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Concerns about the quality and price of traditional academic programs in higher education have generated interest in competency-based programs that allow students to learn at their own pace, with up to 600 institutions now interested in developing, building or offering these new programs.

These new programs offer potential for colleges and universities to set clearer expectations about what students must know, understand and be able to do to earn degrees in specific disciplines or majors — at a lower cost than for traditional degrees.

Little research has been undertaken, though, on the financial underpinning of these new competency ed programs — on whether expectations about what they learn are held constant and whether academic rigor is maintained. This lack of attention to the business model risks institutional underinvestment as well as unrealistic expectations of how competency-ed initiatives will contribute to financial sustainability, and by when.

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Our recent research, “Competency-Based Education: A Study of Four New Models and Their Implications for Bending the Higher Education Cost Curve,” demonstrates the opportunity competency ed offers for higher education to break away from traditional, higher-cost instruction models that have proven resistant to change.

“Institutions should not be fooled into thinking that competency ed is just a quick and easy moneymaker.”

Under the right conditions, the practice appears to offer promise for lowering both the costs to institutions and the prices students pay for their education. The study was funded by The Lumina Foundation. (Lumina is also among the funders of The Hechinger Report).

The most striking finding from the study was a projection that mature competency ed programs can operate at half the cost of their traditional academic programs.

This opportunity to lower costs stems from an “unbundling” of traditional faculty roles and the adoption of technologies that permit higher student-to-faculty ratios while maintaining educational quality.

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In addition, advances in information technology, learning science and new business processes and systems permit institutions to serve more students at lower cost.

“Despite the promise offered by these programs, institutions electing to invest in competency ed will need to adopt a patient path.”

These programs shift the traditional faculty role in two significant ways. First, select faculty, often working in teams, serve as architects of the programs, either developing content or turning existing content into competencies and developing related learning assessments.

The model eliminates duplication common in traditional higher education, where multiple faculty design sections of the same course.

Second, faculty not developing content have more time to teach and work with students.

Cost savings were evident in the study for students as well. Most of the programs studied have settled around a price range of $5,000 to $6,000 in annual tuition and fees. This price range reflects a desire to maximize access to competency ed programs.

Despite the promise offered by these programs, institutions electing to invest in competency ed will need to adopt a patient path.

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Building new programs from the ground up requires significant investment. In addition, the institutions studied generally projected that it will take five years before they will be able to cover their annual operating costs for these programs.

Paying themselves back for their initial investment will take even longer. Institutions should not be fooled into thinking that competency ed is just a quick and easy moneymaker.

The need for “patient capital” is further evident in the reliance of these models on scale. Aggressive growth—averaging nearly 150 percent annually for five years—will be necessary if the institutions studied expect to reach the necessary scale to break even within the projected five years. Scaling programs to enroll more students reduces the unit cost of delivery and allows for sustainability at the lower established price points.

Institutions must do the difficult work of understanding the business model underneath innovation, whether for competency ed or other alternative instructional models. This involves understanding not only what innovation costs, but also what the expected return on investment might be for both students and the institution. Only in this way can we ensure that higher education’s innovations are sustainable for the long term.

Rick Staisloff is the founder of and a principal in rpk GROUP, which helps colleges create sustainable business models.  He previously had a 20-year career in higher-education finance.

Donna Desrochers is an associate at rpk GROUP who has analyzed the impact of economic change on education and skill requirements and education reform efforts.

This story was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Read more about higher education.

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