n August 6, 2008, the Washington Post reported that tuition and fees at public colleges in Virginia will increase by an average of 7.3 percent this year. The article was four sentences long and ran in the Metro section, below the fold, in space reserved for unremarkable news. The drumbeat of higher education price increases has become so steady in recent years that it barely merits attention. But the cumulative effect is enormous: the average price of attending a public university more than doubled over the last two decades, even after adjusting for inflation. The steepest increases came in the last five years.

And theres nothing routine about the way college costs are weighing down lower- and middle-income families. Students are still going to collegein this day and age, what choice do they have? But some are getting priced out of the four-year sector into two-year colleges, while others are trying unsuccessfully to simultaneously hold down a full-time job and earn a degree. More students are going deeply into debt, narrowing their career options and risking catastrophic default. The lightly regulated private student loan market, which barely existed ten years ago, now controls about 20 percent of loan volume, burdening financially vulnerable undergraduates with high interest rates and few legal protections. State and federal governments have poured tens of billions of new taxpayer dollars into student aid programs, only to see them swallowed up by institutions with a seemingly unlimited appetite for funds.

For years colleges have insisted that rapidly rising prices are unavoidable because higher education is a labor-intensive business that cannot become more efficient. A forty-minute lecture takes just as long to deliver today as it did a hundred years ago, they say; a ten-page paper takes just as long to grade. Because efficiencies in other industries are driving up the overall cost of skilled labor, colleges have to offer salaries to match, which pushes productivity down. (Economists call this “Baumols cost disease,” after the New York University economist who first made the diagnosis.) Regrettable for students, of course, but what can be done?

In fact, this premise is false. Colleges are perfectly capable of becoming more efficient and productive, in the same way that countless other industries have: through technology. And increasingly, they are. One of the untold stories in higher education is that the cost of teaching is starting to decline, but virtually none of those savings are being passed along to students and parents in the form of lower prices. Instead, colleges are pocketing the difference, even as they continue to jack up tuition bills.

This is a classic unsustainable trend. Higher education prices cannot grow faster than inflation and family income forever. If colleges use productivity gains from technology to restrain prices, theyll continue to thrive in a world that values their product more than ever. If they dont, theyll be hammered simultaneously by a frustrated public and new competitors eager to steal their customers. To avoid that fate, colleges will need to do more than just teach better for less. Theyll also need to compete in a whole new way.

o see just how much technology is changing undergraduate education, drive to Virginia Tech University, nestled in the mountains of southwest Virginia about four hours from Washington, D.C.and then just a little farther, a few blocks from where the campus ends. To the mall.

Its not much to look at, just another outdated commercial husk that had its heyday back in the 1980s selling cassette tapes and Spencers gifts before getting squeezed by Wal-Mart on one end and the newer, bigger, better mall out by the interstate on the other.

Walk down to the poorly lit atrium, take a left, and youll find the Virginia Tech Math Emporium in 60,000 square feet of gray, windowless space that used to house a five-and-dime. There are 700 late-model iMac computers arranged in pods of six, row upon row. Arrive at ten p.m. on a weekday and youll find hundreds of students, some solving math problems on the computers, others reading textbooks or chatting quietly in study groups while teaching assistants help undergrads with sticky problems in differential calculus and vector geometry. Its everything youd expect from a traditional four-year universityexcept for professors, and classes.

The Math Emporium was born out of a financial problem. Since being founded as a land-grant institution in 1872, Virginia Tech has developed a reputation as a first-rate engineering school and has become an increasingly popular destination for students in Virginia and beyond. By the mid-1990s, the growth was causing strain. Engineers need to learn math: more than a thousand students take linear algebra every semester. But even as the number of students wanting to take such courses was going up, internal budget cuts to the math department were reducing the number of professors available to teach them. This kind of fiscal irrationality is typical in higher education, where departmental budgets often have little relationship with costs, revenues, or demand.

For the math department, all the conventional solutions seemed grim. Adding more course sections wasnt easy; in addition to the professor shortage, the university was running out of space, and some courses were being taught in a basketball arena and an old movie theater. Capping enrollment in required courses would have forced students to stay in school longer, angering parents and state legislators. Increasing faculty workload would have driven more professors out of a department that was already short-staffed.

Fortunately, someone had a better way. After earning a PhD in applied math from NYU in 1976, Michael Williams moved to Blacksburg to teach. An interest in computers led to a job as the universitys vice president for information systems, and by the 1990s he was busy helping professors integrate computers into their teaching. Williams knew how to teach math, and he knew how to teach with technology. The math department budget crisis gave him an opportunity to put the two together, and bring the effort to scale.

In designing the Math Emporium, Williams started by rethinking the issue of space. Campus space is inevitably a scarce resource, subject to bloody administrative battles between professors and departments. But all Williams needed was someplace cheap that students could get to easily, with enough room for hundreds of computers and little else. He also wanted space that other academic departments wouldnt want to steal. So he leased the vacant former home of Roses Department Store, a now-bankrupt regional discount chain, for the bargain price of three dollars per square foot.

Then Williams rethought the student learning experience from the ground up. Undergraduate education, particularly at big state universities, is often passive and regimented. Students sit and receive information in the form of lectures that occur at a time and place of someone elses choosing. The Math Emporium courses that Williams designedthere are currently ninework in a very different way. Each course is broken up into a series of “modules,” available on Emporium computers or the Internet, that students are required to complete within a certain amount of time. Each module outlines a specific set of mathematic principles and concepts. These are translated into specific examples to review and problems to solve.

Once the module materials are completed, students can take randomly generated practice tests that draw on a central bank of thousands of potential questions. If they get questions wrong, the computer refers them back to the appropriate materials, and theres no limit to the number of practice tests they can take. When they decide theyre ready, students come to the Emporium to take an official, proctored test thats generated in exactly the same way as the practice quizzes. Then they move to the next module. Instead of marking progress by timethe number of hours spent in proximity to a lecturerEmporium courses measure advancement by evidence of learning.

Ten years ago, places like the Emporium were virtually unheard of. But over the last decade a wide array of colleges and universities have implemented similar reforms, under the auspices of a nonprofit organization called the National Center for Academic Transformation. In March 2008, more than 400 people from 145 colleges and universities gathered at a conference center in Orlando, Florida, for the second annual NCAT convention.

For three days, college representatives mingled in the elevators and hallways with swimsuit-wearing vacationers en route to Disney World and Epcot Center. In rows of windowless conference rooms, professors and administrators gave PowerPoint presentations explaining how technology can lower costs in a wide range of undergraduate courses. Some institutions, like the University of Alabama, have replicated the Virginia Tech Math Emporium model. Others have adopted a hybrid approach, reducing but not eliminating lectures while moving selected course materials, problem sets, and class discussions online. Arizona State, for example, recently used this method to transform an introductory women and gender studies course. Florida Gulf Coast University put its “Understanding the Visual and Performing Arts” course completely online. Portland State University focused on introductory Spanish, freeing up professors to teach more sections by using computers to grade language worksheets. Biology, psychology, chemistry, economicsthe whole range of undergraduate courses was on display in Orlando.

Of course, every college has unique courses that can only be delivered by a live person to a small group of students. Liberal arts colleges that specialize in small classes taught by full professors are less likely to benefit from NCAT-style reforms. But the majority of students attend institutions where big lecture courses are the norm. Curricula are fairly standard at most colleges, particularly for lower-division coursesnearly everyone teaches calculus, economics, English comp, and psychology 101. NCAT estimates that just twenty-five such courses make up half of all community college enrollments and one-third of enrollments in four-year institutions. That translates into tens of millions of potentially transformable credit hours nationwide.

Its tempting to see the automation of college teaching as educational malpractice, a ploy to water down instruction and put professors out of work just to save a few bucks. But theres persuasive evidence that the opposite is trueproperly used, technology can make higher education better, not worse. NCAT has been spreading the gospel of course transformation since the late 1990s, when it secured an $8.8 million grant from the Pew Charitable Trusts to pilot the process with thirty colleges. The results were unequivocal: twenty-five colleges saw learning results improve while the other five saw no change. All thirty reduced costs, some by over 70 percent. As the number of NCAT institutions has expanded, theyve found similaror even greatersuccess.

The results at some institutions have been dramatic. In the late 1990s, students at the University of Alabama were washing out of freshman math courses in large numbers, and the failure rates for minority students were particularly high. After building a smaller version of the Emporium in 2000, Alabama boosted pass rates from 40 percent to nearly 80 percentand erased the previously large gap between white and black students.

The key is letting computers do what they do bestgrading multiple-choice tests, providing 24/7 access to text, audio, and video, connecting people to one another at a distancewhile retaining the human element when only real people will suffice. The Virginia Tech Math Emporium is staffed twelve hours a day with a combination of upper-division math majors, graduate students, and faculty, each of whom is prepared to help students with any of the Emporium-based courses.

And even when the notoriously nocturnal undergraduate lifestyle puts teachers of any kind out of reach, the Emporium never closes and the computers never sleep. Virginia Tech students always have access to the mind of Michael Williams, the ghost in the Emporium machines.

n part because of the success of the Math Emporium, the cost of providing math instruction at Virginia Tech has declined dramaticallyas much as 75 percent for some courses. But the universitys tuition increased nearly 11 percent this year alone, and Virginia Tech math students are paying twice what they did eleven years ago, when the first Emporium course was offered. If Michael Williams is saving Virginia Tech hundreds of thousands of dollars a year and other colleges are realizing similar savings, why arent their students seeing a dime of that money?

For the most part, colleges would just rather spend it elsewhere. The nonprofit Delta Project on Postsecondary Education Costs recently found that tuition and fee revenue per student at public research universities increased by 34 percent, in inflation-adjusted dollars, from 2000 to 2005. At the same time, spending per student on instruction and academic support declined. This is nothing newovercharging for introductory courses is standard operating procedure in higher education, and has been for a long time. Colleges routinely use the excess revenues generated by huge, inexpensive lecture hall classes to support other, money-losing activities. Freshmen have always been cash cowstechnology just made them more so.

Where did all the money generated by cost savings and price hikes go? In some states, back to the public treasury. Legislatures have a tendency to use public universities as a piggy bank during hard fiscal times, cutting appropriations to higher education with the tacit understanding that colleges can raise prices to make up the differencea backdoor tax increase on consumers of higher education.

And in some cases, the money is used for virtuous purposes. The modern university is a conglomerate, housing a host of disparate scholars and functions under one roof. Some university components, like philosophy departments, historical archives, and graduate programs, have limited up-front economic value but provide great benefits to society at large.

But colleges also tend to be inefficient while spending a lot of money on nonacademic activities and general self-aggrandizement. The NCAA recently revealed that among 119 Division I-A universities, the typical athletic department lost $9.3 million in 2006. Thats up from $6.1 million in 2004, a 50 percent jump in just two years. The growing deficits have to be made up from other sources, like tuition. And construction spending is always popular; new libraries, buildings, and student centers with climbing walls are good for marketing purposesand they create plenty of blank space on which to engrave the names of generous alumni.

Colleges have increased real-dollar spending on student financial aid by more than 50 percent since 2000. But those dollars are increasingly going to the wealthiest students. Sometimes colleges buy students with high SAT scores, a factor in the U.S. News & World Report college rankings. Colleges also use sophisticated pricing and behavioral models to attract undergrads wholl net them the most money. A $2,000 scholarship can be enough to woo the academically marginal child of wealthy parents, who then proceed to pay full tuition and donate generously to the endowment. (Since the dumb rich kid strategy is a net revenue generator, its not, strictly speaking, a case of screwing poor students by overcharging them. Instead, its a case of screwing poor students by not admitting them in the first place.) Annual research spending is also growing 2 percentage points faster than inflation, which is good for faculty who depend on scholarship for professional advancement.

All of these thingsresearch and scholarship, Division I sports programs, new buildings, high SATshave one element in common: theyre components of status. And colleges are, at their core, status-seeking institutions. If a colleges reputation were based in large part on how well it taught its students, the desire to gain status would be perfectly acceptableeven virtuous. Colleges would be forced to balance the competing interests of students, faculty, administrators, alumni, and the public at large. Self-interested institutions would prosper, and students would get a high-quality, reasonably priced education in the bargain.

But status in higher education isnt based on comparable measures of student learning, because such measures arent publicly available; lobbyists for colleges and universities have made sure the data is kept under wraps. Since its effectively impossible to judge institutions by their outputsthat is, by how much students learnthe pecking order in higher education tends to be based on measures of inputs, like the SAT scores of incoming freshmen or the cost of a years tuition. As a result, price has become a symbol of quality instead of a component of quality. Colleges have many incentives to raise prices and none to lower themindeed, lower prices send a negative signal to the market. Instead of increasing the number of customers, lower prices often drive them away. The U.S. News rankings reinforce this. Ten percent of a colleges score in those rankings is based on spending per student, while another 20 percent is based on factors like faculty salaries and small class sizes, which cost money to buy. Colleges that used the savings from technology to cut pricesand thus expenditureswould see their ranking go down. Their status diminished, schools would see their applications for admission and alumni donations fall as well.

If colleges competed on valuestudent learning outcomes divided by pricethen they could get ahead by increasing the quality of education or cutting price (or both). Courses like those taught at the Math Emporium, where students advance by demonstrating mastery of the subject (as opposed to spending X hours sitting in class), naturally lend themselves to an outcomes-based approach. And the number of other measures that could potentially be used to measure and publicly report student outcomes has grown rapidly in recent years (see “Is Our Students Learning?” Washington Monthly, September 2006). Colleges could use that information to seek out the middle-class sweet spot in the market, becoming the equivalent of Target or Toyota.

There would, of course, still be a niche market for Lexus U., because there will always be rich people willing and able to pay for the status signifiers that elite colleges provide. Indeed, Yale University recently began giving away complete sets of popular lecture course videos, at open.yale.edu. Yet more students than ever are applying for the privilege of forking over $50,000 per year for those same courses. Students in New Haven arent paying a premium for what they learntheyre paying for the piece of paper certifying that they learned it at Yale.

But only a few colleges can be in the luxury degree business. (The Ivy League isnt accepting applications for new members.) Most would sensibly compete for middle-class and value-seeking students, making their case based on student educational and employment results and holding down prices for fear of losing customers to more efficient competitors. Their lust for status based on exclusivity and scholarly renown would be tempered by their obligations to students and the public. Instead of building rec centers and extravagant dorms to compete for students, colleges would be more likely to invest in high-quality courses and reward faculty for their prowess in the classroom. Open-access universities and community colleges, some of which provide a much better learning environment than their more famous peers, would finally have a level playing field on which to compete for students and acclaim. As it stands, price cutting gets colleges nothing, which is why it hardly ever occurs.

ompeting on value would give colleges a reason to restrain prices, and technology would give them a way. While no one knows the upper limit of how much money colleges could save by transforming courses, its clear that if they applied the methods pioneered at Virginia Tech and elsewhere at scale, the impact could be huge. Some state systems, including those in New York, Maryland, Arizona, and Mississippi, are already going in this direction. Maryland has also moved to consolidate energy purchasing and centralize back-office operations among multiple campuses while capping the number of credits student have to earn for degrees. Those and other savings helped the system buck the national trend by keeping tuition nearly flat over the past three years.

But without the right market incentives, such leadership will likely continue to be the exception, not the rule. If higher education costs continue to spiral upward, student debt loads will grow, default rates will rise, and graduation rates will stagnate or decline. Low- and middle-income students and familiespeople at the margins of economic opportunity, for whom a college education means the mostwill disproportionately suffer. Traditional four-year colleges and universities will increasingly become enclaves of privilege, places where class divisions are reinforced rather than broken down. Fed up with unaccountable colleges and uncontrollable prices, the public will gradually withdraw from its historic commitment to higher education, weakening institutions that are vital for the nations competitiveness in the twenty-first century.

Students, meanwhile, will likely turn in increasing numbers to the for-profit universities that are aggressively moving into the market by offering convenient, no-frills degree programs over the Web. Enrollment in the “Online Campus” of the University of Phoenix, an accredited for-profit institution, grew from fewer than 15,000 students in 2000 to nearly 225,000 in 2007. And since there are no publicly available measures of learning results, theres no way to know if Phoenix courses and others like them are better or worse than those offered by traditional institutions.

Long-prosperous colleges risk finding themselves in the perilous state of the newspaper, with competitors using the Internet to drive down prices in businesses that were once profit leaders. That would be a mixed blessing, at best. The Web is a boon for those who need to access higher education at a distance. For colleges that have grown complacent and inefficientand there are manya dose of fiscal reality would do them good. But the financial cross-subsidization at the heart of the modern university also sustains much of what makes it a uniquely valuable institution, more than a mere conveyer of credits and degrees. Much as newspapers use classified advertising to support money-losing foreign bureaus, subsidized scholarship makes huge contributions to the scientific, cultural, and civic lives of the nation. The University of Phoenix does not.

Colleges also offer students a unique intellectual and cultural environment in which to grow and learn. Technology can approximate the experience of interacting with professors and fellow students, but it cant replace it entirely. Thats the genius of places like the Virginia Tech Math Emporiumwith tutors on call twelve hours a day, students have more access to real-life instructors than they once did, at less cost to the university. People learn a lot of what they know on their own, or through informal interaction with others. But the moments when they need a teacherfor information, clarification, or inspirationare crucial, and impossible to schedule ahead of time.

That, along with everything else that traditional colleges provide, is worth paying for. But people will only pay so much. As that limit approaches, colleges will either embrace the need to compete on quality and use technology to enhance productivity, or theyll find themselves diminished in a way that leaves students, scholarship, and society at large all the poorer.

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Kevin Carey

Kevin Carey directs the education policy program at New America.