There will always be many families that want their children to have the campus experience. For them, the total costs beyond tuition, such as room, board, and transportation, are more than worth the price. When I meet parents after graduation, their words clearly express their satisfaction with sending their child to our university for four years of education. I love working with our students in a traditional college setting, so I am grateful that so many see value in what we offer their children.
For a growing number of other families and for many adult learners, online education offers an alternative that provides a different bundle of features that meet what they want from a university education.
Education is not a homogeneous market.
What is interesting to me is that the tuition charged both on campus and online is about the same for most universities.
In a recent article at Forbes.com, Derek Newton explained his theory on why online courses cost as much as on-campus courses offered by the same university. Newton explained that colleges must charge about the same for online courses due to the high up-front cost of a digital class and the hidden on-going costs to support online education. However, markets don’t give a flip about how much something costs – they only care about what it is worth.
So why are consumers willing to pay the same price (or even slightly more) for an online course?
Actual Cost for Campus Education
As any parent putting kids through college will tell you, tuition is only part of the cost. When our kids went to college, we received a huge tuition break for our son and our daughter got a full athletic scholarship. People would say, “You’re lucky! Your kids got to go to college for free.”
While it was a huge blessing to have their tuition covered, we still were writing a lot of checks to support our kids’ college education.
Tuition is only about half to two-thirds of the total cost of traditional higher education. The other costs include housing, food, transportation, textbooks, and other costs associated with a student moving away to attend school.
So, if Johnny or Jane can get an online degree from a school for one-third to one-half less the total cost paid for an on-campus degree, the tradeoffs of having them stay at home to get their degree are worth it to some families.
Certainly, students can live at home and take classes at a local school, such as a community college. Due to the explosion of online learning, they can now choose to live at home and get a degree from a major national university (schools like Penn State, Arizona State, Boston University, Virginia Tech, and the University of Wisconsin all have extensive online offerings). For some segment of the market seeking education, this offers a huge convenience factor that has real value for them.
For those seeking graduate degrees, the convenience of an online degree offsets the live interaction from an on-campus program. The graduate student can seek a degree without having to relocate and possibly without having to give up their job. For example, people seeking doctoral degrees can choose from some of the most elite graduate business schools. A growing number of major, nationally ranked universities now offer online studies as an option for seeking a PhD. These schools offer the same degrees taught by the same faculty through their online programs. Graduate degrees from these schools can be pursued from people’s desk at work and from their living room couches at home.
Power of Pricing
In my opinion, universities would be foolish to offer degrees for less online than the tuition they charge on campus. By pricing it the same, consumers perceive that it must be the same quality. Pricing is a powerful communicator of quality for service-based products, such as education. If they offered an online course for less, it would be perceived by many consumers as being inferior to an on-campus course. Pricing it lower would undermine the message that universities are trying to communicate to their customers – “our online programs are every bit as good as the same class taken on campus.” Those seeking high quality education see the value in this message.
The Real Business Model
Although Newton was correct when laying out the costs of online courses, that is not why the price is the same. Pricing is all about marketing strategy. The price is as high as it is for online courses because they offer a specific target market what they want – a cost-effective, convenient, high-quality option for seeking a university degree.