In a recent post (“$10,000 College Degree Is an Idea Worth Spreading”), I tipped my cap to Oklahoma State University president Burns Hargis, a former banker who recognizes the potential for increased productivity in higher education. “That’s what’s happened in business, and it’s what needs to happen in higher education,” Hargis says. “We need to do more, better and cheaper.”

He’s right. And as one of his OSU colleagues points out in an excellent new paper, it’s already happening. Vance H. Fried serves as Riata Professor of Entrepreneurship at Oklahoma State University. He’s also a research fellow here at OCPA. In a paper published last week by the Heritage Foundation (“College 2020”), Fried says “college in the not-too-distant future will look substantially different from college today.”

It will be better and drastically cheaper. While existing colleges and universities will fight against it (particularly the drastically cheaper part), change is coming. This change is driven by what we could call “Online 2.0,” a truly disruptive innovation. Online 2.0 takes today’s version of online education to another level by making the whole curriculum competency-based and using self-paced courses that eliminate the need for a course instructor.

“The earliest version of Online 2.0 has already been introduced successfully to the market by Western Governors University,” Fried says. WGU was established in 1997 by 19 governors, including Oklahoma Gov. Frank Keating. “WGU is a regionally accredited private institution that receives no state subsidies and is tuition-financed,” Fried adds. “WGU is purely an Online 2.0 institution. The average time needed to complete a degree is 30 months with a total tuition of about $17,000.”

Sound sketchy? In a 2011 Harris Interactive survey, 98 percent of employers rated WGU graduates as equal to or better than graduates of other universities. And now “other institutions are following in WGU’s footsteps,” Fried says.

In summer 2012, a venture-capital-financed company acquired financially distressed Patten University and received regulatory approval to convert it to a for-profit Online 2.0 provider. Southern New Hampshire University, a private nonprofit, is also launching an Online 2.0 degree. These new Online 2.0 programs are technologically more sophisticated than WGU and are priced at under $2,500 a year. The $10,000 degree (without state subsidy) is already with us today — and without any government subsidy.

All of this should be of great interest to state policymakers — men and women in the business of allocating scarce resources that have alternative uses (roads and bridges, prisons, health care, etc.). Fried has several suggestions for policymakers, one of which is to make this Online 2.0 model widely available to students.

A state could do that with a public college. The University of Wisconsin, for example, is creating a new Online 2.0 college to focus on non-traditional students. Another approach would be an Online 2.0 college that provides lower-division general education courses for both traditional and non-traditional students. …

A state might also try to attract low-cost private colleges. This is a way to build capacity quickly at no cost to the state. WGU, for example, brought Online 2.0 to Indiana, Texas, and Washington without any state financial support. Instead, these states made it easier for WGU to operate by letting WGU articulate their courses with the state system.

As these pioneer colleges become known in their markets, they will drive change throughout the whole industry. Existing colleges and universities will have to change or risk losing large numbers of students. While most existing institutions will make changes grudgingly, widespread change will happen eventually, and the overall industry will become radically cheaper in stages.

College isn’t about to become an exclusively online experience, of course. Rather, Fried says, “students will be more likely to learn through a blend of online coursework and a residential experience and will likely assemble a guided and rounded transcript of courses and experiences that are independently credentialed, allowing future employers to have a better measure of their skills.”

Better and cheaper. That’s good news for students, parents, and taxpayers.

[Cross-posted at SeeThruEdu.com]