The cost of higher education

Tyler Cowen posts a chart showing that college tuition is growing faster than the cost of textbooks, medical care, and all items in the consumer price index since 1978. He comments that "supply needs to do its job here."

While I agree that the costs of college seem to be on an unsustainable growth curve,  I thought this comment from Michael Makowsky was astute:

Given that prices have been rising steadily for decades, and the relatively paltry concomitant rise in supply, we are left with little choice than to accept that higher education bundle of goods is something terribly difficult to supply. Inputs into production higher education, expertise, suffer from decreasing returns to scale, while the final output has early onset increasing returns to scale from high fixed costs and network effects (credibility and social networks) that heavily favor incumbent firms. But to make matters even worse, the signaling theory of education proponents have a point, and that is the nail in the would-be suppliers coffin. Prestige production is a particularly daunting industry for would-be entrepreneurs – by definition, any product or endeavor with non-trivial expectations for success would cease to carry the prestige they are trying to sell. All of this adds up to a an expected failure rate for would be entrepreneurs that is astonishingly daunting. Even as online schools reduce fixed costs, they still face a likelihood of success that makes starting a NYC restaurant look like trying to sell cigarettes in prison.

My idea for disrupting the higher education market would be for some corporations to step in and offer an alternative. Imagine a school founded by Google, Apple, and, say,, to take one theoretical example. Imagine a mixture of computer science, design, supply chain, and finance courses, supplemented by some other liberal arts offerings that might be taught in cooperation with local universities, maybe Stanford, so that it doesn't feel entirely vocational. In exchange for a partially subsidized education, you agree to spend a few years working at the company post graduation, if they'll have you, like ROTC. You'd still live there at school so you'd get some of the soft benefits of college, like socialization and human feedback on your coursework, something these online courses fail to offer.

The signaling benefits that come with a degree taught by folks from some of the leading companies might well be within striking distance of a curriculum from today's leading universities, and it might exceed that of other universities when it comes to direct relevancy in certain industries. Think of it as an extended internship, or a farm system in sports. Given the cutthroat competition for personnel in tech these days, it seems like opening another channel for more captive recruiting might be attractive to those companies.

This idea might be far-fetched, but I suspect this scenario would be the most likely to offer both an innovative and competitive alternative to the current education system.