Part I of this series of briefs will focus on current enrollment trends in the online landscape. Part II will examine the digital learning environment including competency-based delivery. Part II will also suggest ways to remain viable as the digital learning environment evolves.
Decline in Overall Enrollment
In the fall of 2014 (the most recent federal data available) public institutions represented 72% (14,735,637) of all higher education enrollments, private nonprofits represented 20% (4,165,426) and for profit institutions represented approximately 8% (1,605,749) of students. The National Student Clearinghouse Research Center (fall 2016) estimates that overall 2016 fall post-secondary enrollments declined 1.4% from the prior year, representing the fifth consecutive year of decline.
Among other interesting changes:
- Four-year for profit institutions experienced a decrease of 14.5% in fall 2016, which followed a 13.7% decline in fall 2015.
- Two-year public institution enrollment declined 2.6% in fall 2016, following declines of 2.9% and 4.4% in fall 2015 and fall 2014, respectively.
- Enrollments at four-year private nonprofit institutions declined 0.6% in fall 2016 following a 0.3% decline in fall 2015.
- Four-year public institution enrollment increased slightly by 0.2% in fall 2016 following increases of 0.8% and 0.7% in 2015 and 2014, respectively.
Projections developed by the Parthenon Group suggest that during the current 2016-2017 academic year enrollment in higher education will once again decline slightly but will then begin to gradually improve, returning closer to its long term 1.4% annual growth rate through 2024-2025 (BMO Capital Market, Education and Training Report, 2016).
Growth in Online Enrollment
In contrast to the 2.8% decline in overall higher education enrollment between 2012 and 2014, online enrollments grew 7.6% during this same time-period with a year over year increase of 3.9% in 2014, following a 3.7% increase in 2013 (NCES – IPEDS).
In the fall of 2014, more than one in four students in higher education (28.4%) took at least one online course. Of the 5.82 million distance education students, 2.85 million were taking all their courses exclusively at a distance. Of these exclusively distance education students, nearly half (48%) attended public institutions, while approximately 30% attended for-profit institutions, and 22% attended private nonprofit institutions. In fall 2014, exclusively online students represented one in seven of all higher education students (14%), up from one in eight of all students (12.5%) in fall 2013.
In addition to the exclusively online student enrollment, over 2.97 million students took some, but not all, distance education courses in fall 2014. It is interesting to note that among the “some but not all” distance education students there was much greater disparity among the three sectors with 85% of students attending public institutions, 11% attending private nonprofit institutions, and private for-profit institutions serving only 4% of the students in this category. Public universities are using online courses to a much greater extent than the other sectors to meet the programming and scheduling needs of residential students (Online Report Card, 2016).
Shifts across Sectors
Within online enrollments, we see shifts occurring across sectors with public and private nonprofit institutions gaining and growing market share while private for-profit institutions continue to lose ground. In this regard, from 2012 to 2014, online enrollments at private nonprofit institutions grew 26% (196,054 students) and 9% at public institutions (308,411 students). In contrast, online enrollments at private for-profit institutions declined 10% (101,045 students). Thus, in fall 2014 public institutions were serving over 3.9 million (67%) of all distance education students, with private nonprofit institutions serving 960,751 students (16.5%) and private for-profit institutions serving 961,173 students (16.5%) (NCES – IPEDS).
We believe that the above enrollment trends and trajectories have continued through 2016 and will persist into 2018.
Fewer Institutions Serving More Students
Students enrolled in distance education are concentrated in a small number of institutions. Although the 5.82 million distance education enrollments were spread across 3,324 institutions in fall 2014, the top 80 institutions (<2%) represented 30% of online enrollments, and the top 10% of institutions represented 65% of online enrollments (Online Report Card, 2016). Large players continue to dominate the marketplace, but among the 30 largest online providers, public and nonprofit institutions have now become the majority and are the fastest growing (BMO Capital Markets, Education and Training Report, 2016).
The oldest for-profit pioneers in online education have experienced significant declines in enrollment over the past several years. Although the University of Phoenix (UOP) remains the largest online higher education provider in the U.S., it experienced an 11% compound annual decline between 2012 and 2014 and enrollment has continued declining since that time. Its recent 2016 10K Report indicates that the institution anticipates continued declines in enrollment through 2019 as it continues to re-position to compete with lower cost public and private nonprofit competitors and focus on strengthening student outcomes and overall value proposition. DeVry University experienced similar downward trends in enrollment with a 13% compound annual decline from 2012 to 2014 with total fall 2014 online enrollment declining to 45,827 students. Both institutions are investing in next generation teaching and learning models (UOP was a pioneer in exploiting learning science in the 1980s), digital technologies to support stronger learning outcomes, and other strategies to maximize retention and completion. They are also integrating strategies to meet the needs of employers more effectively and are undertaking initiatives to create long-term cost efficiencies.
Mature for-profit providers such as Capella University, the American Public University System, and Grand Canyon University have thus far avoided the steep declines typical of the sector even though their online growth rates have flattened and they have struggled to gain market share. These institutions have positioned themselves well with high value programs, strong outcome-based curricula, decent assessment systems, and new digital learning technology platforms. Capella University, one of the earlier entrants in online graduate education, continues to gain positive attention with its Flex-Path competency-based programs. Since its inception, the American Public University System has maintained a low-cost tuition model comparable to that of many public institutions. Strong program alignment and direct marketing channels with the military and government agencies, along with high student referral rates, have kept student acquisition costs below that of their competitors. Grand Canyon University has employed a regionally focused online marketing strategy built around its simultaneous and significant investment in the development of its traditional campus in Phoenix and the University’s brand. This strategy has positioned it much more like a nonprofit provider in both operations and public perceptions.
Public and Nonprofit Institutions
The University of Maryland-University College is a national leader in the online education space among public universities. Between fall 2012 and fall 2014, UMUC continued to grow at a compound annual growth rate of 7%, with fall 2014 online enrollment of nearly 48,000 students. Arizona State University is another leading public university aggressively competing in the national online marketplace. From fall 2012 to fall 2014 ASU had a 10% compound annual growth rate with online enrollment of 43,530 students in fall 2014 (BMO Capital Markets, Education and Training Report, 2016). All indications are that the growth of ASU Online has continued and likely accelerated over the past two years based on their multi-million dollar national marketing strategy leveraging their strong brand. This strategy is taking market share from for-profits, independents, and state universities in many markets. Other online public institutions, such as the University of Central Florida and Colorado State University-Global Campus, continue to grow rapidly.
The largest nonprofit online provider continues to be Liberty University with online enrollment in fall 2014 of over 73,000 students. Southern New Hampshire University is among the fastest growing in this sector. From fall 2012 to fall 2014 Southern New Hampshire had a compound annual growth rate of 91%, with a fall 2014 enrollment of 41,329 students. Although a topic to be covered more fully in a future briefing, long-time competency based education leader, Western Governors University, is growing at an accelerated pace with a 2012 to 2014 compound annual growth rate of 18%, culminating in fall 2014 enrollment of over 57,000 students. WGU has earned a leading position in competency-based education over the past decade.
Perhaps the most interesting trend we see is that online enrollments are becoming concentrated in fewer “heavyweight” institutions and that the majority of the largest players are now public and private nonprofit institutions. A few of the very large public institutions, such as Arizona State, have borrowed and executed precisely the same playbook that they loudly criticized when it was initially developed by the for-profit sector. Such is competition in higher education.
We recommend second thoughts to any institution contemplating its first major online unit, especially if the financial modeling is based on securing a national market. Bring a big checkbook if you intend to capture a national market. National online space is crowded and expensive, and the successful institutions are either heavily branded (e.g., ASU) or have an attractive and expensive platform and pedagogy that exploits learning sciences. Blackboard might work if you are in ASU's league; otherwise, plan on spending $1 million or more to develop something that will attract and retain millennial students who engage life mostly on their smartphones. With a modern platform and pedagogy in place (one that may require hiring new faculty or conducting extensive faculty training), a school seeking a national online market can then budget for a $1-2 million national marketing campaign and expect learner acquisition costs in the area of $5,000-$6,000 per student. We will offer better solutions to growth in future Executive Briefings or you can contact us for guidance. For now, know that most online programs do not secure a market beyond the outer perimeter of their local market identity.
Part II of this briefing will examine emerging digital learning models. We will also provide insight into ways in which institutions can remain relevant as the digital learning environment evolves.