Higher Education Predictions 2023, Part 2: Debt Forgiveness Flounders & More Coursera Cuts
Prediction 2: Biden’s student loan forgiveness package will flounder in the courts. I think this is net-positive for the sector because it counters a “quick-fix” mentality. An ambitious new initiative is already working to change the narrative from debt cancellation to college ROI.
Prediction 3: Coursera, the most prominent purveyor of low cost online degree and non-degree programs, will resort to more staff cuts in an attempt to staunch mounting losses. Coursera’s difficulties point to the enduring power of immersive, high-touch education—something that colleges and universities know a thing or two about.
Prediction 2: Debt Forgiveness Flounders, but College ROI Sharpens
Back in August, President Biden announced a bold student loan forgiveness plan that if enacted would leave an estimated 45% of borrowers debt free. The president sought to fulfill a campaign promise to tackle what many view as a crisis of unjustified college prices and poor return-on-investment (ROI) for students and taxpayers. Student loan debt stands at close to $1.8 trillion and 40% of borrowers are not in repayment. Some 26 million borrowers—60%—applied for forgiveness under the new plan.
The Biden Administration contends it has legal authority to cancel student loans during a “national emergency,” citing the COVID-19 pandemic.
But the scheme is now on hold pending litigation.
One case—brought by six Republican-led states and headed to the Supreme Court—will, I predict, torpedo Biden’s plan. The plaintiffs argue that in fact the Administration lacks the authority to mass cancel student debt without congressional approval, and that mass cancellation will cause significant harm to state agencies (such as Missouri’s Higher Education Loan Authority) that administer student debt, and by extension to state taxpayers.
My read is that the justices are likely to find in favor of the plaintiffs, concluding that the Administration’s asserted legal basis for mass cancellation—the 2003 HEROES Act which authorizes the Secretary of Education to cancel federal student debt for soldiers in wartime or others suffering direct harm in a “national emergency”—cannot now be applied to COVID-19.
Now that the worst of the pandemic is over, unemployment is low and wages are up, and after massive federal stimulus to revive the economy, the justices will argue that the Secretary cannot again play the emergency card.
If Biden had acted earlier when the pandemic was in full swing, opting to cancel debt rather than suspend payments (as was actually done), the “emergency” provision might have overcome legal pushback.
With mass forgiveness off the table, the Administration will focus on expanded income-based repayment and public service forgiveness arrangements to address the mounting debt pile. Perhaps the legal tussle over mass forgiveness will clear the air for new statutory or regulatory action, such as automatic enrollment in income-based repayment, capping interest capitalization or tighter regulation of financial aid letters.
The Supreme Court will hear the states’ case on February 23. A decision is expected in June. Student loan payments restart July 1.
Some in higher education saw mass forgiveness as a way to draw a line under persistent affordability and debt concerns, but there were few illusions that one-time cancellation addressed root causes.
Colleges need to move the narrative from debt forgiveness to college ROI. The ambitious new College is Worth It campaign from the National Association of System Heads (NASH), representing 65 higher education systems nationwide that enroll three-quarters of college students, is right on cue.
Efforts to better articulate the benefits of higher education are nothing new (e.g., see CASE’s Discover the Next). What distinguishes NASH’s campaign is three big stretch goals:
- Completion: Produce over one million additional degree and credential holders by 2030 by expanding enrollment, boosting completion rates by 35%, and reducing equity gaps by half.
- Mobility: Move 65% of students in the bottom 40% of the income distribution to the top 40% and advance 85% to the top 60% by 2040.
- Debt Reduction: Decrease the median debt borrowed by Pell students by 25% by 2030 and reduce the Pell/Non-Pell repayment gap by half.
High-risk and drawn out, yes, but NASH’s effort—more so than one-off debt cancellation—promises the sort of scaled transformation—substance and narrative—that higher education really needs to revive enrollment. Higher education has a great story to tell but cannot expect to win over critics without committing to major improvements.
That the higher education collective is taking the initiative, rather than waiting for a government mandate, suggests that today’s environment—enrollment down, institutional finances strained, public confidence shaken—is concentrating minds.
Prediction 3: More Cuts at Coursera Spell Opportunity for Higher Ed
If you scan the Coursera headlines—113 million learners worldwide, 1,000+ corporate clients, over $500 million in revenue, 25% revenue growth year-over-year—the story of this leading online learning company looks compelling. Partnered with many prestigious U.S. and international universities and offering an array of quality degree and non-degree programs in high-demand fields at accessible prices, Coursera is higher education market disruption come true.
But look more closely and cracks appear:
- Losing Money. The company’s average net loss ratio for the first three quarters of 2022 was 34% of revenue, up from 29% the prior year.
- Unsustainable Learner Acquisition Costs. Marketing swallowed 43% of revenue through Q3 2022, the same ratio as in 2021 and up over 2020.
- Limited Laddering. Degree enrollment—offering superior revenue-per-student and essential to the business model—has stalled, and revenue per degree student is down.
In my view, these challenges reflect more than just today’s tight labor market.
As I argue in Eduventures’ forthcoming report, Sizing Up the Non-Degree Market: Evidence from Coursera, edX & Udemy, Coursera and its peers are struggling to overcome more fundamental issues: tensions between learner engagement and corporate profitability, hard to generalize learner ROI, and a surfeit of competition. Despite impeccable brands, in-demand programming, credible design, and attractive price points, the Coursera learner experience has yet to generate the sort of word-of-mouth promotion to spare the company margin-crunching marketing spend.
Other obstacles include lack of financial aid for most programs and learners, a value-diluting and cost-ballooning smorgasbord of programs, and a pricing model (subscription) that prioritizes corporate income stability over learner need for a particular program at a given time.
With interest rates rising and investors growing cautious, Coursera announced layoffs to reign in expenses in November.
My prediction: in 2023, with or without a recession, unable to raise prices and forced to discount, and seeing no alternative to relentless marketing spend amid a global labor shortage and heightened competition, Coursera will announce more job cuts.
What does this mean for colleges?
Online learning is an essential tool for higher education to widen access, raise quality, and lower cost. Coursera and its peers have gotten further than most in realizing this vision, but have also highlighted the limitations of high enrollment/low-cost models.
Coursera has over 100 institutional content partners, but the company is only interested in brands where online delivery can tap substantial unrealized demand. That excludes 99% of institutions in the U.S. and globally. The “99%” must strive for a hybrid of online convenience, access and affordability with offline elements—defined by regionalization, socialization, and immersion—that the likes of Coursera cannot match and that appeal to specific audiences willing to pay for them. That is key to reviving college enrollment and draws on mainstream institutional strengths.
Coursera and similar firms are not going away. Institutions should neither ignore nor be blinded by these novel competitors. The failures of these companies light the way.
Wildcard: Coursera is acquired by Google, a major Coursera partner and a company that sees mass online skills acquisition as a loss leader for its core search and advertising business.
(P.S. In my opinion, the travails of Coursera and its peers point to a saturated non-degree B2C market. But stalled degree enrollment on these platforms is more surprising. A future post will consider explanations).
Digital Predictions for 2023: Video-First Strategies Win Students and Families
Thursday, January 19, 2022 2pm ET/ 1pm CT
As you kick off a new calendar year and continue to recruit your incoming class, finding the right marketing mix to keep Gen Z students engaged can be challenging. While their preferences and behaviors continue to shift, staying in-touch with them on their preferred platforms is more vital than ever – will TikTok continue to lead the way in 2023?
Pandemic-Proof Your Enrollment Strategy with Admitted Student Research
This recruitment cycle challenged the creativity of enrollment teams as they were forced to recreate the entire enrollment experience online. The challenge for this spring will be getting proximate to admitted students by replicating new-found practices to increase yield through the summer’s extended enrollment cycle.
By participating in the Eduventures Admitted Student Research, your office will gain actionable insights on:
- Nationwide benchmarks for yield outcomes
- Changes in the decision-making behaviors of incoming freshmen that impact recruiting
- Gaps between how your institution was perceived and your actual institution identity
- Regional and national competitive shifts in the wake of the post-COVID-19 environment
- Competitiveness of your updated financial aid model