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The reason for the project’s creation, said several officials who are working on it, is a growing need for shared guiding principles. Interest in online education is high, and many college leaders want competency-based education to avoid the hype, misconceptions and resulting backlash massive open online courses have received.

A separate Lumina grant will help pay for a website that will make public much of the network’s work and research. Southern New Hampshire University is responsible for creating the website.

That project is an "incubator" that the Bill and Melinda Gates Foundation is funding through its Next Generation Learning Challenges grant, which is managed by Educause. To participate, colleges will need to submit a plan to begin creating a competency-based program by January 2015, according to a draft document about the grant.

Carol Geary Schneider, president of the Association of American Colleges and Universities, welcomed the deepening conversation over competency-based education. She said she hopes the network can provide some clarity on the emerging delivery model, which the association has viewed warily. The competency-based movement does have promise, she said. Ideally, Schneider said, competency-based programs share goals with the Degree Qualifications Profile (DQP), a Lumina-funded effort that attempts to define what degree holders should know and be able to do. Schneider helped author the profile.

Although online, competency-based programs have been around for some time, opening up federal funding at scale across the higher education system for lots of new players has never been done before. As the government gets into this game, harnessing, and not limiting, the potential that competency-based learning brings—to be fundamentally about a student’s learning—as it seeks to assure quality is critical. The nation has yet to master that.

"I'd aspired to give people a profound education--to teach them something substantial,"

And yet, all of these efforts have been hampered by the same basic problem: Very few people seem to finish courses when they're not sitting in a lecture hall.

"Sebastian is like the smartest guy you've ever met, but on speed,"

His trip in March of 2011 to the TED Conference in Long Beach, California, where he delivered a talk about his work, led to an unexpected change in his plans. Thrun movingly recounted how a high school friend had been killed in a car accident, the result of the kind of human error that self-driving cars would eliminate. Although he was well received, Thrun was upstaged by a young former hedge-fund analyst named Sal Khan, who spoke of using cheaply produced, wildly popular web videos to tutor millions of high school students on the Internet. Thrun's competitive streak kicked in. "I was a fully tenured Stanford professor . . . and here's this guy who teaches millions," he would later recount. "It was embarrassing." Though Thrun insists the timing was coincidental, just a few weeks later, he informed Stanford that he would be giving up tenure and joining Google full time as a VP. (He did continue teaching and is still a faculty member.)

"I can't teach at Stanford again," he said definitively. "I feel like there's a red pill and a blue pill. And you can take the blue pill and go back to your classroom and lecture your students. But I've taken the red pill. I've seen Wonderland."

It's hard to imagine a story that more thoroughly flatters the current sensibilities of Silicon Valley than the one into which Thrun stumbled. Not only is reinventing the university a worthy goal--tuition prices at both public and private colleges have soared in recent years, and the debt burden borne by American students is more than $1 trillion--but it's hard to imagine an industry more ripe for disruption than one in which the professionals literally still don medieval robes. "Education hasn't changed for 1,000 years," says Peter Levine, a partner with Andreessen Horowitz and a Udacity board member, summing up the Valley's conventional wisdom on the topic. "Udacity just seemed like a fundamentally new way to change how communities of people are educated."

Learning, after all, is about more than some concrete set of vocational skills. It is about thinking critically and asking questions, about finding ways to see the world from different points of view rather than one's own. These, I point out, are not skills easily acquired by YouTube video. Thrun seems to enjoy this objection. He tells me he wasn't arguing that Udacity's current courses would replace a traditional education--only that it would augment it. "We're not doing anything as rich and powerful as what a traditional liberal-arts education would offer you," he says. He adds that the university system will most likely evolve to shorter-form courses that focus more on professional development. "The medium will change," he says.

"The sort of simplistic suggestion that MOOCs are going to disrupt the entire education system is very premature," he says.

"We were on the front pages of newspapers and magazines, and at the same time, I was realizing, we don't educate people as others wished, or as I wished. We have a lousy product," Thrun tells me. "It was a painful moment." Turns out he doesn't even like the term MOOC.

"From a pedagogical perspective, it was the best I could have done," he says. "It was a good class." Only it wasn't: For all of his efforts, Statistics 101 students were not any more engaged than any of Udacity's other students. "Nothing we had done had changed the drop-off curve," Thrun acknowledges.

At a press conference the following January, Brown and Thrun announced that Udacity would open enrollment in three subjects--remedial math, college algebra, and elementary statistics--and they would count toward credit at San Jose State University, a 30,000-student public college. Courses were offered for just $150 each, and students were drawn from a lower-income high school and the underperforming ranks of SJSU's student body. "A lot of these failures are avoidable," Thrun said at the press conference. "I would love to set these students up for success, not for failure."

Viewed within this frame, the results were disastrous. Among those pupils who took remedial math during the pilot program, just 25% passed. And when the online class was compared with the in-person variety, the numbers were even more discouraging. A student taking college algebra in person was 52% more likely to pass than one taking a Udacity class, making the $150 price tag--roughly one-third the normal in-state tuition--seem like something less than a bargain. The one bright spot: Completion rates shot through the roof; 86% of students made it all the way through the classes, better than eight times Udacity's old rate.

"These were students from difficult neighborhoods, without good access to computers, and with all kinds of challenges in their lives," he says. "It's a group for which this medium is not a good fit."

Udacity won't disclose how much it is making, but Levine of Andreessen Horowitz says he's pleased. "The attitude from the beginning, about how we'd make money, was, 'We'll figure it out,'" he says. "Well, we figured it out." Thrun, ever a master of academic branding, terms this sponsored-course model the Open Education Alliance and says it is both the future of Udacity and, more generally, college education. "At the end of the day, the true value proposition of education is employment," Thrun says, sounding more CEO than professor. "If you focus on the single question of who knows best what students need in the workforce, it's the people already in the workforce. Why not give industry a voice?"

Thrun initially approached the problem of low completion rates as one that he could solve single-handedly. "I was looking at the data, and I decided I would make a really good class," he recalls.

This January, several hundred computer science students around the world will begin taking classes for an online master's degree program being jointly offered by Udacity and the Georgia Institute of Technology. Fees will be substantial--$6,600 for the equivalent of a three-semester course of study--but still less than one-third of what an in-state student would pay at Georgia Tech, and one-seventh of the tuition charged to an out-of-state one.

Georgia Tech professors will teach the courses and handle admissions and accreditation, and students will get a Georgia Tech diploma when they're done, but Udacity will host the course material. Thrun expects the partnership to generate $1.3 million by the end of its first year. The sum will be divided 60-40 between the university and Udacity, respectively, giving the startup its single largest revenue source to date.

Crucially, the program won't ultimately cost either Udacity or Georgia Tech anything. Expenses are being covered by AT&T, which put up $2 million in seed capital in the hope of getting access to a new pool of well-trained engineers.

"There's a recruiting angle for us, but there's also a training angle," says Scott Smith, an SVP of human resources at the telco. Though Smith says the grant to Georgia Tech came with no strings attached, AT&T plans to send a large group of its employees through the program and is in talks with Udacity to sponsor additional courses as well. "That's the great thing about this model," Smith says. "Sebastian is reaching out to us and saying, 'Help us build this--and, oh, by the way, the payoff is you get instruction for your employees.'" Says Zachary, "The Georgia Tech deal isn't really a Georgia Tech deal. It's an AT&T deal."

The Lumina Foundation just awarded the university a $1.25 million grant to evaluate the program and document its creation so that it can be replicated at other schools.

For public universities, new ways of thinking about fundamental business models are becoming a necessity. “Our reliance on state funding is shrinking, and that’s true in every state that I'm aware of,” says Cross. “But it’s increasingly difficult for students to afford higher education costs at all levels. That is not a sustainable trend. It just is not. We need to seek alternatives.”

One risk, according to the auditor, was that colleges and universities would create programs that were just correspondence courses, without any meaningful interaction between students and faculty. Another risk was that students might receive Title IV federal funding for their life experience, without using the school’s learning resources.

the Higher Learning Commission of the North Central Association of Colleges and Schools, had approved the school’s first competency-based degree program: a master's of health professions. The distance learning program is aimed at working professionals in medicine, nursing, dentistry, pharmacy, and social work.

The program doesn’t have traditional campus-based classes — its students interact with mentors by phone, email, video chat, or, for students and mentors near each other, in person.

The Flexible Option program at University of Wisconsin System offers five competency-based online certificates and degrees, targeting adult students with college credits but no degrees.

Wisconsin won approval from the Education Department and an accreditor for its self-paced, direct assessment arts and sciences associate’s degree.

The program is “transdisciplinary” — open to students in any discipline — with a theme-based organization and learning driven by problem-solving instead of how much time is spent in the classroom.

students receive credit based on learned and demonstrated competencies.

Western charges a flat-rate tuition for every six months of enrollment, and students’ advancement is based on what they can prove they know

The 2-year-old program has partnered with 55 employers to create programs for job-specific skills. College for America claims to be the only program of its kind to be approved by a regional accrediting agency and by the Department of Education for Title IV federal financial aid, although the Education Department says there is one other.

The university allows students to receive credit for knowledge already gained through their experience with a “prior learning assessment.” As of Jan. 23, Capella and Southern New Hampshire had the only two programs approved by the Department of Education to receive Title IV financial aid, according to the department.

Northern Arizona University offers a competency-based online learning program, called Personalized Learning, that allows students to use their previous experience to pass pretests and opt out of certain lessons.

is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools.

The best way to resolve these contradictory signals is probably to accept that the MOOC, itself still an evolving innovation, is little more than a rhetorical catchall for a set of anxieties around teaching, learning, funding and connecting higher education to the digital world.

This is a moment of cultural transition

Access to higher education is strained. The prices just keep rising.

Yet, partnerships between MOOC platforms and public institutions like SUNY and the University of California to create self-paced blended courses and multiple paths to degrees look like a sensible next step for the MOOC, but they are far from that revolutionary future.

projects to transform higher education in a direction that is connected and creative, is open as in open content and open as in open access, that is participatory, that takes advantage of some of the forms and practices that the MOOC also does but is not beholden to the narrow mainstream MOOC format (referring instead to some of the earlier iterations of student-created, distributed MOOCscreated by Dave Cormier, George Siemens, Stephen Downes and others.)

“The department recognizes that this is new territory and they don't have a regulatory framework for it,” said Paul LeBlanc, president of Southern New Hampshire University.

Colleges have faced plenty of red tape as they seek to give competency-based education a try. That is particularly true for “direct assessment” programs, the most aggressive version, which does not rely on the traditional credit hour standard.

Only two institutions -- College for America, a subsidiary of Southern New Hampshire, and Capella University -- have been successful in the lengthy process of getting the department and regional accrediting agencies to approve direct assessment programs. Other institutions have tried and either were rebuffed by the feds or are still waiting for the final word.

For example, the University of Wisconsin-Extension last year created ambitious direct assessment degree tracks. But the university has had to cover for the absence of federal aid for its “Flex Program” by spending more on grants for students. Officials with the system said Tuesday they were eager to participate in the experimental sites program.

The latest round of experimental sites grew out of a request for ideas the department issued last year. Many colleges sent in suggestions.

Mitchell drew rave reviews from several participants in the Washington, D.C., meeting of the Lumina Foundation-funded group, which is called the Competency-Based Education Network (C-BEN).

Jim Selbe is a special assistant to the chancellor of the Kentucky Community and Technical College System, which is a pioneer in competency-based programs in the two-year sector.

Experimental site status would give the Kentucky system the ability to “be broader and have more flexibility,” said Selbe. “This is going to give us a chance to really go field test.”

For example, Selbe said, the system is considering new programs that would charge students a monthly fee for all they can learn. This subscription-style approach could also apply to four-month terms.

A move by the Kentucky system to try subscriptions is “impossible right now” under federal aid rules, said Selbe. But experimental sites could open the door to monthly aid disbursements, saving students time and money. “This will give us a boost to go forward.”

The four targeted areas include self-paced competency-based programs, such as direct assessment degree tracks. Colleges can also test “hybrid” programs, which combine elements of direct assessment and credit-hour-based coursework. That version is currently not allowed under federal rules.

The new experimental sites will also include prior-learning assessment

Finally, the program will test federal work-study programs under which college students mentor high school students in college readiness, student aid, career counseling and financial literacy

Experimental sites programs have rarely been so promising, said Amy Laitinen, deputy director of the New America Foundation's higher education program and a former official at the department and White House.

The registry will include all kinds of credentials – from educational degrees and certificates to industry certifications, occupational licenses, and micro-credentials.

will develop a Credential Directory app, which will allow registry users to access the websites of participating credential issuers, build customized directories of credentials based on their own criteria, and publish the results.

The goals are transparency and clarity, and to help align credentials with the needs of students, job seekers, workers and employers.