The Two Monopolies that Keep American Higher Education Afloat

In a previous post, I wrote about how tectonic shifts in the macro environment in which American colleges and universities operate would almost certainly result in drastic change over the next couple of decades. Those shifts have profoundly affected the financial model of higher education as well as the value proposition for many millions of potential students. On the other hand, higher education as a societal institution or as an industry has had remarkable staying power in the face of profound change that has wholly remade other sectors of society. How is it that higher education has broadly managed to survive in much the same form it has been in for a century while other sectors and industries have undergone foundational change, and in many cases, simply vanished?

This question is even more interesting considering that educational institutions are generally more inertia bound than just about any other type of organizations one can think of.

The simple fact is that American Higher Education has continued to operate with little systemic innovation, and at times something close to disdain for the needs of its “customers,” because of two monopolies that have protected it from the market realities that affect other industries. The first monopoly is access to federal financial aid. The federal government disburses many billions of dollars a year to institutions of higher education (IHEs) in the names of their students. This largesse comes in the form of grants and guaranteed loans, without which not more than a handful of the thousands of Title IV eligible institutions could operate. This financial aid is only available to the “cartel” of educational institutions that follow the narrow, static requirements of recognized accreditors. The second monopoly is less structurally assured, but equally important, and that is the control that accredited IHEs have had over the credentials that graduates use to gain employment and take licensure exams. In another article I noted that the monopoly over credentials is weakening in the face of the growth of the gig economy and the alternative ways that Millenials are learning job skills that do not require attendance at universities. Even if weakened, that monopoly will continue to exist in some form as long as employers and licensing boards support it. This monopoly is actually stronger in many countries outside the U.S., particularly in developing countries and regions which have very traditional notions of higher education.

To be clear, even with the monopolies protecting its existence, higher education is not thriving. It is surviving, trapped by a powerful structural dilemma. The accreditation system that IHEs must adhere to in order to qualify for federal aid is a painfully stifling force against innovation, as are the arcane, century old Department of Education rules that apply to the kinds of educational experiences that are eligible for federal aid. This status quo creates a serious quandary for IHEs, which must innovate to survive from a market perspective, but which are prevented from being truly creative if they want continued access to federal financial aid. To make matters worse, the US Education Department is compromised by as much or more inertia than are the IHEs themselves!

While it is possible that non-financial aid dependent education models will begin to chip at the edges of the traditional higher education edifice, offering limited innovative alternatives to students, until the current anachronistic and innovation-killing higher education funding model changes, the traditional higher education system will continue its slow and painful slide toward declining enrollment and declining relevance.

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