¹ Video Tip
For our brief video introduction to the education industry, see plunkettresearch.com/video/education.
1) Introduction to the Education, EdTech & MOOCs Industry
Education, both at higher and lower levels, is one of the largest activities in the world (in terms of employees, expenditures and consumers—that is, students). However, somewhat similar to the health care sector, education’s expenditures, quality of output and ultimate results vary wildly from nation to nation, and from place to place within nations.
Globally, The UN counted 1.25 billion students in grades K-12 during 2012 (the latest year available). This amounted to an 89.0% enrollment (of potential students) rate in primary schools and 64.3% in secondary schools. The UN also counted 195.5 million students in higher education. In total, global public and private spending on education (K-12 through higher education) is equal to about 6% of GDP, or $5.0 trillion for 2015, according to Plunkett Research estimates, a bit smaller than the health care sector.
Education in Grades K-12: In the United States alone, 58.3 million students (public and private schools combined) attend classes from preschool through 12th grade, in 98,454 public schools of all types, operated by more than 14,000 school districts, plus about 31,000 private schools. These numbers are from a study of the 2012-13 school year (the latest year for which comprehensive data is available) published by the U.S. Department of Education, National Center for Education Statistics.
The cost of this schooling is approximately $632 billion yearly for public schools (not including private schools). That works out to about $13,000 per student per year, but the cost varies wildly depending on what part of the nation you are considering. For example, 2012-13 found expenditures ranging from $6,206 per student in Utah to $17,468 in the District of Columbia, and $19,552 in New York City.
Roughly $80 billion of the total cost of public K-12 education is provided for by various federal government programs. Most of the balance is split about evenly by state and local taxes.
Colleges and Universities: In higher education, the U.S. had 13.5 million students in degree-granting, 4-year colleges and universities during the fall 2014 semester school year, and 6.1 million students in public 2-year colleges.
Challenges in Lower and Higher Education: The realm of education can, at its simplest, be divided into two parts: lower education (preschool through high school, often referred to as K-12) and higher education (junior colleges, technical schools and colleges and universities, including their graduate schools). Those two sectors could be logically divided into two further parts: publicly-funded schools and private schools.
Regardless of which quadrant of this simplified view of schools and colleges is under discussion, the challenges faced by funders, administrators, parents and educators are disturbingly similar: a) costs that have grown very rapidly over recent years (reflected in high tuition, high operating expenses and growing costs to taxpayers); b) results that are often disappointing (reflected in a combination of low graduation rates, poor standing in comparative international studies of K-12 student achievement, high levels of college student debt and difficulty among many students in finding good jobs upon graduation—sometimes referred to as underemployment); and c) the need for schools and teachers to attempt to serve large student bodies of widely varying intelligence, cultural or linguistic background, academic interest and individual needs.
There are stellar examples across the U.S., and the rest of the world, of schools and colleges that rise far above these challenges. Unfortunately, there are also miserable failures at the bottom of the list, where schools fail to deliver a reasonable return on the time and money invested in them.
The Debate Over the Reform of Public K-12 Schools:
Ever since free public education became the norm in America, the costs and the methodology used to teach in schools have been the subject of intense (and frequently bitter) debate. That debate is now intensifying for three reasons:
1) Costs have risen faster than the general rate of inflation for many years.
2) Many parents, students and observers are disappointed in the results achieved by students. This is fueled by generally disappointing achievement test results in K-12 and a very poor showing for U.S. students when ranked against the students of other nations in comparative studies known as PISA scores. The looming question in many minds is: are students being prepared properly for their future careers, for a world that is rapidly adopting advanced technologies, for a climate of intense competition due to globalization, and for higher education for those students who choose to pursue it?
3) Technology is slowly but surely changing the challenges, opportunities and methods of providing education at all levels, but the implementation of technology leads to further controversies (such as students’ privacy) along with significant investments required for equipment, services and training.
The proposed (and very controversial) cures to this situation are as varied as the challenges faced, ranging from bigger school budgets and higher pay for teachers at the simplest end to more centralized control, government intervention, student testing and accountability for teachers at the more complex end. Others argue for less federal government involvement and more autonomy at the state and school district level, while many observers state that teachers’ unions have too much power and political influence.
Alternatives to traditional education are gaining traction. Charter schools, home schooling, online classes and MOOCs (massive open online courses) are slowly gaining market share, sometimes provided by for-profit companies, sometimes springing from parental efforts, and most often growing through nonprofit groups ranging from public school systems to religious organizations.
At the college and university level, concerns about the costs and effectiveness of higher education have been accelerated by a relatively poor job market for new graduates that America and other nations have been suffering through for many years, along with the massive debt levels now carried by U.S. college students. U.S. Bureau of Labor statistics indicate that the price index for U.S. college tuition rose by nearly 1,200% from early 1978 through early 2014, four times faster than the overall rise in consumer prices (food, housing, etc.) of about 300%.
However, the increases in tuition stated above do not reflect the fact that financial aid to university students has also increased substantially. The net cost to the typical student has risen at much slower rates, after factoring in financial aid. Another significant factor that is often overlooked is the fact that state budgets for support to universities have either dropped or not kept up with inflation, in many cases, leaving it to universities to look to higher tuition to cover their costs. Nonetheless, many observers point to a long term trend in rising ratios of administrative non-academic staff to professors, creating lower operating efficiencies and higher overall costs of education.
In fact, total American student debt, at $1.16 trillion, vastly exceeds total credit card debt. The average new U.S. graduate with a 4-year degree left school in 2014 with $33,000 in student loans, up from $18,600 in 2004. The burden of making payments on these loans is limiting the ability of recent graduates to purchase cars, household goods and homes, which in turn is very detrimental to the growth potential of the economy overall. There is tremendous pent-up demand among recent grads to form new households of their own, but their finances and job prospects in many cases limit their ability to leave their parents’ homes and strike out independently. Meanwhile, there is a growing emphasis in America on better supporting and utilizing the community and technical colleges that are widespread, in order to reduce overall costs to students and boost career-specific training tailored to suit the needs of local employers.
Technology as a Long-Term Solution: Technology-based education solutions are gathering tremendous momentum, and in many cases they are being carefully tested and applied in real school situations. Online learning is gathering speed at all levels, from home schooling of high school students, to basic courses for university students, to essential skills training for corporate employees.
Software tools enhancing everything from school attendance management, to student engagement, to the availability of learning resources online are growing in availability and popularity. Business and investment opportunities abound due to the immense demand for greater productivity, efficiency and effectiveness in education. “Points of pain” can be found throughout the spectrum of the education sector, while the size of the market is absolutely immense, both in developed nations in North America, Europe and Asia, and in less-developed countries starved for good educational resources.
The Future of Education: Much of the education of the near future is clearly going to be provided in new and different ways than the education norms of the Twentieth Century. Many of the most profound changes will be linked to increasing reliance on computer technology both in and out of the classroom. Technology will eventually deliver learning at a speed and level of intensity commensurate with each student’s ability (“adaptive learning”). While a growing number of students will receive a very significant portion of their educations (and in some cases, all of their schooling) online, a “blended” learning model will be tested, refined and broadly applied—one that mixes computerized teaching tools and online lessons with personal instruction by teachers, mentors and professors.
The flipped classroom idea, pioneered by fans of the Khan Academy, will gain speed. In this format, students get formalized instruction from online tutorials, often as homework, and then come to the classroom to form teams to discuss and apply what they learned from the tutorials, with guidance and aid from a teacher on an as-needed basis (as opposed to learning in the traditional manner via classroom lectures). A variation on this theme has been used by the world’s best graduate schools of business for decades, where students plow through case studies of actual business challenges and solutions at home and then analyze and discuss those case studies in the class room with careful guidance by the professor.
A successful evolution of education is going to require flexibility and cooperation on the part of teachers, administrators, government, students and parents alike, which won’t be easy to achieve. However, increasingly high costs and increasingly compelling new technologies that can reduce costs should make this bitter pill easier to swallow over the long term. While the comments above are generally based on education in America, many of them apply to various aspects of education worldwide. Technologies will eventually enable educational systems around the world to meet many of their most dire challenges in a more cost-effective manner.
As a result of the 2008-09 financial crisis, many U.S. states, along with government agencies in many nations, slashed education budgets while tax revenues fell and unemployment soared. This means that state-funded universities have been under tremendous financial pressure and have been aggressively seeking ways to cut costs while maintaining academic integrity. At the same time, digital-native students are more and more suited to studying on their laptops and mobile devices, on their own schedules and in locations of their own convenience. Online courses, including MOOCs, appear to be well-suited to foster convenience for the students while cutting costs for the schools. While a few universities have opted out of the MOOC trend over concerns about educational quality or threats to professorial methods and careers, others have eagerly joined in. Hybrid online/physical classroom models will no doubt evolve to the degree that they provide good quality along with cost savings. At the same time, MOOCs will evolve to serve a massive global audience of students, both casual and degree- or certification-seeking, who need the freedom of access and little to no cost that only MOOCs can provide. New methods for honest online exams are being developed.
Advancing technologies will be a tremendous boost to MOOCs. The ability to incorporate adaptive learning into MOOCs can have tremendous results by tailoring and timing each course to a student’s individual ability and learning speed.
Acknowledgement and acceptance of the seriousness and long term potential of MOOCs continues to accelerate. In 2014, a well-known MOOC, Coursera, announced the appointment of former Yale University President Rick Levin as Coursera’s CEO.
Corporate Training and Adult Education: Two peripheral areas of education are leading the way in utilizing technology to speed learning and dramatically cut costs: leisure learning and corporate training.
The leisure education market has been stormed by savvy entrepreneurs who offer online- and DVD-based learning that has quickly become wildly popular. Leaders in this area include Lynda.com (acquired by LinkedIn in 2015 for $1.5 billion), where a modest monthly subscription price provides access to thousands of online courses ranging from how to use various types of software to how to bolster photography skills. Similar success has been achieved in online courses covering arts and crafts at craftsy.com. A company called The Great Courses has built a tremendous business by offering online- and DVD-based lectures by outstanding professors, covering topics ranging from philosophy to the great religions to history to economics. Rosetta Stone has likewise built a very large business offering discs and online versions of language lessons.
Corporate training and education will be a $73 billion market in the U.S. in 2015, and $155 billion global market, according to Plunkett Research estimates. While many of the world’s largest corporations have their own in-house training departments, classrooms and even learning campuses, much of employee development and training is being outsourced, particularly in the small- to mid-sized company market. A very wide variety of providers are taking advantage of this trend. Leaders range from software training offered by CodeAcademy (teaching software development) to recently launched executive education on a platform called Innovator’s Accelerator, featuring some of the world’s top professors and owned by Apollo Group (also the owner of the University of Phoenix). Udacity, one of the world’s most talked about MOOC companies has changed its focus from providing university courses online to providing corporate training.
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