What’s shaking up with the 4-year college degree with John Katzman, CEO at Noodle

Debbie Goodman  00:05

Welcome to On Work and Revolution, where we talk about what’s shaking up in the world of work, and edtech. I’m your host, Debbie Goodman. And today we have as our guest, John Katzman. So John is CEO of Noodle, which if you’re in any way connected to the edtech ecosystem you will have heard of, but in case not, Noodle is one of the fastest growing online education organizations in the US and globally. I was really excited to learn that Noodle has recently acquired Hubble Studios, a global elearning design firm with headquarters in Cape Town, which is my hometown. And so with the acquisition of Hubble studios, Noodle now partners with over 40 universities and 30 corporations worldwide and probably growing I think, but Noodle is not John’s first rodeo. He previously founded and ran 2U and the Princeton Review. He is co author of five books and has served as director for many profit and nonprofit organizations, Carnegie Learning, Renaissance Learning, the National Association of Independent Schools and National Alliance of Charter Schools … may have missed a couple, John. So we have an industry veteran in the house. And today, we’re going to be chatting to John about the future of higher ed, the value of the four year degree and what needs to be done to improve the quality of education without making it more expensive. And hopefully, John will also share his take on the impact of the Department of Education’s recent moves on what seems like a clamp down with OPM’s and third party service providers. So welcome, John. 

John Katzman  01:44

It’s good to be here. Thanks for having me. 

Debbie Goodman  01:46

Okay, so let’s get right into it. You have said that Noodle set out to prove that online university programs could be the equal of on campus ones, and it achieved that. So with that, is higher ed in some kind of existential crisis? What lies in its future?

John Katzman  02:05

I don’t think there’s a crisis. The fact is that the value of a college education or graduate school education continues to go up. Even as Silicon Valley’s narrative has been that we don’t need degrees anymore, we can just get badges or certificates, there’s no existential risk. However, higher ed is too expensive. That has huge social impact. And it has an impact on things like graduation rates in the US, which are, you know, around 50%, six year graduation rates and could be much higher. About half the people who drop out, it’s, related to money. So how we collectively as a community, the edtech community, solves that problem, without dumbing down the education in any way, that is the mission, I think, for all of us. 

Debbie Goodman  03:00

And so you must have been thinking about this a lot. Because Noodle is part of the solution to that very problem that you’ve iterated, how do we start to fix this? How do we address it?

John Katzman  03:09

I think the edtech community can be part of the solution and it starts by recognizing what the actual cost of higher ed is. Only about 20% is teaching. And that’s the part we don’t want to mess up, right, is we don’t want to, in any case, in any way reduce the engagement between students and faculty. And among students, learning is fundamentally collaborative. But you look at everything else and it’s just a target, like how do we help a school scale without adding cost of buildings without adding administrators? How do we make schools more efficient, and more effective at supporting teaching and learning? And I think there are a lot of ways to do that. 

Debbie Goodman  03:53

When we speak about the proliferation of the bootcamps, the small badges, the credentials that you alluded to at the beginning, and it seems like there’s the attempt to replace the four year degree, the B degree with these, these accelerated learning programs of some sort. What are your thoughts on that? 

John Katzman  04:15

Well, first of all, like you look at the bootcamps, and collectively, you know, 85% to 90% of the graduates of the bootcamps, already have their college degree. The data on are they a replacement? Or are they a supplement? The world changes, you change and you want to switch careers, and you’re going to do that with increasing frequency as the economy continues to change. I think there’s a real place for lifelong learning and there’s a real place for certificates and boot camps. But so far, the jury’s out, at best, that this is a replacement. That the students who didn’t get a degree are doing this instead and thriving. And even when you look at kind of the tells to suggest that this might work or not work, the people who do edtech are all data people, we all look at data all the time. And we’ve been running let’s take as an example, the Georgia Tech online $10,000 Masters versus our on campus $40,000 Masters. They’re different in a whole bunch of ways. And one would expect that you would say, okay, what’s the ROI? We’ve been doing this for a while, not just first year out salary, but what percent graduate versus what percent year? How much do they spend? And one year out? Five years out? 10 years out? How’s your career going? You could just do the math and say, which one has a better ROI? And that’s the best of those programs, nothing. Silence. 

Debbie Goodman  05:52

There’s no data?

John Katzman  05:54

There’s no data. And whenever anybody says, anybody who’s a data person says there’s no data, it suggests that maybe there is data, but it’s not great.

Debbie Goodman  06:05

Okay, because I mean, that’s, that’s the question, right? 

John Katzman  06:08

It is a question. And we should have answers. 

Debbie Goodman  06:10

These bootcamps and accelerated learning programs and short courses and all that kind of thing that are just like exploding in the market have had a massive sort of catalyst through COVID, online learning all the things but the, you said that the number of people who graduate from these boot camps and accelerated learning programs primarily or the majority already have some kind of four year B degree. Is that right? 

John Katzman  06:36

The huge majority. 

Debbie Goodman  06:37

So that suggests that people who are doing an accelerated bootcamp of sort or training program have at least some basic fundamentals around how to learn the level of discipline that it takes analytical thinking or just all the basic skills that one needs in order to actually complete anything else. Is that what the data is suggesting? 

John Katzman  06:57

and the soft skills, I mean, you look at the value of a liberal arts degree versus others. And in the first decade, the return on investment of a liberal arts degree is worse. But then the lines converge, and cross. And a liberal arts degree ends up doing very, very well, in part because the soft skills of just critical reasoning and communication as you progress in your career matter more and more. So I think the skills you learned in college are probably pretty useful. There’s a lot of self selection, the kind of people who, as you say, have proven that they can stick with it is another reason. But so far, the impact of those programs as a competitor to higher ed, is pretty limited. I just wonder if we’re framing the question correctly, when we think of certificate programs as, as in any way a competitor or a threat, much less of an existential threat, 

Debbie Goodman  07:58

If it’s an augmentation to an existing liberal arts degree, because, you know, a liberal arts degree might be great with a foundational learning and basic principles, but doesn’t necessarily equip you to do anything specific. And so a supplementary program of some sort could assist with that, or could support that just to go back to the cost of things. I mean, I’m a parent of teenagers who are going to be graduating soon. And the cost of college is just overwhelming for families all over the world, but particularly in the US. And you alluded to how do we ensure that we have high quality education, but that isn’t increasing in cost and expense. And it seems that the possibility exists to have high quality higher ed, a four year liberal arts degree or or something similar, that isn’t continually escalating in these astronomic costs that just cannot keep pace with family earnings. 

John Katzman  08:57

So there are two issues. The first one is real cost. Right in the US, there’s the sticker price. And then there’s the real price. And for the past couple of decades, universities have been raising their sticker price every year by four plus percent. And giving most of that back, giving everything over inflation back to students in the form of increased financial aid. So at this point, the average student is paying under half of the sticker price. So part of this is perception, and how we think about the real cost of higher ed is important and how we portray it. The second part is who pays? And, you know, 30 years ago, if you went to a public university 75% to 80% of the cost was borne by the state 20% to 25% by the student now if you go to a flagship school, you know UNC Chapel Hill or something, maybe 10% is borne by the state and the rest of it is borne by the students in terms of tuition. That’s something we need to think about if higher ed is really important, if we want it to be accessible to everybody, why are we defunding it? And then the third question is, what makes higher ed so expensive? Period? Not just what you pay? Or who pays, but how do we just make this product less expensive. Technology has decreased the cost of making this Diet Coke, by a lot, the way they make the cans, the way they make the soda, every part of it, the shipping, you know, they perfect constantly and try to drive that cost down. How do we do the same thing? That it’s still the same natural goodness the Diet Coke was 20 years ago, but less expensive to buy hand? And how do we do that with higher ed? 

Debbie Goodman  10:54

I mean, if we continue with the analogy of the great goodness of Diet Coke, then we’re talking about the quality of education, the actual cost of learning programs going from the teachers to the students, which sounds like a really small portion of the total cost. And we understand that there’s a whole bunch of additional costs of an on campus learning experience, but then over and above that, there’s all the marketing, the administration, the stuff that goes into creating a brand. Because to me, it seems like there is a huge emphasis on the branding of schools, in order to stand out in order to be considered to be the schools that everybody wants to go to. And the cost of that, in order to create this experience of a premium quality is similar to another high premium brand experience, how do we address that? What’s happening there? 

John Katzman  11:49

You know, there is some of that, and the rankings is, you know, feeds into it. And I won’t say that there’s no emphasis on look and feel, you know, in higher ed. But traditionally, with schools caring just as much about their brands, university spent 1% to 2% in marketing cost versus the tuition that you’re going to pay during your time there. The average community college still spends about $100, bringing in the student. With online learning, where schools had starting with the for profits, infinite capacity, and each additional student was accretive versus I only have so many seats. And so if I drive more demand, I’m simply becoming more selective, but my revenues are going to be the same. With that increase in capacity, all of a sudden, you started to see a bidding war for keywords, and direct marketing. And at this point, if you look across the landscape of online learning, it’s probably that 20% cost of acquisition. And in some cases, it’s much higher than that. So remember, this is a $600 billion industry in the New York in the US alone. So if we get up to 20% overall, that’s $120 billion a year. Like, I don’t think we’re gonna get there, because there are a lot of schools still on ground. But, remember that the on ground schools are competing with the online schools for students. So if they’re spending a lot, everybody else is going to be spending more as well. We have to now start thinking about this public good that we’re subsidizing, how comfortable are we, with all the money go into marketing? If we want to keep the cost down, without screwing up the education, this is like a gaping wound, you know, it’s just getting worse. And we have to solve it.

Debbie Goodman  13:51

So let me use that as the segway into the Department of Education’s moves regarding what seems like clampdown, and certainly increasing regulation on OPM’s, third party service providers, particularly those that are in any way enabling an academic program eligible for financial aid, which seems like a very far reaching. Is that an attempt to deal with the situation that you’ve just spoken about, or what’s happening here? 

John Katzman  14:24

I think it is, or two kinds of pieces of the Department of EDs thinking. The first one is about OPM’s themselves. And a quick history lesson here. You know, you’ve got the laws that for instance, create title four, which is the student loan program in the US. And then you’ve got regulations that the department passes to enforce those laws, right, the regulations, and then every so often you issue a clarification. It’s called the Dear Colleague letter that just says, oh, you know, when we said this, we meant this, right? You’re just tweaking it. And you don’t go through a whole process there, you just think it through and say, we can clarify. There are a series of regulations around marketing and recruiting around incentive compensation, right. So I can’t pay you a percentage of tuition to go find me students. I can’t pay you on a per student basis. 

Debbie Goodman  15:23

They’re suggesting a revenue fair model changes?

John Katzman  15:26

Traditionally, you just couldn’t do that, because it was abused. Those were the regulations. And in 2011, the Department issued a Dear Colleague letter guidance that said these bundled service providers, these companies that are doing multiple things, they can take a percentage of revenue. And I was one of the people who created an OPM, my last company 2U. And I was arguing for that because the risk is so high and the costs are so high of building a new program and you’re never going to get the traditional schools to compete with the for profits because they’re just too conservative. You need to give us this flexibility to work this way, because we can get higher ed into online learning and they agreed on that, that trade off they were willing to make. But over the past decade, more and more people are finding loopholes around this Dear Colleague letter, and doing things that are not in the public interest, are not in the interest of schools and not in the interest of students. And at this point, you’ve just got to, you’ve just got to start again, you’ve got to say that that Dear Colleague letter was a mistake, or it was good, then it’s not good now. What do we want to encourage? What do we want to discourage? And I think the second part of that, the notion of third party services, these companies traditionally used for the companies that service student loans, they’re using as a weapon to try and I think they’re going to, they’re going to narrow down, you know, who is a third party servicer. And, you know, they’ll figure this stuff out based on everybody’s comments. But the notion should be anybody involved in marketing and recruiting, we should get their data, we should understand what we are actually spending on marketing and recruiting, who’s spending it, who’s getting it, so that we can talk knowledgeably about how to fix this problem. The first thing you have to do is just get a handle on where’s all that money going? And once we do that, then we can have tough conversations, because remember, it’s not just schools competing with one another, its title for schools, its degree granting schools competing with the bootcamps and everybody, right, they have to be able to compete. Marketing makes sense. And they have to be able to compete with each other. But to me, there’s a real question of do we have to subsidize them to compete? Or do we find a way to say, you know, you spend that money, but that’s your money, right. We’re not helping out on that. Or how else do we discourage that kind of spend?

Debbie Goodman  18:11

I mean, it sounds like there’s an attempt to sort of root out bad actors who are exploitative and not, you know, business dealings that are not, you know, acting in according to high quality standards. But in the process, it might be also impacting the organizations that are operating fairly and well. So that could be negative.

John Katzman  18:34

Could be negative. And it’s tricky, because what’s a good actor. If you’re doing a perfectly good job, you’ve decided that your business model is that 30% of tuition is going to go to us to bring this student to this school versus this school? Does that make you a bad actor? You’re sending them to a perfectly good school, you know, when you’re counseling them, and you’re doing some other stuff like, is that a good actor or a bad actor? For me, 30% makes you a bad actor. Everything else about it makes a lot of sense. At 5%, I’m with you.

Debbie Goodman  19:09

We’re questioning the percentage or the rate of the cost that is being distributed to the various parties here? 

John Katzman  19:18

That’s just me. No one appointed me to edit this thing. So everybody’s got an opinion, I’ve got an opinion. My answer is somewhere like 5%. It’s like peace, like, you know, we can subsidize that and everybody, but when you’re talking 30% of tuition, we are not right now, in a world in which higher ed is too expensive, we are not doing a service for the world, in sticking the tech world in between students at universities in that way. What’s your number? 

Debbie Goodman  19:46

I’m a parent who needs to pay for college. So anything that’s going to reduce the cost, but maintain or hopefully even increase the quality and accessibility would be good. I’d look at it from a consumer point of view. Obviously, I’m also in the industry and so you know we want to see organizations that are run according to good business principles and that remain profitable. But you know, I’ve seen what happens with organizations where students end up with this tremendous financial burden where their families end up with financial burden where they’re not receiving quality education as part of that whole package and that’s just devastating. I don’t have a specific number and it sounds like this recent move is, is hopefully going to get the, you know, key players in the industry to engage and agree on something. 

John Katzman  20:30

I hope so. And you know, it’s really tricky stuff. And some of it’s just in the eye of the beholder, but it’s really important. And how we come together around this is important. That shouldn’t be the hallmark of tech, if you look at the unicorns. The unicorns are all the companies that take a 30% or more tythe to match students and schools, and not even to the best school for that student, but just to the school that’s willing to pay 30%. Like, there’s gotta be something better than that. 

Debbie Goodman  20:59

Well, I guess that’s where we, you know, we’re in the most highly capitalist country in the world, and profits speak very loudly. So we have to accept that that’s got to balance out what you’re speaking about, which is like the social impact to the country in the world. 

John Katzman  21:12

And that’s where good policy is. Capitalists will do whatever the financial incentives are, they will steer in that direction. We have to set rules and the playing fields such that when they bend towards the profit motive, they’re bending also towards our public policies and goals. 

Debbie Goodman  21:32

And what would also be great in this process, if this is the catalyst for more discussion, is there are so many organizations that are gathering data is to have greater transparency, and access and collaboration. Do you think that’s even a possibility? Do you think that the industry could collaborate in that way? 

John Katzman  21:48

I put together a group, I haven’t yet convened them, but a lot of pretty serious folks at the university side, at the policy side and in the private sector, to try to do exactly that, to try to create transparency. Not just around where we spend money on things like marketing, but what kind of outcomes we’re getting for which students. There are plenty of industries that self regulate. And if you think of things like energy star, or the MPAA ratings, or in almost any sector, most of the important stuff is self regulation. The government regulation is sort of a backstop. And I think we need and then put it this way academically, that’s what accreditation is all about. It’s the universities policing themselves, as to you know, what are we doing here. We need to do the same thing, not on the academic side, but on, again, marketing and outcomes, how we describe our impact.

Debbie Goodman  22:45

Well, there are these moments in time where industries have the opportunity to collaborate together and self regulate as opposed to government institution doing it for them. So hopefully, this is, this is one of those moments in time, and hopefully will, you know, will result in some really great and positive outcomes. John, this time has flown. It’s, we’ve been at this for almost half an hour, I try and keep this to under 30 minutes. Thank you so much for your time. Good luck with all of the conversations that are up ahead. I hope to see amazing things. We didn’t even get a chance to talk about Hubble Studios. I have no doubt that’s going to be amazing for Noodle and for the industry. So thank you so much.

John Katzman  23:21

It’s great. Thank you for having me. Have a great week.

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