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Going Online During Covid Is Costing Colleges Millions, And It May Get Worse

By Derek Newton
Reposted from Forbes, with permission.

When the pandemic hit, colleges closed, sending students from classroom to classZoom. And, almost immediately, the lawsuits started.

Students filed class action legal challenges against the schools demanding tuition and fee refunds, alleging that the online college they were getting was not the college they were promised and paying for.

In some cases, the actions sought refunds for things such as gym, library or dinning fees, while these services were not open. But in many cases, they also sought compensation because of the very nature and quality of online education. Some alleged that, “the level and quality of instruction an educator can provide through an online format is lower than the level and quality of instruction that can be provided in person” and that “any degree issued on the basis of online … classes will be diminished.”

In May of 2020, as the law suits began to pile up, I wrote that these challenges were significant because, if the students won or the colleges settled, it would cost colleges more than just real dollars, it would set a public and legal standard regarding the value of online college models. The consequences, I said, were a lurking “billion-dollar monster” of liability and diminished value.

Now, a few new developments will probably make my billion-dollar estimate embarrassingly low.

“Some of these cases have been dismissed,” says Tery Gonsalves, Chair of the Education Team at Alston & Bird, which represents colleges and universities as part of its litigation practice. “But we’ve already seen several seven and eight figure settlements of these cases,” he said.

He’s right.

John’s Hopkins settled for $6.6 million. The University of Colorado, $5 million. University of Delaware, $6.3 million. Rutgers University, $5 million. University of Pennsylvania, $4.5 million. Columbia University, $12.5 million. Quinnipiac University, $2.5 million. Brown University, $1.5 million. University of La Verne (CA), $8.9 million. Harvard and others also settled, with amounts undisclosed.

And many of the dismissed cases were unsuccessful not because their online education was awesome, but, Gonsalves told me, because the schools argued they never promised to deliver classes in person.

With three thousand and some degree-granting colleges and universities in the US, if half settle for an average of $5 million, that’s $8.75 billion in settlements alone.

But also, Gonsalves says, as these cases are winding their collective ways through the courts, more are still coming. “These cases are still being filed. I saw two or three filed just this week,” he said. With settlements in the millions, it’s easy to see why.

And in perhaps the most important development of these cases, Gonsalves says, a few are reaching the appeal stage of their lifecycle and early ruling are decidedly favorable for the plaintiffs.

For example, in suits against the University of Pittsburgh and Temple University, the Court of Appeals for the Third Federal Circuit ruled just recently that claims that students may be owed money can move ahead, reversing dismissals from the lower courts.

In the ruling, the Judge wrote that the students “seek partial refunds of tuition and fees on the grounds that they received a materially different educational experience than they were promised.” Materially different. And that, “the students sought pro-rated tuition and fees reflecting the difference in value between what they purportedly bargained and paid for—in-person classes and services—and what they received—a fully remote experience.” A difference in value. The Judge, continuing, “The point is that the students have plausibly alleged they paid a ‘premium’ for in-person education.”

It’s on these points that the ongoing cases and the expensive settlements could morph into a significant, intransigent, and costly problem for all of higher education.

If courts hold, or the settlements imply, that an in-person, on-campus education is materially different from an online offering and that the in-person version has a different value – namely a higher value – then the multi-billion-dollar world of online learning could be upended.

That’s because, since they debuted, makers of online education products and the schools that offer them have insisted that they are the same as the in-person versions. Research has never really supported this. But those were things academics told one another in boring papers that no one read. If courts start kicking out multi-million-dollar awards based on that difference, that will be much harder to ignore.

At a minimum, these cases and settlements will probably make it implausible that colleges charge the same rates and fees for online programs that they do for the in-person kind. Some schools already discount their online programs, but many don’t – insisting they’re the same as the others so they should have the same price.

If that argument goes away, it presents two problems.

For one, when they are done well and correctly, online programs are not always less expensive to provide than in-person classes. People think they are, but they are not. Not all the time. If schools have to charge less for a product that costs them the same or more, and they can potentially sell much more of that product – well, that’s a problem like the old business joke: sure, we’re losing money on every sale but we’re going to make it up in volume.

Problem two is that I’m just not sure how many top-level education brands are going to feel good about offering a marked-down degree. For some schools, that’s fine. It’s their business model. But others may not be comfortable putting their name on a less than premium product. And if only mid-tier and bottom-tier schools offer online degrees at all, that will ding their perceived value even further.

On this point, Gonsalves did not agree necessarily that these rulings and settlements implied that online education products were inferior. He said only that they are, “more indicative that the college experience adds value.”

Personally, I don’t see much difference. Whether you say that going to college in person, at school is a value-add or that online classes don’t deliver that added value, you end up in the same place. And that place is not good in the near term for college balance sheets or in the long term for online college itself.

Originally posted on Forbes on August 30, 2023.