How to Dismantle a Virtual Cartel: The Promises and Pitfalls of Higher Education Reform in California
Matthew Struhar
Posted Friday, May 16, 2014

Last year, California State Senator Darrell Steinberg introduced S.B. 520, which would require public universities in California to extend credit to students who take certain courses through private, online vendors. To ensure quality, the universities would be authorized to preapprove vendors. Because long waitlists have resulted in a bottleneck that is preventing students from earning the credit they need in order to advance, S.B. 520 was designed to ensure that students would be able to graduate on time. Ultimately, the proposal died, but the universities wisely took the modest step of offering online courses directly.

What the bottleneck exposes, however, is one of the limitations of our very expensive system of higher education: it is not an efficient allocation of resources. This inefficiency is not the result of market demand for high-cost learning, with high faculty-to-student ratios. Rather, it is the result of an accreditation system that prioritizes a high-cost bundle of services over effective learning. This creates a cartel effect, in which the price to consumers is increased due to the expensive demands of the accreditors. Normally, antitrust law would solve this problem. However, it would not work here because accreditation is not an actual restraint on competition, and the First Amendment may protect the accreditors’ activity.

To ensure quality and to prevent predatory, private companies from crowding the market for online courses, accrediting associations should accredit quality online vendors. Otherwise, policymakers will find methods—like Steinberg’s proposal—to circumvent the accreditation system. The federal government can do its part by encouraging the accreditors to prioritize cost-effectiveness. Fortunately, this seems to be happening.