Higher Ed Data Central: The Disruptive Growth of Online Education

It’s no surprise that a reader asked us to look into online education given all the attention it has been getting lately. The Department of Education asks colleges if they offer “Distance learning opportunities,” defined as “An option for earning course credit at off-campus locations via cable television, internet, satellite classes, videotapes, correspondence courses, or other means.”

The first chart just shows the number of colleges and universities in the United States offering any distance learning (DL). The vast majority of the increase is undoubtedly due to online education, and the rise has been quite dramatic. By the 2011-12 academic year, 1,304 additional colleges and universities were offering distance learning compared to 2001-02.

This got me thinking about what kinds of schools are adding distance learning. The second chart shows the average graduation rate of colleges by whether they offer distance learning, and if so, how long they have offered this alternative.

The schools that have never offered distance learning tend to have higher graduation rates.  The schools that have offered distance learning for more than 11 years tend to have lower graduation rates. The schools that have added distance learning at some time in the past 10 years or so are somewhere in between. This is interesting not because of what it tells us about the quality of traditional vs. online education (because there are no controls for various relevant inputs such as the types of students enrolled, this tells us virtually nothing on that score), but rather, because of what it tells us about the future of higher education.

This chart closely follows the story of disruptive innovation laid out by Clayton M. Christensen and Michael B. Horn (an accessible version is available here). They argue that a disruptive innovation typically starts in an ignored/underserved area of the market, but then gradually moves up market as quality improves and competition saturates the previously neglected market. The second chart provides much support for that story. Eleven years ago, most of the students taking online courses were non-traditional students that traditional higher education had been ignoring for decades (e.g. working adults who greatly valued the convenience of being able to log in at night and on weekends). These tend to be (educationally) at risk students, which explains the low graduation rates of the “11+” category. But as the concept was shown to work and the tools were improved, the disruptive innovation has been spreading up the market – hence the higher graduation rates for recent adopters (the “More than 0 but less than 11” category).

Given that online education has been following the pattern of other disruptive innovations, the holdouts (the “0” category) may escape unscathed, but I wouldn’t count on it. More likely, as the wrinkles are ironed out, and despite their protestations to the contrary, elite institutions will find that online education will disrupt their business model as well.