Post-Secondary Education for the New Era
 
As highlighted earlier, exceeding 4 percent long-term growth depends on combining annualized productivity growth of roughly 2.5 percent with human capital growing at 1.5 percent to 2 percent per year. By returning the workforce participation rate to its previous highs and effectively managing immigration, we can certainly grow the workforce at the rate required.

However, since America’s post-secondary education system is not delivering enough skilled workers to meet even today’s more modest needs, how will it fill these additional openings?

For decades, vocational education has suffered from the twin curses of low status and limited innovation. Politicians have equated higher education with traditional universities of the sort that they themselves attended. Parents have steered children away from “shop class” - and vocational studies have been left to languish.
 
However, that’s finally beginning to change, both in North America and the EU. There are good reasons why vocational education should be gaining ground. Specifically, 45 percent of American employers surveyed by McKinsey said they have left a vacancy open because they cannot find anyone with the right attributes; about one-third said that the lack of skills is causing big problems for their business.1

At the same time, 44 percent of American youths surveyed by McKinsey reported that their post-secondary studies improved their employment opportunities. And while 72 percent of educators believed that graduates were ready for employment, only 45 percent of youth and 42 percent of employers agreed. These data reveal that today’s post-secondary education fails to equip people to successfully exploit current and emerging economic opportunities.
 
And pumping more money into conventional solutions has only exacerbated the problem. In fact, the bubble of “traditional university education” is beginning to burst.

Democratizing universities has proven an expensive and inefficient way of providing mass higher education. To date, Americans have taken on more than $1 trillion in student debt.

But a growing number of college graduates, who were taught by PhD students rather than professors, forced to subsidize bloated administrative overheads, and awarded a college diploma that no longer automatically brings a desirable job, think that they got poor value for their money.

In fact, a recently released Federal Reserve study provides solid evidence of the so-called “Bennett hypothesis.” In 1987, Ronald Reagan’s Secretary of Education William Bennett argued that post-secondary educational costs would rise to absorb incremental government funding. The new study confirms that over the past 25 years, $0.65 out of every dollar in financial aid has translated into higher fees and expenses.2

Furthermore, the increased availability of student loans has encouraged more people to enroll who were ill-prepared to take advantage of a traditional university education. Those saddled with debt, who never graduated, or graduated with a “vocationally irrelevant” education, have actually been harmed by their post-secondary experience.

But fortunately, this multidimensional tragedy is finally leading to innovation. The new paradigm now emerging is “competency-based education.” Competency-based education reverses most of the basic tenets of traditional academic teaching. It tries to transmit mastery of work-related skills or “competencies” rather than a command of a particular academic discipline.3

It is designed for a world of life-long learning rather than the “four-years-and-you’re-done” university system. Knowledge is broken up into bite-sized “modules.”

The Internet is well-suited to competency-based vocational education: It helps reduce costs while making it easier to earn a living while also pursuing vocational training.

The idea is that students take the bite-sized “modules” at their own convenience - over months or years, in the evenings or by attending full-time courses - and, they combine the modules in whatever way makes the most sense for their careers. Evaluation is continuous as students master different skills, rather than embodied in a single degree certificate. As such, a student’s resume provides a constantly updated summary of the skills he or she has acquired.

This mixture of new technology and different methods of teaching is attracting a host of entrants, from universities looking for customers to innovators hoping to create new businesses. Southern New Hampshire University’s College for America paved the way by offering competency-based degrees for $2,500 a year.

Other early adopters include the University of Wisconsin’s UW Flex and Capella University’s FlexPath. Udacity, an online education firm, has teamed up with companies such as AT&T to provide “nano-degrees”: job-related qualifications that can be completed in six to twelve months for $200 a month.4
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Dev Bootcamp offers a nine-week course for code developers paid for partly by a success fee. The firm charges employers for each graduate hired, after they complete 100 days on the job, and at the same time reimburses students a significant portion of their tuition fees.

Clayton Christensen, of Harvard Business School, and Michelle Weise, of the Christensen Institute, argue that competency-based education represents a revolution in which students will be able to take courses that provide them with essential skills quickly and cheaply. Unlike massive online open courses (MOOCs) that mostly focus on delivering standard academic education over the Internet, competency-based education will be a new approach to learning that makes plenty of use of the Internet but ties education more closely to work.
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The emphasis on competences rather than subjects will make vocational education better suited to post-industrial economies. It will also challenge the dominance of universities as students realize that they no longer have to amass huge debts in order to acquire marketable skills.

Given this trend, we offer the following forecasts for your consideration:

First, by 2020, inexpensive “competencies-based” models will begin to disrupt post-secondary education, starting by enabling the “unprepared youth” segment to enter the workforce and quickly become productive contributors.

As Clayton Christensen and others have documented in multiple studies, very few industries are disrupted by competitors who immediately address the needs of satisfied core customers, such as today’s “well positioned” university students. They first address the needs of “non-users and marginal users” with inexpensive solutions that are “not yet good enough for the mainstream.” In the case of competencies-based education, this means first targeting the 66 percent of the “high-school only” prospects, identified by McKinsey, who feel they are “too poor” to pay today’s conventional college tuition. These offerings could simultaneously target college drop-outs, as well as up to 56 percent of graduates who feel unprepared for the workplace. Then, as the technology and methods get better, competencies-based education will move up to serve the continuing education needs of top-tier professionals. This is key, because continuous retraining will be crucial to ongoing productivity growth in the Digital era.

 
Second, because of its modular bite-sized nature, competencies-based education will address the rapid proliferation of skill-sets required by a 21st century economy.

In 2009, McKinsey & Company identified 178 skill-sets required by the EU economy, but by 2012 the total was 924. With so many niches proliferating so fast, only a modular approach can efficiently deliver the training.5 As in K-12 education, government is likely to subsidize development of the core, while industries will supplement this with ‘competencies-based’ training geared to skill-sets for specific jobs.

Third, with very rare exceptions, traditional universities will not be able to transition to the competency-based vocational education model.

Adopting the competency-based model would wreak havoc on university revenues. The current model emphasizes spending time in a classroom and accumulating credits by getting grades. In the new model, credits are irrelevant, as is the classroom: Learning can take place anywhere. In addition, motivated students can speed up their learning process dramatically. Universities will have a tough time justifying their ever-increasing costs when their primary value add-on is more about certifying students and providing personalized learning rather than rigorously putting them through a set of time-consuming hoops. As long as the higher-education institutions see the model as a threat to revenues, it is hard to see rapid adoption. Most likely, it will be other institutions without these vested interests in teachers and facilities that will help fill the void and push post-secondary education into the future.

Fourth, world-class research universities will still have an important place in our economy as they will train the best and the brightest, but lesser institutions will have a hard time finding a market.

There will still be a place for academic study and small classes. But vocational innovation will produce a more dynamic educational marketplace. In this new world, vocational colleges will assume an honored position, rather than being treated as an embarrassing sideshow.

References
1. To access the report “Education to Employment: Designing a System that Works,” visit the McKinsey & Company website at:

http://mckinseyonsociety.com/education-to-employment/report/

2. To access the report “Credit Supply and the Rise in College Tuition”, visit the Federal Reserve Bank of New York website at:

http://www.newyorkfed.org/research/staff_reports/sr733.html

3. The Economist, August 24, 2014, “Got Skills? Retooling Vocational Education ⓒ 2014 The Economist Newspaper Limited. All rights reserved.

http://www.economist.com/news/business/21613279-retooling-vocational-education-got-skills

4. iBid.

5. To access the report “Education to Employment: Designing a System that Works,” visit the McKinsey & Company website at:

http://mckinseyonsociety.com/education-to-employment/report/