Online Education Trumps the Cost Disease

by Alex Tabarrok on April 16, 2013 at 7:32 am in Economics, Education, Web/Tech | Permalink

In a large, randomized experiment Bowen et al. found that students enrolled in an online/hybrid statistics course learned just as much as those taking a traditional class (noted earlier by Tyler). Perhaps even more importantly, Bowen et al. found that the online model was significantly less costly than the traditional model, some 36% to 57% less costly to produce than a course using a traditional lecture format. In other words, since outcomes were the same, online education increased productivity by 56% to 133%! Online education trumps the cost disease!

Bowen et al. caution that their results on cost savings are speculative and it is true that they do not include the fixed costs of creating the course (either the online course or the traditional course) so these cost savings should be thought of as annual savings in steady-state equilibrium. The main reason these results are speculative, however, is that Bowen et al. only considered cost savings from faculty compensation. Long-run cost reductions from space savings may be even more significant, as the authors acknowledge.

Bowen et al. also do not count cost savings to students. Based on my work with Tyler at MRUniversity, I argued in Why Online Education Works that students in online course can learn the same material in less time. Consistent with this, Bowen et al. found:

…that hybrid-format students took about one-quarter less time to achieve essentially the same learning outcomes as traditional-format students.

A 25% time-savings is significant. Moreover, the 25% time-savings figure is in itself an underestimate of savings since it does not include the time savings from not having to drive to class, for example.

Online education even in its earliest stages appears to be generating large improvements in educational productivity.