Is graduate school being disrupted? It’s not that simple.

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Jun 25, 2019

MBA applications are down. Law schools are struggling. Is traditional graduate school being disrupted?

Yes and no. It’s important to remember that higher education, and especially graduate programs, are individual pathways into specific sectors of the workforce. We aren’t likely to see One Big Thing that disrupts graduate school. Each program is facing a unique set of pressures. 

Exploring these forces shaping the market for graduate degrees reveals a complex picture: some programs are facing disruption. Others, like medical school are seeing disruption of traditional teaching methods—similar to what we are witnessing in K12 schools—but the programs themselves (like medical school) are not being disrupted. Many programs are facing enrollment declines because a strong economy—like the one we are in—tends to keep workers in the labor market and out of classrooms. Still others, like law school, are having to adapt to disruption indirectly, because disruption is affecting the industries where students will go on to work. 

You aren’t being disrupted—but you are in decline

Not all that declines is disrupted: cyclical forces are driving down enrollments across higher education. Baby booms are followed by baby busts, and while demographic cycles put pressure on institutions—and are likely to lead to a wave of closures—a shrinking market of 18-24 year olds isn’t disruption.

An additional cyclical factor, that particularly affects graduate programs, is a strong economy. When jobs are plentiful, the opportunity cost of going back to school is significant. When the job market softens, workers look to higher education to help them stay afloat. Given the strength of today’s economy, non-traditional aged enrollment is down nearly a million students over four years. 

A third factor, that affects all of higher education but has deleterious effects on certain graduate programs, is the decline in international students. International students not only fill seats, but they also often pay more net tuition than their domestic peers. Schools often look to international students in a bid to boost revenues. A decline in international students is particularly impactful for MBA programs, which have long drawn a sizable portion of their applicant pool from outside the U.S.

The business model of higher education, including graduate programs, is relatively fixed cost. This is particularly true for brick-and-mortar programs with expensive physical footprints, and for programs that rely heavily on tenured faculty. This fixed-cost business model means that it’s difficult for institutions to lower costs to match a lower number of students. Enrollment declines are difficult for institutions’ bottom lines—but, at least currently, they aren’t all being driven by disruption.

You aren’t being disrupted, but your market is

Have you read about the start-up that is disrupting law schools?

Neither have we. 

And yet, law schools are seeing massive enrollment declines, law students are struggling to get jobs, and salaries are falling for lawyers. Law schools aren’t being disrupted, but the market for lawyers is, in three key ways. First, innovators like LegalZoom are directly attacking the necessity for expensive, customized solutions and bringing more standardized and, in some instances, commoditized offerings to the market. Second, technological innovations are allowing lawyers within traditional law offices to boost their productivity, thereby making it possible to perform the same amount of work with fewer lawyers. And, finally, the same technological developments are also breaking down the traditional rationale—the protection of the public—for granting lawyers a monopoly on the practice of law. If a non-lawyer aided by software can provide the same service as a lawyer, then it is not the public but the lawyers who are being protected by the legal profession’s monopoly on the provision of legal advice.

As Michael B. Horn and Michelle R. Pistone wrote in 2016, “To an unprecedented extent, advances in technology alongside business model innovations are altering the traditional legal services value network.” Law schools aren’t being disrupted, but disruptions in the market for legal work are changing the market for legal education—the value network for law school. There is lower demand for legal education, and the demand that remains is increasingly specialized and focused on specific pathways into the legal services market. As a result, law schools have seen huge declines in the quantity and quality of their applicant pool, and are having to significantly adjust their business models. 

Law schools are adapting in a variety of ways. Some are shutting their doors. Others are expanding their markets by developing online programs, part-time programs, or, most innovatively, creating programs for people who need legal education but do not intend to be lawyers. These programs are targeted at professionals who need education in specific legal domains—like human resources or cybersecurity—but who would be overserved by a law degree. 

You might face disruption, and sooner than you think

Disruptive Innovation, which makes products simpler, more affordable, and more accessible, has a track record of up-ending industries and taking down titans. This is because existing providers often don’t see disruptors as a threat until it’s too late. Why is this? Because disruption takes root at the low end of the market, capturing those customers who either can’t afford or have no use for existing products and services—and customers that traditional offerings often ignore. From there, disruptors employ a technological enabler and an innovative business model to move upmarket, ultimately serving mainstream customers at a lower cost than existing providers. But for a while, disruptors are growing and incumbents don’t feel any pain.

This was true for Blockbuster. Netflix, which finally drove Blockbuster to bankruptcy in 2010, began way back in 1997—after founder Reid Hastings racked up a $40 late fee renting Apollo 13 from Blockbuster. In 2000, Blockbuster turned down a series of offers to buy Netflix for $50 million. Netflix didn’t post its first profits until 2003. Netflix grew and refined its offering for years—and Blockbuster’s profits grew too, finally peaking in 2004. 

Are Netflix-like players lurking on the outskirts of the graduate degree market? One place this dynamic might be playing out today is in the market for computer science education. Despite overall enrollment declines in higher education, computer science program enrollments are growing healthily—doubling over the past ten years. But, as we described in a recently released report, bootcamps have been growing too. These short-course, non-degree programs are relatively small; last year they graduated 36,000 students, a tiny fraction of the nearly 20 million enrolled in traditional higher education. However, relative to the overall talent supply pipeline for digital skills, they are significant: in 2017 only 47,000 students graduated with masters’ degrees in computer and information science.

These bootcamp programs, which initially took root in coding but have since widened their offerings to include a broader range of digital skills, are potentially disruptive. These programs don’t yet compete head-to-head with graduate-level computer science degree programs, but they have technological enablers, incentives to move upmarket, and they are growing quickly. These programs are charting a new, alternative path into the workforce that could eat away at demand for graduate programs in computer science. But computer science programs don’t feel the effects of disruption yet.

If and when they do spot disruption creeping up on them, it might be too late to respond. “Neither RedBox nor Netflix are even on the radar screen in terms of competition,” said Blockbuster CEO Jim Keyes, 21 months before bankruptcy.

Alana leads the Institute’s higher education research and works to find solutions for a more affordable system that better serves both students and employers. In this role, Alana analyzes disruptive forces changing the higher education landscape.