, although the social cost-benefit model supports the use of online programs in these areas, it does not guarantee that the private mar- ket oriented for-profit institutions will serve them. Because, in this case, social benefits are in the equation, such justifi- able programs will still require public underwriting if real quality equivalence of academics is maintained, all other things being equal.

Survey of Online Universities

When we examine the data, it is understandable that some institutions find the online programs unprofitable, whereas other institutions find them

highly profitable. We surveyed 40 online schools with the largest enroll- ments and found that the schools offer- ing online degree programs fell into two distinct categories: not-for-profit and for-profit. Researchers and educators can easily see which type has the most decisive quality factors. The data in Table 1 show the percentage of schools with accreditation from the Associa- tion to Advance Collegiate Schools of Business International (AACSB), the number of schools with a residency requirement, and those using the high- est level of technology, respectively.

AACSB accreditation requires that full-time faculty members have terminal degrees. This feature is one of the impor- tant factors distinguishing between busi- ness schools. Institutions that operate by hiring mostly part-time instructors and facilitators cannot receive AACSB accreditation. It should be noted that none of the for-profit schools were AACSB accredited.

A part-time residency requirement, even of short duration, is also an indi- cation of quality program standards. At the least, with some sort of residency, the schools can know that the online student is most probably the same per- son being examined and graded. In all, 23% of not-for-profit schools had residency requirements, but none of the for-profit schools had residency requirements. This is understandable because any amount of residency requirement increases costs. Operat- ing with a higher level of technology may also indicate a commitment to quality standards. A larger percent- age of the not-for-profit schools used the latest technology in comparison to the for-profit schools. Of course, the single most important factor is the credentialed teaching faculty. The not- for-profit schools published catalogues and other materials identifying all their faculty members and their credentials. However, none of the for-profit schools either listed their faculty members or explicitly identified the credentials of instructors or facilitators. A definitive quality investigation of the compara- bility of credentials is not possible, but the absence of faculty identification is a clear indication of the lower quality of for-profit online institutions.

Conclusions and Recommendations

Educators and researchers have answered the question of whether there is a difference between online and on-ground learning in different ways. If the aca- demic credentials and rigor of the online teaching faculty are lower than those of the on-ground teaching faculty, the levels of quality of the educational expe- riences will differ. Unfortunately, there is no national or international faculty- regulating authority for all institutions and their degrees. Some of the various regional accrediting organizations are lax on standards when considering online schools, particularly with respect to fac- ulty credentials and consequent compa- rable remuneration. In online education, many of the accrediting bodies are self- serving groups sponsored by for-profit online schools.

Economists know that the market mechanism is a remarkable process and that given seller competition and buy- er’s knowledge, it will ultimately result in the most efficient outcome. However, the caveat is buyer’s knowledge. If the buyer is not fully informed, then the seller can fool the buyer into purchasing an inferior product or service. Faculties of legitimate institutions everywhere must immediately take command and provide intelligent leadership for the public. They cannot afford to allow the greed of corporate management and the one-dimensional assessment movement to depreciate the full value of the aca- demic process. Furthermore, only the full-time faculty can stop avarice dis- guised as better, cost-effective practic- es. If faculties, independently and col- lectively, do not stand against avarice, then ultimately all faculty members will become interchangeable employees of enterprise. If faculties do not fight to maintain academic-quality standards, then most higher education will con- tinue to suffer significant decline over time. Already, part-time adjunct instruc- tors with lower credentials are being used to artificially increase the supply of teaching faculty to lower institutional costs. We advise the faculty members to begin reasserting authority over issues of quality and costs. Certainly, these issues cannot be left either to adminis-

January/February 2008 151

trative staffs or to executives of for-profit corporations. Both theory and empiri- cal evidence show that the pecuniary interests of commercial institutions and some not-for-profit administrations try to disguise and sell an inferior product in a mass market to maximize apparent competitiveness and net revenues. If such organizations remain unrestrained, it will be to their economic advantage to dilute the value of the faculty expert and to increase the class size, under the claim of equivalency. This is tak- ing place because faculties have relin- quished their rightful academic author- ity. Online delivery of higher education is here to stay (Carnevale, 2000, 2005). It is a useful mechanism for delivering quality higher education, but the acad- emy needs to better inform the public of the quality differences in online pro- grams. Furthermore, the academy needs to promote the honest recognition of its credentials. Whenever fellow faculty members create new pedagogies whose uses of capital-intensive resources appear to have a bigger market potential, all faculty members must ensure that the creation is not used to depreciate the scholarly process and inhibit academic value. The banner of academic freedom remains fragile and can be guarded only by scholars themselves.

Some corporations operating for- profit firms, under the guise of universi- ties, are currently causing havoc among the poorly informed public. Most of these companies have online degree courses that are taught exclusively by adjunct part-time instructors who frequently have not earned terminal degrees from reputable, highly accredited universities in the fields they teach. The latest ter- minology used by the for-profit schools refers to the teaching faculty as facilita- tors or instructors. Consequently, with few exceptions, most of these facilita- tors come from a pool of underem- ployed quasi-academics or moonlight- ing corporate employees. Accordingly, they are paid for piecework at a low rate of compensation. The usual claim made by the for-profit purveyors of online degrees is that their courses are bet- ter because they are taught by practic- ing professionals who work full-time in the field they teach. The sales promo- tion strategy used by these firms is that

the students are more likely to acquire the latest knowledge and skills from people directly employed in corporate positions. Unfortunately, this specious argument has been allowed to continue unabated. It is championed on the Web sites and in the marketing brochures of these institutions. This bogus claim is at the root of a multibillion dollar scam and has succeeded in selling to millions of customers and thereby flooding the workforce with questionable degrees. Such degrees certify adulterated knowl- edge at best. This has been the real social cost of online education over the past 10 years. Students graduating from these colleges believe that they received a good education because they enjoyed the experience and learned something. These former students do not realize that they could have learned more if they had been exposed to higher aca- demic standards and full-time faculty with real credentials and qualifications.

Most legitimate institutions with truly equal-quality online programs have not proclaimed their academic superiority and have not distanced themselves from general online vendors. Even a casual review of current marketing materials of legitimate academic institutions illus- trates how not-for-profit universities have tried to compete with the for-profit schools by using much of the same word- ing. Unfortunately, this often includes such pronouncements as that their instructors are better qualified because they come from real-world working environments, potentially leading to the misinterpretation that their instruc- tors are part-time academics working for lower compensation than those who have earned legitimate credentials. To successfully respond to the competition, legitimate universities need to inform potential consumers of the deceptive practices and misleading claims of their competitors and thereby appro- priately distinguish the equal-quality product in the competitive marketplace. The genuine institutions of higher edu- cation have not publicly denounced the purveyors of watered-down online degrees by clearly stating the coun- terargument of higher academic stan- dards. Indeed, a few of the otherwise reputable universities have unwittingly abandoned their standards for online

programs, whose standards of quality are not the same as those for their on- ground programs. This circumstance is evident when courses are taught by less qualified instructors. For true equiva- lency to exist, the individuals hired for teaching online courses must have the same expertise and academic legitimacy as the on-ground full-time faculty, and anything less is a deceptive means to lower cost to increase net revenue.

The e-learning approach has devel- oped as a powerful alternative for fac- ulty to lead academic studies, but its true potential may not be realized until the administrators of all universities are forced to require their online faculty to meet the academic standards of the full- time faculty (Carnevale, 2001). Perhaps in the future, computer-based artificial intelligence will become a reality that will surpass great minds. Until then— regardless of whether it is asynchro- nous or synchronous—online distance education will require professors with legitimate credentials. In the meantime, the uninformed public is purchasing millions of inferior educational experi- ences from purveyors of degrees that are based solely on the Internet. These vendors are artificially lowering costs, thereby substantially increasing profits, by using low-paid online instructors or facilitators to dialogue with students, instead of having tenured and creden- tialed faculty.

Faculty members may ask three questions:

1. How do faculty members identify degree programs that are cost effective when offered online? The answer comes from the circumstance that many of the current on-ground programs do not use huge lecture-hall classes, but have small class sizes, and consequently, these are the programs that can be cost-effective in online formats.

2. How do faculty members stand up to their university’s top management and stop the process of watering down standards in online programs? Faculty members must refuse to assign courses to instructors who have substandard credentials. Full-time faculty members must refuse to allow exploitative part- time pay scales. For a course of action, we suggest that individual faculty mem-

152 Journal of Education for Business

bers demand that the issue be addressed within their faculty senate and other collective faculty bodies of authority.

3. How can a quality, not-for-profit university compete against a for-profit university that operates with low-cost, substandard, part-time instructors? Again, we suggest that the faculty members take the lead by informing the administration about the opportunity for valuable counter- marketing campaigns. Students enroll in university programs to earn degrees that will have currency in the marketplace. If the public is given the real information regarding price and quality, they will make appropriately rational decisions. Likewise, the managements of employ- ing organizations do not wish to hire people who have obtained substandard educations and meaningless diplomas. Therefore, the best way for quality-con- scious universities to compete is to iden- tify the credentials of all their online professors and clearly distinguish their authentic standards of quality. Over time, this method will result in significantly increasing online enrollments in quality- conscious universities and decreasing enrollments in the programs of exploit- ative profiteers.

The technology of online learning has matured. Online higher education can be offered in the form of an equal-quality and equal-standard learning experi- ence and can be an economically viable option for many colleges and universi- ties. However, the genuine academic institutions must distinguish their prod- uct from that of the profiteers by candid marketing that counters the profiteers’ deceptive marketing. By using the strat- egy of differentiation, the genuine aca- demic institutions can not only maintain

their rigorous academic standards but also successfully market their product in a globally competitive environment. However, the current direction is toward depreciation of faculty and lower aca- demic standards. If faculty members everywhere do not assert their claim to the real quality standards and simulta- neously show their administrations how to properly compete and prosper, the public and the scholars will both lose.

NOTES

Dr. David E. Smith’s research interest is inter- national marketing.

Dr. Darryl J. Mitry’s research interest is inter- national economic development.

Correspondence concerning this article should be addressed to Dr. David E. Smith, National University, 3390 Harbor Blvd, Costa Mesa, CA 92626.

E-mail: [email protected]

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