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Higher Education Industry Outlook

February 10, 2018

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Post-secondary education is one of the largest markets in the US, representing $590 Billion of the $1.4 Trillion education market. The market can be broken down into these categories[1]:
- Bachelor's Education: $432B
- Graduate Education: $60B
- Continuing Education: $50B
  (associates, vocational certificate, bootcamps)


The post-secondary market can be further segmented into traditional and non-traditional learners[2][3][4]:

Traditional (under 25)                         Non-traditional (25 and older)
Bachelor's 66% 34%
Make School 82% 18%
Graduate 23% 77%
Associate's 53% 47%
Vocational Certificate                 45% 55%
Bootcamps 5% 95%


The post-secondary market can also be segmented into in person or distance learning students[5]:

Social (offline) Distance (online)
Bachelor's 93% (97% of traditional students)         7%
Make School 100% 0%
Graduate 75% 25%
Associate's 96% 4%
Vocational Certificate                 97% 3%
Bootcamps 91% 9%


Although additional segmentations exist, these segmentations provide context for the narrative on how the landscape will shift over the next decade.

Given the various learner demographics (age), preferences (online vs offline), and goals (white collar vs blue collar jobs), there is no one-size fits all solution to post-secondary education. The education market is inherently fragmented, but given the total market size there is opportunity to build large companies within each segment[6].


Graduate education trends - $60B market

Graduate education either serves to upskill (creating upward mobility within a career) or reskill (pivoting careers altogether. We predict different trends for each segment.

Upskilling trend: pursuing degrees while employed
Given the importance of career velocity in modern economy sectors, it is challenging for workers to pause their trajectories to return to school. The rising cost of graduate education plus the opportunity cost of not earning also acts as a barrier for students.

Both workers and employers are increasingly interested in upskilling due to a rapidly changing economy. Graduate programs will adapt to their needs. Online part-time programs like University of Illinois MCS-DS7 offer a great way for workers to upskill at their own pace without exiting the workforce. We'll also see a trend of employers bearing partial or full cost of these programs in an effort to retain and develop talent.

This trend may not impact graduate programs in fields like medicine or law which require more compulsory schooling. Instead these fields will look to streamline joint BA/graduate programs and rely more heavily on apprenticeships.

Reskilling trend: shorter master's programs and vocational bootcamps
Depending on the field (and ability to prove work through a portfolio), the importance of a master's degree to change careers will vary. In fields like entrepreneurship and software development we are seeing alternatives to master's programs emerge. Attending Y Combinator is seen as more valuable than an MBA for entrepreneurs, and coding bootcamps offer a streamlined way to enter the software industry. In fields where the degree will continue to matter, schools will look to streamline master's programs or create blended online/offline hybrid programs to reduce the time workers spend outside of the workforce.


Continuing education trends - $50B market

Continuing education also addresses both upskilling and reskilling for workers, usually with more flexible programs, shorter term education and lighter credentialing.

Upskilling trend: rise in lifelong learning
In the past century, education spending has been concentrated on compulsory education (K-12 and undergraduate education). People spend 2 decades learning before 4 decades working. This model worked well when industries were more stable (jobs required less skills shift) and worker loyalty was stronger (companies had stronger ROI on investing in workforce development).

We are seeing a rise in lifelong learning to help workers maintain relevance through industry shifts[8]. Examples include General Assembly, AltMBA, and Guild Education. Some models have workers paying for the education, while others look to companies to pay for it as a benefit. We'll see spending across both models increase, with potential to substantially expand the size of the post-secondary market.

The rise of lifelong learning is unlikely to replace the need for bachelor's degrees. However, it may drive a shift to streamline bachelor's programs into shorter programs supplemented with part-time online coursework students complete while working. This would reduce the amount of time students spend in high touch compulsory education environments and enable them to enter the workforce earlier. Bachelor's institutions could also offer part-time online continuing education to their alumni to help them upskill throughout their careers.

Reskilling trend: de-stigmatization of vocational schools
Since the Higher Education Act of 1965 both politicians and mainstream culture in the US has pushed students towards bachelor's programs and created a negative stigma against vocational education[9]. Given the 43% underemployment of recent college graduates[10], it is evident that bachelor's programs in their current format are not suitable to adequately prepare students for careers. As public rhetoric questioning the value and ROI of college increases, we will see a shift towards vocational and apprenticeship education across all segments of the industry. This trend will be most prominent within continuing education for both traditional and non-traditional students who are unable to pursue a bachelor's education.

Industry focus, especially in the private sector, will shift from inputs (enrollments) to outputs (career placement) as consumers demand increased transparency on outcomes and ROI. Innovative financing models such as Climb Credit[11] are helping drive this resurgence by holding schools accountable for their outcomes through risk sharing on student debt.

Within the computing sector, we have seen the introduction of short term (3-6mo) and long term (1-2yr) coding, data science, or data analytics bootcamps targeted at adult learners. Examples include General Assembly, Hack Reactor, Learner's Guild, Holberton School and MissionU. Although some of these bill themselves as college alternatives, their demographics and program structure paint a more accurate picture. 95% of coding bootcamp attendees are non-traditional learners, with 75% already possessing bachelor's degrees[3]. The education serves to supplement or capstone traditional education with vocational skills rather than providing the liberal arts and soft skills education or student support services required for traditional learners. These programs offer incredible opportunities for adult learners looking to reskill with the computing knowledge relevant to the 21st century economy.

A longer term risk with vocational certificate education is the impending trend of automation replacing labor economy jobs and low skill knowledge economy jobs. We do not have high confidence predictions as to how substantial this risk is, or whether new jobs will be created to support automation driving demand for vocational certificate programs.

Bootcamp shutdowns
Despite providing immense value for most graduates (measured by a $24k average salary lift[3]), the private sector has seen large scale bootcamp shutdowns in the past year. These shutdowns do not reflect on the viability of the broader bootcamp industry, but do reflect on the market dynamics within the industry. Given their short nature, it has proven easy for new bootcamps to compete even with high performing incumbents. Hack Reactor, App Academy, and Makersquare were all founded by graduates of the first class of Dev Bootcamp, and more than 100 bootcamps have been founded in the past 6 years.

Defensibility at scale has proven to be a challenge, as curriculum has been commoditized, credentials are self endorsed certificates, and brands have not been portable to new markets. In secondary markets, students have shown affinity to local brands rather than national ones. Given the challenges with defensibility and geographical scale, cost of acquisition has proved an insurmountable hurdle for any single provider to reach high scale (we experienced this first hand with our summer program). Given the mechanics of the market, scale has often come at the cost of outcomes and profitability. It is to be seen whether a breakout brand will emerge (or force consolidation) in the highly competitive market.


Bachelor's education trends - $432B market

Shift towards computing
This market is shifting away from pure liberal arts towards a blend of liberal arts, soft skills, and computing skills. This shift is most visible at top universities, where 20-40% of students are majoring in computer science[12], even more minor in computer science, and nearly all students take at least one computing course. Below the top tier, statistics are held lower by the inability of schools without strong brands to attract computer science PhDs to teach courses or the unwillingness to shift resources towards computer science departments. Even at a school like UC Berkeley, students without prior programming experience frequently are not accepted into the computer science major[13]. At Columbia, it is rumored the administration believes computer science to be a fad that will soon be over.

With notable exceptions of MIT and Stanford, traditional universities have struggled to meet demand for computer science due to inability to hire sufficiently credentialed faculty along with internal resistance to reallocation of resources. Given the longstanding structures and requirements of these institutions, it is unlikely for them to overcome these challenges within the next decade. In the short term, universities have looked to for-profit providers to offer practical computing courses to their students. Make School powered the first iOS development courses at MIT, Carnegie Mellon, and UC Berkeley (3 of the top 4 ranked CS schools), while General Assembly and Trilogy Education have developed business lines around running bootcamps at universities[14]. However, tacking on a handful of computing courses feels to be a band-aid solution which will delay but not eliminate the need for deeper restructuring and redesign of degree programs to better prepare students for the 21st century economy.

Given the challenges preventing universities from adapting, there is opportunity for an innovative disruptor centered around computing taught through modern pedagogy to join the ranks of Stanford and MIT as an elite technology and entrepreneurship focused institution.

Severe financial challenges
In addition to traditional universities struggling to modernize curriculum, most are also struggling to manage their finances. Moody's (a corporate credit rating agency) found that expenses are outpacing revenues at 60% of schools it tracks. Many analysts, including Clayton Christensen, expect a wave of bankruptcies across the industry in the next two decades[15]. This supports our belief that timing is right for a new model of bachelor's granting education with potential to capture a sizable share of the overall market.

Social learning remains preferred for traditional learners
Despite 2 decades having passed since the first online degree program was offered, only 3% of bachelor's seeking traditional students pursue online degrees. In contrast, 25% of graduate degree seekers choose to learn online. It is increasingly clear that the core college demographic prefers social learning over distance learning.

For these learners, college is not just about courses, but about the peer and mentor networks available to them on physical campuses. Students build lifelong friendships and often meet their spouses during college. Students prefer to learn alongside others, and find value in the non-academic lessons around independence, time management, and organization that comes from going away to college. Progressive universities are improving student learning and outcomes by implementing strong coaching, advising, and mentorship programs along with smaller class sizes to enable modern discussion based and collaborative pedagogy. These practices have been especially beneficial to students who lack strong K-12 education, and parallel professional development best practices found within modern people centric organizations.

Streamlined bachelor's degrees and new models of accreditation
Given traditional students' strong preference for social learning, we expect cost savings for price sensitive students to come from streamlined or blended bachelor's programs rather than fully online or peer-learning models. Although only 3% of bachelor's seeking traditional students take fully online degrees, over 25% are taking at least one course online[5]. Streamlined bachelor's programs with a focus on professional education can enable students to enter the workforce and start earning earlier while finishing their degree through part time online courses. In the longer term, we'll see a shift towards a model where students spend 2-3 years on campus, supplemented by 1-2 years of online degree completion, followed by online upskilling courses provided by a combination of their alma mater and employer.

As new models of education for bachelor's seeking students emerge, it is worth considering whether the degree itself is becoming increasingly irrelevant. Based on our experiences with this demographic over the past 6 years, we have not seen the dramatic shift away from bachelor's granting institutions that many expected. Industry perception of degree value has slowly shifted, but student perception (and perhaps more importantly, parent perception) has remained largely unchanged, especially with high achieving students. Given the rise in alternative for-profit post-secondary education providers, the need for consumer protection and a gold standard for institutions is perhaps more relevant than ever.

We don't expect demand for degrees to subside, but we have begun to see a marked shift in accreditors' willingness to embrace new models of education and new standards of accreditation. This shift is likely due to increasing pressure from both consumers and the government to fix what is widely considered a broken system. WASC's accreditation of Minerva and (soon) Make School, both with radically different learning models than traditional institutions, will accelerate introduction of new accreditation standards across the industry and usher in an unprecedented era of innovation within higher ed.

Two new accreditation concepts we expect to see are competency based accreditation (with a focus on measuring educational outcomes rather than classroom time) and industry endorsed micro-credentials earned through shorter courses (such as bootcamps) that could transfer into credits at bachelor's granting institutions.

Challenges with for-profit universities
In recent years, for-profit universities have struggled to maintain enrollments. This is due to misplaced focus on inputs (marketing and admissions spend to drive enrollments) rather than outputs (ensuring learning and career objectives are met). These priorities proved to be short sighted, optimizing for near term profits rather than building lasting sustainable brands. Well deserved backlash against for-profits from both media and government has dramatically changed the business climate around post-secondary education.

We expect to see a resurgence in for-profit higher ed built on the customer centric DNA of modern technology companies. Transparency of outcomes and financial accountability (through Income Share Agreements or risk sharing of student loans) will be essential in shifting public opinion and building lasting brands. This new model of for-profit higher ed will also drive increased accountability and transparency through the non-profit sector.

Make School and the Product University
Supported by the vision of Dr. Mary Marcy (president of Dominican University[16]) we are establishing a new category of higher education, coined the Product University. Our professional bachelor's program - blending the best of liberal arts, soft skills, and industry relevant computing education - stands in contrast to the academic focused curriculum of traditional research universities. Our education is powered by Income Share Agreements and our admissions do not consider SAT scores or GPA to ensure accessibility across socioeconomic backgrounds. The diversity in our classroom demonstrates that our model spans across various segmentations (including family income, race, geography) typically used to categorize higher education institutions.

Prior to accreditation, our program has proven to have outcomes (placement rate and average salary) on par with Stanford, MIT and other top technology and entrepreneurship focused institutions. Accreditation will further uplift our student and employer facing brand and establish our reputation as an industry leading and impactful institution. Starting this fall, we will offer the shortest bachelor's degree program in the country and the first to be powered by ISAs, systemically ensuring our institution's incentives are aligned with those of our students.

We hope our new model will inspire accelerated change in the higher education industry and enable greater innovation in the 21st century global economy.



Footnotes:

[1] https://cdn2.hubspot.net/hubfs/253501/BMO_Edu_and_Training_Report.pdf

[2] https://nces.ed.gov/programs/digest/d16/tables/dt16_303.50.asp

[3] https://www.coursereport.com/reports/coding-bootcamp-job-placement-2017#education

[4] https://nces.ed.gov/surveys/ctes/tables/p130.asp

[5] https://nces.ed.gov/programs/digest/d15/tables/dt15_311.22.asp

[6] It is unlikely for a company to build a defensible business across multiple segments. Although there are some common elements to the education and operations, there are enough differences in student acquisition strategies and implementation of education to make it impractical. Additionally, there is difficulty in maintaining strong brand perception across diverging product lines, unless the additional product serves alumni of the institution (eg. a distance master's degree for a social bachelor's graduate).

[7] https://www.coursera.org/degrees/masters-in-computer-data-science

[8] https://www.economist.com/news/special-report/21714169-technological-change-demands-stronger-and-more-continuous-connections-between-education

[9] https://www.theatlantic.com/business/archive/2014/10/why-germany-is-so-much-better-at-training-its-workers/381550/

[10] https://www.newyorkfed.org/research/college-labor-market/college-labor-market_underemployment_rates.html

[11] https://climbcredit.com

[12] http://web.mit.edu/registrar/stats/yrpts/index.html, https://registrar.stanford.edu/everyone/enrollment-statistics/enrollment-statistics-2016-17/school-engineering-enrollment-2016-17

[13] http://www.dailycal.org/2015/09/01/campus-computer-science-program-does-not-compute/

[14] https://www.edsurge.com/news/2017-06-05-trilogy-education-raises-30m-to-give-universities-a-bootcamp-in-skills-based-training

[15] https://www.zerohedge.com/news/2014-04-14/death-spiral-harvard-professor-predicts-half-us-universirites-may-fail-15-years

[16] https://www.dominican.edu/about/leadership/office-of-the-president/president-marcys-biography

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