Hoxby (Stanford): Economic benefits of online education may not cover the cost (Michael Simkovic)

A recent working paper by Caroline Hoxby (Stanford) suggests that the economic returns to online education (measured in terms of wage growth) may be too low to recoup the costs of these programs, especially as administered at for-profit institutions.  Hoxby used a fixed effects approach, measuring earnings before and after online education compared to likely earnings without online education.  She found that online education does not boost earnings by very much, and it does not do much to move students into more lucrative industries or occupations.  Hoxby found evidence that most students pursuing exclusively online degrees lived within commuting distance of brick-and-mortar institutions that likely offered higher quality education with better returns.

Hoxby's observational results are consistent with experimental studies that have found worse outcomes for students randomly assigned to online education compared to traditional education.

In previous research, Hoxby warned that the spread of online education could undermine highly selective institutions' ability to finance original research and teaching innovations.  Hoxby wrote: "selective] institutions weaken rather than strengthen their market power in research and original content creation when they increase their exposure on the internet."

Hoxby's working paper has been criticized by groups advocating partnerships between for-profit technology companies and educational institutions to spread online education to non-profit and public institutions.  For-profits have been online education's earliest and most enthusiastic adopters, while private non-profit and public institutions have generally taken a more conservative approach.  The strongest of the critiques of Hoxby's paper is that it looked at returns over the course of 10 years rather than a lifetime.  The present value of lifetime earnings premiums is a more appropriate measure of the returns to education.  

Related coverage: Should online education come with an asterisk?