For as long as we have been investors, there is one statistic that has occupied a tiny space in my brain. There are two industries that have forever grown at a rate that outpaces inflation… higher education is one (and I’ll save the other for my next post). I’m sure we can all appreciate the impact of a college degree, but does it warrant a 200%+ increase in cost over the past 30 years? Probably not.
The only reason this expense has seen an unparalleled increase is the Government. That’s right… the support of good ole Uncle Sam via student loans has artificially grown the cost of this industry. EVERYONE can get a student loan and this fact is not lost on educational institutions. Therefore, they continue to raise their prices. Well, as the old saying goes, all good things come to an end…
The current pandemic has flipped the higher education industry on its proverbial head (at least it’s starting to). As we’ve said many times over the past six months, a crisis actually expedites an already in place transition (i.e., the adoption of online shopping). Can we say Zoom school!
As the chart to the right shows, the average annual cost of a private education is just under $37,000. That’s average! As universities are forced to provide the same education online that you get on campus, parents and students alike aren’t seeing much of a difference. Naturally, the question arises: What am I actually paying for when I send my child off to college?
No one anticipates Harvard or UCLA shutting their doors anytime soon, but this recent crisis has clearly demonstrated that distance learning is not only a viable method to providing education, but it is more cost effective. Anyone who has attended college can definitely see the value of the campus experience, but the ever-increasing tuition has to diminish the value of the actual education. My guess is there is some middle ground here (i.e., part on campus, part online).
The Zoom phenomenon in regard to education is just the beginning. Big tech companies need/want to continue to grow. Due to the law of large numbers, these tech firms need giant opportunities to move the needle. Welcome to higher education! You can be fairly certain that in the next five to ten years distance learning will be slightly more robust than staring at a professor through your laptop.
We’ve said it before, we’ll say it again… with every crisis comes great opportunity. I think the transformation of the $65 billion higher education market qualifies as just that… a great opportunity.
Note: Nothing contained herein this letter should be considered to be investment advice, research or an invitation to buy or sell any securities. Chart source: Visual Capitalists.