The Digital Skeptic: Online Education Cuts Value of Higher Ed in Half

NEW YORK ( TheStreet) -- It's almost June. Time for dads, grads and counting the living from the dead in the collapsing U.S. higher education market.

Because if my month of learning collegiate-level data science via no-cost Mountain View, Calif.-based online course provider Coursera is any indication, it's time for parents, educators, employers, students, investors -- not to mention college real estate speculators -- to learn how ugly it's going to get to charge a lot to learn a lot.

Investors know this lesson well. Just like in the music, financial services and corporate IT sectors, high-quality, first-rate content -- in this case, a job-fetching higher education -- is absolutely, positively available for nothing.

"When I have heard about your site and the courses you offer," posted Paolo Scolamacchia, a Milan, Italy, computer specialist and one of my roughly 65,000 Coursera no-cost data science classmates. "I was very surprised and excited to join them."

What's remarkable about learning intricate and complex topics such as MapReduce and SQLite with nothing more than a PC is not that automated grading tools work. Or that online social schooling really does replace much of what traditional teachers do. Or that the same gut-wrenching collapse felt by giants including Warner Music Group, the New York Stock Exchange or Hewlett-Packard ( HPQ) await the giants of higher education.

What's stunning is how ordered, well understood and -- let's be honest -- mundane the process of digital devaluation will be.

A phat, free online higher ed market
Absolutely positively, free online higher education is on the by-now classic explosive Web trajectory of dazzling growth. Geez, Coursera has meetups in 1,646 cities; content from 62 universities including Yale; and investors such as Kleiner Perkins Caufield & Byers.

Heck, its teachers will have bigger followings than rock stars.

That means some sort of significant financial event is a certainty. Harvard and MIT's joint online ed effort edX or my sleeper pick, the private Khan Academy, are also in this group. But Coursera is at the head of the class. It is already a popular play on private exchanges such as SecondMarket.

Remember, this is the Web. Coursera will be as profit-challenged as Facebook ( FB), Amazon ( AMZN) or any other Internet company. But for the lucky few close to this investment, some sort of lucrative funding event -- maybe even an IPO -- will graduate to the market say, by midyear 2014.

Only five will survive
Now comes those who won't make the grade. Only five institutions of traditional higher education -- Harvard, Yale, Princeton, Stanford and MIT -- have the $10 billion in endowments needed to match Coursera's free tuition model for all its students.

After that, all the rest of the 843 remaining institutes of higher education as tracked by the National Association of College and University Business Officers will simply not be able to foot education costs for its attendees. That absolutely includes the likes of Columbia, Rice and Boston College, public institutions such as the universities of Michigan, Washington and Ohio and private for-profits schools including Kaplan University, a unit of the Washington Post ( WPO) company, and the University of Phoenix, a unit of the Apollo Group ( APOL).

These schools will slog it out in the by now familiar collapsing digital bubble of diminishing resources and rising costs. Already storied, once-free institutions such as New York's Cooper Union have started charging steep $20,000-a-year tuitions. And the Washington D.C.-based Center on Budget and Policy Priorities has reported a dramatic rise in costs at public universities. Arizona led the way in 2012 with an increase in tuition of about $4,000 and consolidation or elimination of 182 colleges, schools or programs. And the University of Phoenix saw a dramatic drop in enrollments and a 13.3% revenue collapse in the second quarter of 2013 year over year.

"Higher education is rapidly evolving as workforce demands and technological innovations drive change in our global economy," said Apollo Group CEO Greg Cappelli in the company earnings release.

The grim total tuition
For investors who have to have their numbers, the grim totals are easy enough to figure out.

The Record Industry Association of America says it took 10 years for the music business to collapse from $19 billion to about $7.9 billion in sales. And the $3.1 trillion corporate information technology market is about eight years from being a roughly $2.1 trillion business. That means, in round numbers, the $475 billion higher education market, as estimated by Noodle, a New York City online education service, should wind down to the $245 billion range by 2023.

What we are all learning here, friends, is that free online higher education might make us all smarter. But it will also certainly make us all poorer.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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