For the last few years, I have been doing some volunteer work in college fundraising.  Coming from the advertising and marketing industry, I help advise on fundraising marketing, media planning, and data analysis.  I see it as an easy way to give back to the community and help support the institutions I care about.  As a side effect of my volunteering, I’ve gotten an inside look at the way fundraising works in higher education.  A few of the things I’ve learned have been somewhat surprising.

Going in, I assumed that fundraising (asking alumni for donations) primarily helped colleges expand their campuses, build new buildings, hire better teachers, and otherwise improve their offering.  In my original mental model, donations were the “icing on the cake” for colleges that allowed them to do extra things that they wanted to do.

This assumption has turned out to be wrong.

Rather than being able to treat donations as “extra” money, most colleges and universities rely on donations just to meet their operating budget each year.  After all of the revenue they receive from tuition, interest from endowments, grants, etc. most colleges still do not have all of the money they need to operate each year and rely on donations to make up the difference.  Said a different way, most institutions of higher education operate at a loss every year, and then rely on donations just to break even.

I’m a huge supporter of the colleges I’ve worked with and I actively donate to several institutions, but as I’ve gotten closer to the fundraising world, I can’t help but ignore one thought lingering in the back of my head:

This is freaking crazy.

Information is so cheap!  Look online – Khan Academy, WikiPedia, Coursera, Udacity, and many others. Today you can learn how to do nearly anything for free and more educational material is popping up every day.  How is college still so expensive?  And further, how have most colleges failed to find a way to operate in the black without relying on donations?

You might say that online education is not good enough, or lacks personal attention, or otherwise falls short of what is provided at colleges today.  I think this is absolutely true – for now.  But online education is already on the familiar trajectory of market disruption.  Currently online courses (also known as MOOC’s – Massively Open Online Courses) serve the “low end” of the market: the least demanding customers who otherwise wouldn’t consume education material at all.  Online education “competes with non-consumption” and is slowly gaining market share.

As online courses expand, and provide a more diverse range of material and a more immersive experience, they will start to take some market share away from traditional colleges and institutions.  However, the first customers that go “fully online” will probably be at the low end of the market – encouraging traditional colleges to focus even more on the high end of the market, provide an increasingly premium experience, and charging even more than they already do.  Eventually there will be a tipping point, when the quality of online education catches up to that of traditional colleges and the market collapses.

Traditional colleges and universities must find a way to operate more efficiently, leverage online education, and stop running failing businesses that rely on donors just to keep the lights on.

If they don’t, I believe you’ll soon see traditional colleges and universities appear on this list.

The Economics of Higher Education