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College for $1,000 a year

Imagine a college that is so inexpensive, you don't need loans. A company has come up with a low-cost alternative.

By Stacy Johnson Nov 8, 2010 11:08AM

This post comes from Brandon Ballenger and Stacy Johnson at partner site Money Talks News.


Lately we've been exploring "disruptive innovation": major changes that improve a product or service or lower the cost in such a fundamental way that it has the ability to permanently alter the playing field.

Last week we showed you a company that's offering health care without insurance for $50 a month. In this installment we explore "college without loans" -- a partial solution for spiraling tuition.


Start by watching the video below, then read more on the other side.

As you saw in the video, StraighterLine is a company that provides college classes online for a tiny fraction of typical college costs. For example, you can take courses for either $99 a month plus $39 per course, or a flat rate of $999 for 10 courses -- essentially your entire freshman year.


You don't need a master's degree to see the savings: That's up to 92% off what you'd pay for a year of college at a public or private institution, and done at your own pace. This woman breezed through a course in one week, but you can spend months on a course if you want to. And if you can't finish and have to drop a course? You'll waste $138, rather than thousands.


There are a few catches:

  • You'll obviously still have to buy textbooks. (See "Where to find free or cheap textbooks.")
  • You can't earn a degree from StraighterLine, which only offers general education courses you would normally take in a freshman or sophomore year of college.
  • Since you will ultimately have to enroll at a college to finish your degree, you'll want to check with prospective schools to make sure the credits will transfer.

StraighterLine partners directly with 20 colleges that guarantee all courses will carry over. A much wider network, including hundreds of universities, could potentially accept StraighterLine courses, which have been validated by the American Council on Education, an organization used nationally as a standard to evaluate comparable courses for transfer credit.


Cash cows

Online learning like that offered at StraighterLine isn't new, of course. As the use of broadband Internet has become widespread, many universities now offer these types of classes. The innovation here is in the price.


According to StraighterLine CEO Burck Smith, freshman and sophomore classes, whether online or taught in a classroom, are cash cows for colleges.


"If you think about what a college really spends in a lecture course, a 101 type course, one professor in a large lecture hall, they spend $100 per student or so. So all we're really doing is pricing closer to the cost of college for these big, general education courses."


In other word, packing students into giant lecture halls keeps costs low, and escalating tuition keeps income high. Universities use these "profits" to offset a myriad of other campus expenses, from research to dormitories. But the way college works today, you pay for those services whether you use them or not.


What StraighterLine is doing is essentially "unbundling" the college experience. And it makes sense: Why should you pay $19,362 for the same classes that StraighterLine can profitably offer you for $999? More to the point: Why should students burden themselves with massive loans when they could work a part-time job and afford to pay cash?


No campus

Of course, college is more than credits, and Smith is the first to admit that. He's claims he's not trying to deprive anyone of the traditional on-campus, four-year experience. That will always be available for those who can afford it. StraighterLine is trying to play a part in putting a degree into the hands of those who can't.


StraighterLine will probably never offer a full degree because, unless the accreditation rules change, they can't. One of the requirements to be an accredited college is that you must have a physical campus. 


In addition, in order for its classes to have value,  they have to be able to transfer. So StraighterLine needs the cooperation of traditional universities. Imagine the pushback from today's current system -- one built on escalating tuition financed with taxpayer-guaranteed loans. Today's higher education Goliaths wouldn't take kindly to low-overhead startups that offer four-year degrees for much less than they charge. And through the accreditation system, they have the power to limit competition.


But like so many other traditional business models -- from newspapers to long-distance providers to health insurers -- disruptive innovation may ultimately force change whether they like it or not.


Other shortcuts to a degree

While we're waiting for StraighterLine and other disruptive innovators to change the way we get our degrees, there are other ways to cut college costs. Two options that are available include advanced placement courses and the College-Level Examination Program. AP classes are basically college-level classes taken during high school that wrap up with an exam for college credit. Offerings vary from school to school. Each exam costs $87, but the class itself is obviously free if taken at a public high school.


With CLEP, there is no class -- just a test. You can take a CLEP test for a wide variety of classes and prove you already know the material in exchange for credit. Each CLEP exam costs $77 and some schools charge a fee to administer the exam.


More from Money Talks News and MSN Money:



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