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The Impact of the Changing Economy on Four-Year Institutions of Higher Education: The Importance of the Internet Carol A. Twigged Society's higher education requirements are undergoing a funda- mental transformation. A rapidly growing student population is becoming older and increasingly diverse. In addition, the new economy requires a workforce capable of handling an exploding knowledge base, and industries are looking to educational institutions to provide the necessary education and training. There is financial pressure, too: colleges and universities must control and even reduce costs, as well as manage new competitive dynamics, while responding to growing demands. On their own, each of these factors is significant; collectively, they challenge fundamental higher education strategies and practices as we cross the threshold to the 21st century. At the same time, emerging digital technology, especially the Internet, is having a significant impact on society in general and on institutions of higher education in particular. Eli No am (1995) has pointed out that the three major functions of scholarly activity the creation of information and knowledge, the preservation of information and knowledge, and the transmission of information and knowledge to others are based on a set of technologies and economics. Together with history and politics, they give rise to a set of institutions. Change the technology and economics and the institutions must change eventually. No am and others believe that the traditional model of higher educa- tion is in the process of breaking down. The reason is not primarily technological; technology simply enables change to occur. The fundamental reason is that today's production and distribution of information and knowledge are undermining traditional information flows and, in so doing, creating alternatives to the university's structure. Carol A. Twigg is executive director of the Center for Academic Transformation at Rensselaer Polytechnic Institute. 77

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The impact of computing and communications technologies is already so great that every business and organization today operates in two worlds: a physical world of resources that we can see and touch and a virtual world of information. Two Harvard Business School profes- sors, Jeffrey Rayport and John Sviokla (1994, 1995), have coined the term marketspace to distinguish the virtual world of information from the physical world of the marketplace. A few examples illustrate the distinction. When consumers use answering machines to store their phone messages, they are using objects made and sold in the physical world. When they purchase electronic answering services from their local phone companies, they are utilizing the marketspace a virtual realm where products and services exist as digital information and are delivered through information-based channels. Banks provide services to customers at branch offices in the marketplace as well as electronic services to customers in the marketspace. Airlines sell passenger tickets in both the "place" and the "space." When students arrive on campus as freshmen and move into resi- dence halls, they enter the physical world of higher education. When they access the Web to write a research paper and communicate with their professors via e-mail, they move into the learning marketspace. Colleges and universities provide educational services to students in classrooms, and they offer online courses via the Internet. Bookstores sell learning materials in both the "place" and the "space." Academics, consultants, and managers have commonly described the stages involved in the process of creating value in the physical world as links in a "value chain." The value chain, according to Rayport and Sviokla (1994), is a model that describes a series of value-adding activities connecting a company's supply side (raw materials, inbound logistics, and production processes) with its demand side (outbound logistics, marketing, and sales). By analyzing the stages of a value chain, companies and institutions can redesign their processes to improve efficiency and effectiveness. Colleges and universities often have difficulty describing the traditional value chain of higher education. Most frequently, the student is viewed as the "raw material" that moves along the production line only to emerge, like Detroit's snazziest model, fully finished at the end. A more accurate description is that colleges and universities supply knowledge to those who need it; a successful transaction between teachers and students is what we call learning. Heretofore, that transaction took place almost exclusively in the physical world of the campus, sur- rounded by a series of ancillary services that also add value for the customer (for example, credentialing). Although the value chain of the marketspace can mirror that of the marketplace (buyers and sellers can transfer funds over electronic networks just as they might exchange cash when face to face), the value-adding processes that organizations must employ in the infor- mation world are unique in that they are virtual. More important, the economics of the two chains differ. A conventional understanding of the economies of scale and scope does not apply to the virtual value 78 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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chain as it does to the physical value chain. In many instances, products and services can be brought to market faster, better, and cheaper in the marketspace. New competitors are viable in the marketspace because of the new economics of doing business in the world of the space. One simple example of how these differences apply to higher education is to think about how easy it is to start a university in the world of the space: no need to build classrooms, libraries, and dormi- tories; no need to persuade faculty and staff to live in an undesirable location; no need to recruit a football team. Today we are witnessing the creation of entirely new online institutions in less time than it takes to develop a plan for a traditional campus. Whether today's versions of the virtual university will succeed in the long run is irrelevant; if they do not, someone else will learn from these early experiences and build a better mousetrap. Rather than focus on the creation of whole new institutions, we need instead to consider another characteristic of the virtual value chain: the ease with which its links can be disaggregated, or pulled apart. Unlike the physical value chain, which exists as a linear sequence of activities with defined points of input and output, the virtual value chain is nonlinear, a matrix of potential inputs and outputs that can be accessed and distributed through a wide variety of channels. The links in the higher education value chain include, among others, marketing (providing information to prospective students); admissions (qualifying and selecting students); enrollment services (handling registration, billing, financial aid); presentation of instructional material (providing lectures, books, and other materials); student interaction and academic support (offering advising, tutoring, and library support); student services (helping with placement, counseling, information tech- nology, and athletics); and evaluation and credentialing (conferring grades, degrees, certificates, and transcripts). Even today, pieces of the physical value chain are being outsourced in an effort to improve efficiency and effectiveness. Enrollment management firms, textbook publishers, testing organizations, library and administrative software suppliers, and others sell their products and services either to institutions or directly to student customers. The world of the space escalates the opportunity to create value in new ways at each stage of the virtual value chain. Each extract from the flow of information can constitute a new product or service. The consequences for higher education are huge. Many observers are convinced that hundreds of new companies, each specializing in one link of the value chain, will emerge. These companies may supply products and services to institutions, or they may decide to bypass institutions and go directly to student consumers. Others may see as their customers the major aggregators of the demand for higher education- that is, employers. Or companies may do all three simultaneously by using different branding strategies. In any event, all institutions will be able if they choose to take advantage of these developments to increase and improve services for students at a lower cost. CAROL A. TVEIGG 79

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This paper begins by discussing the major economic and technological trends affecting higher education in general and four-year institutions in particular. These trends suggest that the "space" will increasingly dominate the world of postsecondary education. The paper next dis- cusses the major trends, issues, and challenges associated with virtual education including new organizational structures that are emerging- and assesses how well four-year institutions are aligned with these trends. It concludes with a description of current developments in virtual education, taking note of the threats and opportunities these developments present to four-year institutions. A few words about terminology are in order. Throughout this paper, the terms distance learning, distance education, distributed learning, virtual learning, borderless education, and online learning are used more or less interchangeably. At times, the use of distance learning seems appropriate because the issues under discussion most frequently concern off-campus (distance) versus on-campus learning. At other times, particularly when describing the new higher education environ- ment, the phrase distributed learning more clearly expresses the changing nature (and the blending) of all forms of higher education. In any event, the reader should not draw unwarranted conclusions from a particular usage. TRENDS AFFECTING FOUR-YEAR INSTITUTIONS Society's higher education requirements are undergoing a funda- mental transformation brought about by changes taking place in what has been called the new knowledge economy. This new economy requires a workforce capable of handling an exploding knowledge base. Some experts have estimated that the shelf life of a technical degree today is less than five years. Although many of the critical skills required in the high-performance workplace have not changed, the pace of knowledge advancement requires constant updating. Education no longer ends at graduation. Viewing a college education as the mastery of a body of knowledge or complete preparation for a lifetime career has become outmoded. Increasingly, students who already possess a degree are looking for learning opportunities that will improve job or career skills. With these changes in business and industry, Americans today will work at several different jobs during their lifetimes, each job requiring new skills, new knowledge, and new attitudes and values. ~ . ~ 1 the education and training of the current labor force are key to in- creasing productivity over the next two decades. The American Society for Training and Development (ASTD) estimates that more than 75 percent of the nation's workforce need retraining. Consequently, adults will continuously enter and reenter higher education. Driven by the increasing requirements of the knowledge economy and by the income premium related to postsecondary education, the demand for four-year institutions is exceeding current capacities. According to the National Center for Educational Statistics (NCES), the earnings 80 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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advantage of male college graduates over male high school graduates was 50 percent in 1997, compared with 19 percent in 1980. Today, approximately 70 percent of high school graduates go on to college, up from just 56 percent in 1980. The next decade will see college enrollments by 18-22 year olds jump from 15 million to 20 million students (Green, 1997~. In addition, the number of older and employed part-time students is growing because of the need to upgrade skills and knowledge. It is predicted that in the 21st century, each individual in the workforce will need to accumulate an additional 30 credit hours every seven years (Dolence and Norris, 1995, p. 7~. Today, the traditional college- age group makes up a shrinking majority of the student population. "Traditional" undergraduates those who are 18-22 years old, attend full-time, and live on campus constitute less than one-fourth of all students in higher education. The New Majority is over 25, attends part-time, and lives off-campus. Many of these students work or have child-rearing responsibilities; they place a premium on time manage- ment and on balancing education with other demands. In addition, an even greater number of adults would like to pursue a college education but cannot because of inconvenient class hours, campus inaccessibility, family responsibilities, business travel, or physical disabilities. While remaining a suitable option for the minority of college students who match the traditional profile, residential education alone simply cannot serve the needs of today's working adult students. Concerns About Quality and Cost As demand for higher education continues to grow, public con- cerns about the quality of traditional institutions are increasing as well. The overall trend toward external certification as a way to ensure quality indicates a lack of confidence about how well our institutions are doing. Despite having a reputation as being the best in the world, U.S. higher education suffers from serious deficiencies, as indicated by failure rates of 60 to 70 percent among college freshmen, a 28 percent dropout rate for students between freshman and sophomore years, satisfactory completion rates as low as 40 to 50 percent for basic introductory courses, graduation rates of 43 percent within six years for all but the most selective schools, and freshman- and sophomore- level classes taught mostly by graduate students or temporary instructors (Twig", 1996~. Generally, degree acquisition, graduation, and grades are no longer viewed as adequate indicators of competency. Measures of quality are changing. Today, quality assurance agencies are moving toward an emphasis on the assessment of learning outcomes as a way to measure quality. The move toward external testing of teachers for certification represents an extension of the current practice in other professional fields such as law, engineering, nursing, and accounting, all of which already have some form of external validation. A new CAROL A. TVEIGG 81

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~ ~ . . industry that certifies competency is emerging. In the information technology field, Java or Microsoft certifications are at least comparable to higher education degrees and are perhaps even more important (Adelman, 2000~. Many states including Washington, Colorado, and Illinois are considering requiring exit exams at every level of higher education. These concerns about quality are coupled with even greater concerns about the cost of attending four-year institutions. The fundamental financial problem with four-year colleges and universities is not so much their per-student costs as it is the upward trajectory of these costs: that is, the built-in inflationary engine behind higher education. A major part of this cost pressure is attributable to the absence of sustainable productivity increases from the substitution of capital for labor, as is characteristic of the majority of the economy. Since the principal cost in higher education is for labor, its unit costs tend to track wages and salaries which, in turn, tend to reflect the real growth of the economy and thus in nonrecession years to exceed the rate of inflation. At the same time, the revenue to meet these increased cost pressures comes from three primary sources: taxpayers, parents, and students. Each source is seriously limited. Substantial increases in either federal or state tax revenues to keep up with inflation in higher education, to cover the backlog of deferred maintenance and program restoration, and to meet the higher training and education levels required by a technologically complex society are unlikely. Similarly, parental revenues seem to have peaked, and parental revenues are of decreasing relevance due to the growing numbers of older students or students from families with virtually no discretionary income. Finally, students' revenue is not likely to increase, with student debt loads ($15,000-$30,000 for the undergraduate years and $50,000-$100,000 by the end of graduate or advanced professional education) and workloads (many students are working 20 to 40 hours a week while still carrying a "full-time" academic load) already of national concern (Johnstone, 1992~. Growing Emphasis on Market Dynamics Higher education students today, particularly those in the New Majority, are becoming much more sophisticated, seeking both accountability and quality. They are more likely to define quality in the language of the quality improvement movement (that is, satisfac- tion of customer needs) than in the traditional quality measures used in higher education (that is, rich resources as represented by the size of libraries, student-faculty ratios, and the number and size of grants and contracts won by the faculty). Today's students are increasingly selecting curricula that enhance their chances of both initial and sus- tained employment. They also have reason to believe that increased competition among higher education providers will work to their advantage .. . ~ .. ... as consumers. 82 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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Students are using their purchasing power to be more selective about which institutions they attend. Colleges and universities compete fiercely for private funds and try to attract benefactors and students by establishing distinctive identities. Faculty, especially younger faculty responding to academic uncertainties and business opportunities, take a more entrepreneurial approach to their careers and are less attached to any one institution. At the same time, higher education institutions are facing competition from new educational providers from corpo- rations like Motorola to private organizations such as DeVry. Many higher educational bodies are fighting back by expanding their continuing and corporate education programs (Marchese, 1998~. Although many observers have noted the increasingly competitive atmosphere in which higher education operates, there are numerous reasons to believe that this is only the proverbial tip of the iceberg. Dwayne Matthews (nail.) has noted that, even though colleges and universities believe they operate in a competitive environment, they do so only on the margins. They are protected from true competition by the geographical constraints on student mobility, the hurdle of accreditation (with its burly bodyguard, financial aid), protectionist state policies such as designated service areas, and the financial subsidy of public institutions. These barriers are falling in some cases so rapidly that it is hard for public institutions to even know what is happening, much less develop a response. Until now, public higher education, serving 80 percent of U.S. college students, has regulated monopoly enterprise somewhat akin to a public utility. Today, the natural monopolies of higher education institutions are rapidly coming to an end, at least in their immediate service areas, as dis- tance education, supported by advancing educational technology, grows in capacity. The opening of higher education markets to true compe- tition means that state policy can shift away from controlling the behavior of higher education institutions to ensuring the effective functioning of the higher education market. In recent years, state coordinating structures have been under con- siderable pressure to support more decentralized, deregulated forms of operation. A number of factors have contributed to this environ- ment, not the least of which has been the enthusiasm to apply successful business practices to state agencies and functions. Another important factor has been the declining share of state dollars that make up higher education budgets in public institutions. At the same time, public institutions have been under pressure to demonstrate results and to report to the public on agreed-upon accountability measures. In short, state policymakers have granted greater institutional autonomy and flexibility in return for greater accountability. In considering other financial options that might emerge during the next decade, some experts argue that public support will shift from public institutions to private and proprietary institutions. This shift would be stimulated not only by the current negative impressions of the responsiveness of public education but also as a consequence been a CAROL A. TVEIGG 83

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of new funding mechanisms. At the state level, student-carried vouchers may substitute for today' s territorial franchises. In the virtual university environment in which there are no boundaries of geography or time, today's system of funding the institution rather than the individual will make less and less sense. One thing is certain. Whether through direct appropriations for public institutions from state governments, through tax exemption and federal grants for private institutions, or through need-based aid for proprietary organizations, public subsidies have long been the life- blood of higher education. Any change in public support will have a dramatic impact on the decision-making process in higher education and on the ability of many institutions to survive. The Influence of Technology The explosive growth of the Internet, signaling the convergence of computing and communications technologies, is an additional trend both driving and enabling significant changes in the economy. Many observers have noted that the Internet is literally transforming all institutions and organizations in society, resulting in a societal change that is analogous to the transition from an agrarian world to an industrial one. This technology is maturing at a time when the traditional educa- tional model is cracking under the strain of new societal requirements. Meeting the needs of an increasingly heterogeneous student body requires greater flexibility in access and significant improvements in quality, all accomplished in a cost-effective, affordable manner. The Internet is ideally suited to meet these new learning needs. More important, emerging networking technologies do not just respond to new learning requirements they also help to shape them. Through the Internet, it is now possible to offer instruction to anyone, anytime, anywhere. Almost all colleges and universities are wiring their campuses for broadband comprehensive access and are ensuring that each student has 24-hour access to a laptop computer and the Internet. The plummeting costs of networked devices will make access even more affordable and widespread. The Internet enables the creation of new teaching and learning methods that can dramatically reduce the two biggest costs of the current system: the instructional personnel and the physical plant. These technologies are extraordinarily cost-effective; virtually unlimited access to the Internet costs under $300 annually, about the equivalent of five textbooks. Massive amounts of intellectual resources are now available on the Web, and more resources are uploaded every day. Soon, entire digital libraries of both general and specialized knowledge will be available. Students will be able to access the best resources from Thor a full discussion of the public policy implications of the interplay between the new economy and the capabilities of digital technologies, see Mingle, Heterick, and Twigg (1998~. 84 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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around the world high-quality, self-paced, customized, and world class content and pedagogy. The idea of customization applied to education suggests that our definition of quality will increasingly take into account individual- ized learning styles as we construct learning experiences for students. Howard Gardener (1993) argues that there are at least seven types of intelligence but that traditional Western pedagogy, based on lectures and textbooks, makes use of only two (verbal and logical). Engaging the other five types of intelligence spatial, musical, kinesthetic, inter- personal, and intrapersonal will increase student success. Digital learning applications make this possible. The Myers-Briggs personality diagnostic instrument shows substantial variation in learning and problem- solving styles among the population. We also know that there is a significant difference between the abstract, reflective learning style of most college and university professors and the ways in which professors approach teaching and the more concrete, active learning style typical of their students (Schroeder, 1993). Again, digital appli- cations enable us to tailor materials to the learning styles of students. Digital learning applications are steadily improving. Search tools that enable complex and stored queries, as well as automated updates, are developing rapidly. Web-enabled presentation software is becoming easier to use while facilitating the communication of ideas and infor- mation in ever more powerful ways. Hybrid CD-ROMs provide the multimedia richness of CD-ROMs and the up-to-date capabilities of Web sites. Real-time audio and streaming video can now be delivered through standard 56 kbs. Virtual reality applications will offer addi- tional enriching tools. Interactive databases, spreadsheets, and Java applications engage users with customized exercises, demonstrations, simulations, and tests. Collaborative applications enable students to interact with each other and with teachers. Features include topic threading and real- time chat tools. Web-based audio and video conferencing are now stable applications. Faculty can make presentations using audio or video with synchronized html/presentation software; demonstrate concepts using shared electronic whiteboards; and test students, including using _ , , _ _ . . . . . ~ . .. . . . . . surprise pop-up quizzes, asking questions of individual students and providing individual feedback. Students can move through live or archived materials according to their own schedule and convenience and can communicate with teachers, other instructional resources, and fellow students. Push technologies deliver software and local information (news, announcements, and other time-sensitive data) and instructional content. High-performance servers will enable large volumes of students to reliably access course material while also participating in live events. In addition, the Internet offers unprecedented opportunities to collect, organize, and analyze large, real-time sample consumer research. Sources include responses to online surveys regarding student satisfaction and perceptions; tracking of learner behavior on-site (e.g., on what learning CAROL A. TVEIGG 85

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points do students spend the most time? what is the sequence and pattern of interest? what questions do students ask?; transactional data on student registrations, dropouts, and completions; and inter- action and outcome data generated from base-line assessments, exercises, and exams. Students, instructors, institutions, accreditors, and consumer agencies all have access to these data, enabling benchmarking and competency assessment. Because of the feedback available, digital products and services can be fine-tuned and product development accelerated. The key challenge is to integrate these technologies into a coherent electronic learning environment. Virtual classroom applications are already emerging, but given the exponential pace of Internet-based innovation, educational applications will become even more powerful in the next few years. A New Higher Education System What is emerging is a new higher education system what some have called a "global learning infrastructure," a student-centric, virtual, global web of educational services as the foundation for achieving the learning goals of society today (Twig" and Miloff, 1998~. This vision contrasts with the current brick-and-mortar, campus-centric college or university; it even goes beyond the paradigm of the virtual univer- sity, which remains modeled on individual institutions. The Internet enables the functions that are currently "bundled" by individual colleges and universities to be disaggregated, disintermediated, globalized, and carried out more efficiently by separate specialized entities. Due to its sheer size, the four-year educational sector will drive some Internet innovation, and some individual institutions will undoubtedly exploit these technologies to advance their programs. But even larger publishing, workplace training, and other knowledge management applications will drive the majority of innovation. The global learning infrastructure will encompass a flourishing marketplace of educational services, a marketplace in which millions of students will interact with a vast array of individual and institu- tional educational suppliers. With its emphasis on creativity and com- petition, this infrastructure enables a wide range of players colleges and universities, media, publishers, content specialists, and technology companies to market, sell, and deliver educational services online. The global learning infrastructure draws its capabilities from digital technology and the Internet. It is being developed in phases but will ultimately cross all institutional, state, and national borders. It could not have existed five years ago but it will be pervasive five years from now. 86 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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CURRENT TRENDS IN VIRTUAL EDUCATION As noted above, a new system of higher education is being developed in phases. A number of current trends in the place and space of higher education illustrate this development. Distributed Learning: The Convergence of Face-to-Face and Distance Education Many people in higher education view "distance education" as something disconnected from the core academic program. Others counter that this idea derives from how distance education was conducted in the past and that today's distance learning programs are becoming fully integrated into campus life. As an example, the University of Illinois at Urbana-Champaign (UIUC) now views distance learning as part of its central mission to serve the people of the state of Illinois, as part of the core values of the institution. UIUC's master's degree program in library science is offered online as a "scheduling option." This program is the same as the one offered on campus: students meet the same entrance requirements; the same faculty teach on campus and online; and students are evaluated in the same way. Illinois has moved from the idea that "distance education is of poor quality" to a conviction that "distance education is mainstream." UIUC is not an exception. On those campuses seriously engaged in online learning versus those merely talking about it the integra- tion exemplified by UIUC is typical. The term distributed learning has evolved specifically to describe this integration and to move away from the perceived distinction between on- and off-campus use of technology in academic programs. Distributed learning encompasses both on- and off-campus online teaching and learning. The term had its origins in the networking community, where experts talk about distributed intelligence on the network, for example, in contrast to the central intelligence of the mainframe computer. The term suggests that learning is being distributed throughout the network. Conse- quently, the kind of either/or (on-/off-campus) distinction that the term distance learning suggests is no longer appropriate. Increase in the Virtual Delivery of Services During the past five years, an explosion has occurred in the delivery of services via the Web in commerce, in government, in health care, in the not-for-profit sector, and of course, in higher education radically increasing access to information and timely response times in providing service. Campuses are moving toward offering every kind of tradi- tional student service via the Web, including admissions, registration, billing, financial aid, advising, tutoring, library, placement, counseling, information technology, grades, degree audits, and transcripts. With- out exception, new institutional providers begin with the assumption CAROL A. TVEIGG 87

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CURRENT ORGANIZATIONAL DEVELOPMENTS IN VIRTUAL EDUCATION To assess the significance of the challenges that virtual education poses to traditional four-year institutions, we must cut through the hype. A recent report, The Business of Borderless Education: UK Perspectives, notes: "Documenting current activity in borderless higher education is not easy. In a world of 'spin' it is in the interests of new providers to emphasize potential and to massage reality . . . [but] obtaining data on actual student enrolments is difficult" (CVCP and HEFCE, 2000, p. 4~. We must avoid the dangers of overgeneralizing about the impact of virtual education on the basis of what are currently only limited developments in very specific subject areas. At the same time, there has clearly been an explosion of activity in online delivery and tremendous interest in creating virtual colleges and universities. In most cases, traditional institutions are extending their campuses into the space by replicating the processes of the place, seeking to compete primarily on brand recognition. Let us now turn to a brief examination of how both traditional four-year institutions and newly emerging organizations and configurations are responding to the trends and issues discussed above. Traditional Institutions Most of the traditional providers of higher education are not meeting the challenges of the knowledge economy. Many four-year institutions continue to focus on 18- to 22-year-old students and, consequently, have no interest in serving the New Majority. Despite a growing interest in online learning among these institutions, the vast majority of teaching and learning activity remains limited to the classroom. Most of these institutions are content to stick with traditional academic values. For example, they see nothing wrong with professors who have no "real- world" experience. Consequently, most classroom activity, by design, lacks an applied-knowledge focus. In addition, the extent to which significant virtual education activities can be undertaken within exist- ing college and university structures is open to question. Potential difficulties include the following: Lack of leadership. The attitudes, values, skills, and knowledge of executive leaders and decision makers in higher education differ entirely from those required to respond to the new economy. Time-consuming decision-making processes. Current decision- making structures or the lack of them on campus form an obstacle to developing large-scale responses. Conflicts with "mainstream" activities. It is difficult to emphasize traditional on-campus activities while simultaneously launching new kinds of activities. Finance issues. Traditional educators may not have the ability to raise capital to infuse the development of virtual activities. They 94 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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have little experience with developing business plans or successfully developing products. Without the expectation of profit, private investors and entrepreneurs will not make the investments and take the risks- that are needed to create and market a new technology. . Staging issues. Academics generally lack the skills and abilities necessary to meet the challenges of virtual education. This is one of the reasons why "support" and "faculty development" loom so large on the higher education agenda. Even though information technology and distance education are high on the agenda of every four-year institution at least at the executive level there is a wide gap between that interest and the development of serious, large-scale responses to the trends discussed above. First, despite an explosion in online activity, most of today's online course activity consists of current students who are engaged in an alternative option to classroom learning. Although there is nothing wrong with providing such alternatives, this is a long way from serving the burgeoning needs of the knowledge economy. Second, most online activity is confined to disparate courses rather than making up full degree or certificate programs. To be sure, a small number of institutions have done heroic work in this arena, but most four-year institutions are nowhere near offering the number of full programs or workplace- oriented courses that are required by the new economy. Third, almost all of the newly announced virtual efforts on traditional campuses are developing exceedingly slowly. Timing is generally set by the insti- tution, not by the needs of the customer. virtual University Consortia Almost every state in the United States is engaged in some kind of virtual university consortium effort. In some cases, the consortium involves only public institutions: the State University of New York (SUNY) Learning Network, UMass Online, Georgia G.L.O.B.E., the University of Texas Telecampus, and the recently announced Tennessee Virtual University. In other states, the effort involves both public and private institutions such as the Kentucky Virtual University (KYVU), the Michigan Virtual University, the Illinois Virtual Campus, and the Ohio Learning Network. Once again, the changing economy is the driver behind these efforts. This excerpt from the KYVU homepage typifies these efforts: Various kinds of foci are possible: The mission of the KYVU is to be a student-centered, technology- based system for coordinating the delivery of postsecondary education that meets the needs of citizens and employers across the Common- wealth.... Consistent with the statewide strategic agenda for post- secondary education, the primary purposes of the KYVU are to: CAROL A. TVEIGG 95

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Enhance and expand educational access and increase educational attainment across Kentucky. Upgrade workforce skills and expand professional development through basic and continuing education. Increase collaboration and foster efficiency and effectiveness in delivering courses and programs. Enhance educational quality. Increase global competitiveness of Kentucky's educational resources (Kentucky Virtual University [KYVU], 1998~. What else do these state consortium efforts have in common? All operate a "portal" a Web site that lists participating institutions and courses and, in some cases, degree programs offered online. Their primary operational activity is as a referral service, since none of the consortia are degree-granting and none offer their own courses but rather list those of the participating campuses. Students must choose a "home" campus in which to enroll. Because each of the campuses has its own residency requirements and transfer policies, students inevitably have limited opportunities for study beyond what a particular campus traditionally offers. As a consequence, the majority of students taking courses in these virtual university endeavors are simply on-campus students studying online at their home campuses. It is questionable how far these efforts, as currently constructed, can go toward meeting their primary goal of economic development, since despite the hype, students must still follow traditional practices at a home campus. These consortia are generating demand for higher education because of the publicity surrounding their creation, but they are also generating frustration on the part of students because of anti- quated residency and transfer policies. The result is that those institu- tions with more flexible degree completion policies will benefit. Independent Nonprofit Institutions Another category of participants in the virtual education space is independent nonprofit institutions. Some of these like the Western Governors' University (WGU), the United States Open University (USOU), and Jones International University have been recently formed. Others- like the National Technological University (NTU) and Excelsior College (formerly Regents College) have been around tor years. Founded in 1984, the National Technological University was established to deliver academic courses directly into corporation training facilities, via satellite, for engineering professionals. Today NTU awards master's degrees in 18 engineering, technical, and business areas and offers more than 1,300 academic courses, all supplied by 52 leading U.S. universities, including about half of the top 25 engineering schools. Courses today are delivered via satellite, the Internet, videotape, and CD-ROM. 96 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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The Western Governors' University opened its doors in 1998. Like NTU, WGU does not teach its own courses but instead has partnerships with other institutions all over the United States to pro- vide instruction through distance education. WGU awards degrees by assessing students' knowledge through a set of competency-based exams. WGU has achieved candidate status for accreditation through a consortium of four regional accrediting agencies. In 1999, Britain's Open University (BOW) announced plans to begin offering an Americanized version of its distinctive distance education program through a U.S.-based sister institution, the United States Open University. Currently in a pilot stage, the USOU faces a number of serious challenges, including adapting BOW's course structures to U.S. students and finding the right students to enroll. Each of these institutions targets working adults. Demand is high in professional areas business and management, health care, educa- tion, and information technology. Because these institutions grant degrees and enable students to study according to the demands of their busy lives, the independent nonprofits are closely aligned to the needs of the changing economy. Partnerships and Subsidiaries A number of four-year institutions are creating partnerships with private companies. For example, several leading universities including Columbia University, Stanford University, the University of Chicago, and the London School of Economics and Political Science have established partnerships with UNEXT.com, a start-up Internet com- pany. NYU Online is a partnership between New York University and click21earn.com. Other institutions are creating for-profit and nonprofit subsidiaries. Examples include the University of Maryland University College (UMUC), eCornell, Duke University's Duke Corporate Edu- cation Inc., and NTU. Most of these efforts result from the need for institutions to find a way to offer both credit and noncredit courses to individuals and corporate universities that is, a way to respond to the demands of the changing economy. Traditional institutions choose to form partnerships or subsidiaries for several reasons. The first reason is to create an opportunity to secure capital in order to finance the institution's expansion. Tradi- tional institutions are funded on an operating basis, primarily by tuition and/or state allocations. Neither of these sources can generate enough capital to invest in expansion. The second reason, closely related to the first, is to enable the development, marketing, and delivery of online courses. For example, NTU and UMUC are each a way for their parent institutions to retain core academic functions (establish- ing admission standards, degree program requirements, and faculty qualifications and awarding degrees) while moving noncore functions (evaluating demand, marketing services, recruiting students, develop- ing products like courseware, and handling back-office functions) to CAROL A. TVEIGG 97

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the for-profit subsidiary. Accreditors and states see this as a way to raise capital without compromising academic integrity (Goldstein, 2000~. A third reason is that the new entity can take on risks, thus pro- tecting the parent from unnecessary risk. The fourth reason is to gain flexibility in staffing policies and practices such as hiring and com- pensation (e.g., share of profits). Duke's Fuqua School of Business had been successfully offering programs to top management for a price tag of $80,000 in tuition, but Duke also found a large demand for training at lower levels. Since the Duke faculty had little interest in meeting this demand and since Duke's personnel policies made it difficult to respond flexibly to the market, Duke created Duke Corporate Education Inc. Ownership is 60 percent Duke University, 20 percent employees of the new entity, and 20 percent other investors. Five full- time faculty and 30 part-time faculty will transfer from Duke to the new entity, which will also initially hire about 60 to 70 new employees. What is the prognosis for these new entities? Many institutions will form partnerships and subsidiaries because they are resolving the real friction between institutional structures and the demands of the new economy. Even though many of the current efforts are simply reinvestments by the parent (Duke, Cornell), the need for flexibility is a clear driver. In essence, what Cornell and Duke are doing is creating a continuing education operation. Although they may gain needed flexibility, a key question remains: Can they attract external capital? Meanwhile, both NTU and UMUC believe they have an excellent product that has been held back due to lack of public knowledge. If that is indeed the case, these new subsidiaries will be very effective in "growing" these institutions. If not, capital will flow to more profit- able ventures. Corporate Universities Corporate universities exist predominantly in the United States. According to Corporate University Exchange, their number rose from 400 in 1988 to 2,000 in 2001 (Meister, 2001~. The significant increase in the number of corporate universities could be a sign that companies no longer consider continuing education and training as a cost that should be cut but rather as an investment that can attract and retain the best workforce. Companies may realize that they must prepare employees to compete in the global economy, to meet and exceed service expectations, to adjust to changing roles and new technolo- gies, and to respond to current and future global pressures. ~ .. .. . . L,esplte the large numbers of "corporate universities," in most instances these organizations represent a "rebranding" of their company' s human resources and training functions. Little has changed except the name. The majority are focused on improving the competitive edge of their own companies through improved group and individual perfor- mance, and most show few signs of activity at the higher education level. Despite the adoption of a lot of the language of higher educa- 98 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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tion in corporate training circles, few if any companies are, in fact, trying to compete with traditional institutions. Their offerings are primarily noncredit, nondegree courses; 82 percent are used primarily to convey corporate culture to the company employees. Even Motorola University, a frequently cited corporate university exemplar, generates only about 7 percent of its revenue externally, mostly through enroll- ment in courses like "How to Establish a Corporate University." Some observers believe that corporate universities represent a potential threat to traditional institutions. Until very recently, colleges enjoyed a captive market, and corporations paid whatever institutions charged for executive education. But today. by launching their own corporate universities, companies are taking it upon themselves to educate their employees and/or to demand courses that fit their par- ticular business needs and challenges. They are also requiring that courses be developed more quickly and at more competitive prices. In addition, corporations want their educational partners to provide many more, often time-consuming and costly services such as round- the-clock access to professors, mentors, and fellow students (Meister, 2001; CVCP and HEFCE, 2000). ,, , ", For-Profit Institutions Despite the large amount of attention recently directed at for- profit institutions of higher education, many of them have been around for a relatively long time. DeVry was founded in 1931, the Keller Graduate School of Management in 1973, and the University of Phoenix in 1976. Two things are worth mentioning in a discussion of the impact of for-profit institutions on traditional four-year institutions. The first is that even though these institutions, like their nonprofit counterparts, are primarily site based, their greatest growth trajectories are occur- ring in the online market. The University of Phoenix, for example, currently enrolls 75,000 students, a 22 percent increase over 2000. Its online campus grew by 44.7 percent, to 13,779 students. The pro- jected growth of its site-based programs is 17-18 percent; the pro- jected growth of its online programs is 35-40 percent. In examining these trends, the authors of The Business of Borderless Education: UK Perspectives observed that technology is not the primary com- petitive issue, despite their view that in the longer term "the majority of continuing professional development is likely to become virtual." The U.K. and Australian teams agreed: "At present, virtual, corporate and for-profit institutions are not far in advance of traditional univer- sities in exploiting the potential of technology to change their educa- tional model" (CVCP and HEFCE, 2000, p. 5~. Rather, the biggest competitive challenge to existing institutions, particularly those that serve working adult students, lies in the more efficient way that the new private providers utilize staffing resources and in their highly professional approach to teaching and learning. CAROL A. TVEIGG 99

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Close attention is paid to quality through mandated teacher training, rigorous evaluation of the teaching process, an emphasis on support- ing all teachers including part-timers, a focus on professional exper- tise, and close attention to service levels for learners. Key elements in the ability of the new providers to attract adult students include convenient locations; "24/7" full-time learner sup- port; frequent enrollment points; short intensive study periods; the potential for "banking" and transfer of credit; and a curriculum that is taught by practicing professionals and that is of direct and immediate applicability to the workplace. The Business of Borderless Education correctly observes that in the professional development market "the social aspects of learning are perhaps less significant than in under- graduate education" (CVCP and HEFCE, 2000, p. 15~. These providers are creating a new kind of institution one built on inclusiveness and accessibility, much like the community college, rather than on the exclusiveness and inaccessibility that typifies medallion institutions. In the process, they are creating new "brands." Conclusion Three important points emerge from our brief analysis of the cur- rent organizational developments in virtual education. First, each type of institution is being driven by the demands of the changing economy and the needs of the New Majority, despite differences in strategies for development. Second, these phenomena will inevitably have dif- ferent impacts on the various types of four-year institutions. Tradi- tional four-year institutions that depend heavily on adult students are clearly more threatened by competition in this market than are those that focus on traditional undergraduates. The third point and the most significant in my opinion is the likely relative decline in traditional four-year institutions' influence on the world of postsecondary educa- tion and on the public dialogue. Institutions that once dominated the development of public policy may be increasingly marginalized if they fail to respond constructively to the needs of the changing economy. IMPLICATIONS FOR THE FUTURE A central premise of most gatherings of prominent higher educa- tion leaders today is that the "new providers" of higher education are likely to produce changes comparable to those brought about by the establishment of land grant institutions and community colleges. But some question this assumption. Can anyone, they ask, actually name six "new providers" that are up and running or will be so in the foreseeable future? Like the small boy who questioned the state of the emperor's clothing, they point out that although many proposals for new efforts are being floated, these are mostly just talk. The changes being taken for granted are hardly moving at Internet speed, if at all. 100 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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At first glance, this argument seems quite persuasive. After all, the University of Phoenix the leading exemplar of the new providers- is really quite traditional in its operation, emulating both the form and the content of many traditional four-year institutions. Its primary distinguishing characteristic its for-profit status makes a lot of people in higher education uncomfortable, to be sure, especially when this for-profit status is coupled with its rapid growth rate. But other than the University of Phoenix, it's hard to name any significant players who can be called "new providers," particularly at the baccalaureate level. Despite an abundance of press releases and highly touted "alliances," the other for-profit initiatives lack one important ingredient: students. WGU's total student body, for example, is the size of one not-so- large class at a traditional university. Indeed, the vast majority of for- credit online and distance learning courses are being conducted by highly traditional colleges and universities, building on well-established academic structures and conditions for successful learning. These initiatives create greater opportunities for students, as well as greater competitive pressures among established institutions, but it's a stretch to call the Universities of Maryland, Indiana, and Wisconsin, for example, "new providers." So perhaps our colleagues are right: perhaps the transformation we're supposed to be undergoing is just noise. Then again, perhaps those who look for examples of transformation in higher education by extrapolating from current institutional forms are missing the point. Extrapolation would suggest that transformation means moving the entire apparatus of degree-granting institutions, more or less intact, on to the Internet. To be sure, there are not many examples of this today, and there may well not be many in the future. An alternate view suggests that the higher education transforma- tion that is just beginning is taking a different tack. The key concept here is the disaggregation of institutional structures and processes, a disaggregation made possible largely by the capabilities of informa- tion technology the virtual value chain. New providers of products and services are targeting pieces of the educational enterprise as the source of new businesses, pieces that can then be reaggregated under entirely new, flexible arrangements. The impact on traditional four- year institutions is and will be economic. The dispersion of the cur- rently integrated products and services of higher education will be like pulling threads, one by one, from a piece of fabric. At first, there is little noticeable change, but as time goes on, the material begins to unravel. Let's consider a few examples. Campuses are beginning to expe- rience what Converge magazine has called "The Great College Text- book Migration" (Smith, 1999~. The $3 billion college textbook market, the high overhead that is passed on to customers of college bookstores, and the 76 percent of U.S. college students who regularly use the Internet add up to a new business opportunity. Companies like VarsityBooks and BigWords, two new online efforts, can bypass the CAROL A. TVEIGG 101

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college bookstore, cut costs 25 percent to 40 percent, and eliminate the institution's share of the bookstore profits (just a "thread" in the overall campus budget), all while providing better, cheaper, and faster service to students. How about remedial education? Companies are developing highly sophisticated instructional software that targets this segment of higher education. Most of this software is currently designed to be used in a traditional classroom or learning laboratory format. But it doesn't take too much imagination to see the possibilities for a new outsourcing business model that provides remedial educational services, an area that many institutions would gladly cede to others. What about master' s degrees? Most of the serious competition from for-profit providers is at the master's level, for rather obvious reasons: the difference between 30-36 credits in a specialized area and 12-128 credits in multiple areas. Testing? Think Sylvan, Kaplan, and ETS. Placement services? Library services? Tutorial services? Specialized courses like those for information technology competencies? The list goes on. In each case, the competitive alternative is based on "better, cheaper, faster" the watchwords of the Internet. We are already seeing the creation of companies in each of these arenas. Some would say that these are ancillary to the main business of undergraduate education. And perhaps they are. But we are also seeing the emergence of new forms of teaching and learning that have the potential to radically improve student learning. These new approaches go far beyond education as usual on the Internet. We know, for example, that Virginia Tech has demonstrably improved the way mathematics is learned by students. Why shouldn't they (as a for-profit arm of the university, as an independent math faculty "practice," or as a new company that acquired the methodology) offer mathematics to students across the country? And why won't this example be replicated in all high-demand disciplines? Today, few people would argue with the assertion that the Internet is transforming communications in the United States and around the world. Perhaps 20 years ago, people thought that a new communica- tions structure would be an extrapolated replica of the old AT&T. Instead what we have is the disaggregation and reaggregation of hundreds of communications products and services in place of the monolithic structures of the past, offered by companies that didn't exist when the Internet was conceived. Who are the new providers? In most cases, we don't yet know their names. REFERENCES Adelman, C. (2000~. A parallel universe. Change, 32~3), May/June, 20-29. Clark, R.E. (1983~. Reconsidering research on learning in media. Review of Educa- tional Research, 53~4), 445-459. 102 THE IMPACT OF THE CHANGING ECONOMY ON FOUR-YEAR INSTITUTIONS

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Committee of Vice-Chancellors and Principals of the Universities and The Higher Education Funding Council for England. (2000~. The business of borderless education: UK perspectives. London: Authors. This report builds on an earlier study and a detailed analysis of corporate universities and educa- tional businesses in the United States. The previous study was conducted by a team of Australian researchers: The business of borderless education. Available: http://www.detya.gov.au/archive/highered/eippubs/eipO0_3/bbe.pdf [April 23, 2001] . Council for Higher Education Accreditation. (2000~. Transfer and the public interest. Washington, DC: Author. Dolence, M.G., and Norris, D.M. (1995~. Transforming higher education: A vision for learning in the 21st century. Ann Arbor, MI: Society for College and University Planning. Gardener, H. (1993~. Frames of mind: The theory of multiple intelligences. New York: Basic Books. Goldstein, M.B. (2000~. To be (for-profit) or not to be: What is the question? Change, 32~5), September/October, 25-31. Green, K.C. (1997~. Money, technology, and distance education. On the Horizon, 5~6), November/December, 1, 3-7. Johnstone, D.B. (1992~. Learning productivity: A new imperative for American higher education. Albany, NY: State University of New York. Kentucky Virtual University (1998~. KYVU mission and purpose. Available: http:// www.kyvu.org/student.nsf/ID/c41 aS96c 1030273a852569 lbO0521fS6 [April 23, 2001]. Marchese, T. (1998~. Not-so-distant competitors: How new providers are remaking the postsecondary marketplace. AAHE Bulletin, May. Matthews, D. (n.d.~. The transformation of higher education through information technology: Implications for state higher education finance policy. Unpub- lished paper. Meister, J.C. (2001, February). The brave new world of corporate education. Chronicle of Higher Education, 47,8-10. Mingle, J.R., Heterick, R.C., Jr., and Twigg, C.A. (1998~. The public policy implica- tions of a global learning infrastructure. Washington, DC: Educom. Noam, E. (1995~. Electronics and the dim future of the university. Science, 270, 247-249. Rayport, J., and Sviokla, J. (1994~. Managing in the marketspace. Harvard Business Review, November-December, 141-150. Rayport, J., and Sviokla, J. (1995~. Exploiting the virtual value chain. Harvard Business Review, November-December, 75-85. Russell, T.L. (n.d.~. The "no significant difference phenomenon." Available: http:// teleeducation.nb.ca/nosignificantdifference/ [April 23, 2001]. Schroeder, C. (1993~. New students new learning styles. Change, 25~5) September/ October, 23-26. Smith, B. (1999~. The great college textbook migration. Converge, 2~9), September, 12-14. Twigg, C.A. (1996~. Academic productivity: The case for instructional software. Washington, DC: Educom. Twigg, C.A. (2001~. Quality for whom? Providers and consumers in today's distributed learning environment. Troy, NY: The Pew Learning and Technology Program. Twigg, C.A., and Miloff, M. (1998~. The global learning infrastructure. In D. Tapscott, A. Lowy, and D. Ticoll (Eds.), Blueprint to the digital economy: Wealth creation in an e-business era (pp. 179-201~. New York: McGraw-Hill. CAROL A. TVEIGG 103

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central to contests over access, finance, arid accountability in the postsecondary realm. The notion that market provision of higher education will preserve the role of higher education as a public good challenges a number of traditional beliefs about the nature of education itself. John McMurtrv nut it this way: "The defining onncinies of education and of the marketplace are a_ ~ , ~ . At- . ~ ~ 4~ ~ ~~ ~~ ~ ~~x ~~ &~ ~ ~ ~ ~~ fundamentally contradictory in: t1, their goals; tz) their motivations; hi) their methods; and to) their standards of excellence. It follows, therefore, that to understand the one in terms of the pnnciples of the other, as has increasingly occurred in the application of the market mode} to the public educational process, is absurd"~199l, p. 216~. The three assumptions also engender a strong sense of inevitability in arguments for the market provision of higher education. While researchers may differ on whether a market approach is a positive development, the underlying question in contemporary accounts is not whether higher education institutions should adopt market-like behaviors, but whether they will be able to do so rapidly enough to remain competitive. As Newman and Coutuner put it, "Whether policy makers and academic leaders are capable of addressing these issues in the months and years ahead or not, higher education will continue its inexorable evolution toward a market economy" (200 1, p. 91. That sense of inevitability in turn fosters demands for farther adaptation of higher education systems in the United States and around the world (Clark, 1998; Tooley, 1999~. It is the argument here that market approaches to higher education are less inevitable than they are ahistorical. Contemporary literature on the need to adapt to changing demands through market solutions does not sufficiently account for the evolution of the nonprofit institution as the dominant fonn for the provision of postsecondary education in the United States. Nor does contemporary research sufficiently explore the relative inability of market-based, consumer-driven systems to produce opportunities for universal access, leadership training, or the redress of social inequalities. In order to understand the continuing importance of nonmarket delivery of higher education in the service of the public good, we need to begin with an overview of the changing demands on the higher education system. THE CHANGING ENVIRONMENT Contemporary research on the contextual changes shaping higher education has focused on a number of issues, including labor market demands (Aclelman, 2000; Marchese et al, ~ 9981; the new demographics of postsecondary students and constituents (Carnevale and Fry, 2001; Kohl and I=aPidus, 2000~; the rising cost of higher education (Ehrenberg, 20001; globalization (Levin, 2001~; new technologies (Men(lenhaIl, 2001; Graves, 19991; and competition as a driver of change in postsecondar~r structures and processes (I>evine, 2001; Marginson and Considine, 2000). Perhaps the most influential analyses have been those focused on changes in the finance of higher education over the past two decades (Heller, 2001; McKean-Moak, 2000; Goldstein, 1999; Kane, 1999; McPherson and Schapiro, 1998). Dunng that period increases in enrollments have coincided with a retrenchment from state block grant support for higher education (Winston, Carbone, and Lewis, 19981. in response, institutions have rapidly increased tuition and students and parents have taken on significantly larger portion of the finance of higher education (Callan, 2001; Breneman, 20001. This shin in the burden of paying for higher The Knowledge Economy and Postsecondary Education: Report of a Workshop Chapter 4 104