Reform higher education with capitalism? Doing good and making money at the for-profit universities

Reform higher education with capitalism? Doing good and making money at the for-profit universities

Gary A. Berg

For a businessperson, the argument that making a profit leads to poor “product” quality would seem silly or worse, insulting. However, this is a common assumption in higher education. Similarly, increasing productivity (a typical business goal) has never been accepted as a worthy aspiration in higher education. In traditional universities, to evaluate academic programs in terms of costs versus benefits is to ignore the core values of the institution. Given this academic mind-set, it is no surprise that proprietary higher education has a bad reputation in academe.

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But the controversial University of Phoenix and other for-profit educational institutions are expressions of American culture at the end of the 20th century and perhaps an indicator of things to come in higher education. Through this article I hope to spark a re-evaluation of for-profit universities and an examination of the lessons they might have to offer traditional institutions about how to be more cost effective without abandoning a commitment to social good and to student learning.

In many ways, for-profit universities have put a unique twist on the capitalist system. At first glance, it would seem that for-profits such as the University of Phoenix, DeVry University, and Argosy University are driven by a conservative, market-based ideology that focuses on the bottom line rather than on social good. But during my recently completed study of for-profit universities, I found among their leadership a number of now-established baby boomers with liberal or socially progressive values who claim that you can simultaneously make a profit and “do good,” by which they mean providing increased access to higher education for historically underserved populations.

I will argue here that the for-profit solution to the access problem is accomplished through an organizational model that concentrates on meeting the needs of ethnic minority, adult, and first-generation college students. Although it may seem counter-intuitive that for-profits, with fees higher than public community colleges and four-year universities, can successfully address the needs of these populations, they do so primarily through a focus on customer service and by filling gaps in the higher education system. I will also argue that they try harder than they are often given credit for to balance the pursuit of revenue not just with student interests but with academic quality.

But before I make that argument, let me provide a brief description of the for-profit universities.

A QUICK BRIEFING ON FOR-PROFIT UNIVERSITIES

A large amount of misinformation exists about for-profit universities. One myth concerns their reach. The imagined “threat” to traditional higher education from for-profits is more symbolic than real. Only 2.5 percent of all postsecondary education students enroll in for-profits, and just 10 percent of the entire for-profit industry possesses the all-important regional accreditation that enables competition with traditional universities. That said, some individual for-profits are very big. The University of Phoenix–with over 130,000 students, a 30 percent annual growth rate, and an international target of 500,000 students–is the largest.

The for-profit universities differ from their traditional counterparts in a number of ways. First, the typical for-profit institution has a mission that is clearly focused on educating working adults and relies on a “practitioner” faculty model wherein work experience within a specific profession is seen as more desirable than experience in teaching or research. The faculty’s status is lower than in traditional institutions because of their lack of tenure. Given the extensive use of part-time faculty, their training and evaluation are generally more systematic and extensive and their teaching methods more routinized in order to assure a baseline level of quality.

The curricular structure of the for-profits is also quite different from that of the typical nonprofit university. For-profits provide standardized courses in five-, six-, and/or eight-week single-course terms. They generally organize students into learning teams, incorporate work experience into their classes, and put heavy emphasis on learning objectives and the assessment of student learning.

For-profits are also organized differently than traditional universities, and their leaders think of themselves as managing rather than “administering” organizations that are often structured more like businesses than like their nonprofit counterparts. The for-profits tend to separate their academic from their management decisionmaking, which creates a tension, variously described by the for-profits as “creative” or “productive,” between academic and business interests. But academic decisionmaking is not widely shared among the faculty, since these institutions generally have few full-time faculty.

Many for-profit institutions have widely distributed locations (although few are primarily distance learning universities. Only one-third of the University of Phoenix’s courses are taken through the Internet, for example). Therefore they try to balance centralized and decentralized functions, although generally they are more centralized than traditional higher education. Often decisions regarding centralization are made for business reasons such as economies of scale and quality control. At the same time, for-profit universities encourage risk-taking and individual ownership of and accountability for tasks, and a flat hierarchy encourages communication and debate.

The use of assessment and feedback systems, a reliance on personal relationships, and a culture of investment (venture capital is available to respond quickly to initiatives) typically characterize for-profit decisionmaking. The way stakeholders are involved (in a more corporate than academic way) and the speed of implementation (compared to the notoriously slow rate of change in traditional higher education) differentiate decisionmaking at for-profit universities from governance in traditional higher education. The degree to which change is managed, encouraged, and anticipated also comprises a key element of their uniqueness.

For-profit universities face serious challenges, including poor academic reputations, competition from traditional universities, and managing extreme growth, especially in the case of the University of Phoenix. Many of the for-profits are now additionally under the scrutiny of business watchdogs as a result of publicly trading stock in their companies.

Most recently, for-profits have been under attack for overly aggressive student recruitment practices: Sixty Minutes ran a story on Career Education Corporation that was critical of its recruitment tactics, and the University of Phoenix has had problems linked to bonuses allegedly paid to recruiters. Finally, it is essential to note that for-profits depend on traditional higher education, benefiting greatly from traditional university investment in the development of faculty, curricula, and the domain (or market) as a whole.

COUNTER-CULTURE ROOTS

Proprietary higher educational institutions such as the University of Phoenix are uniquely American inventions, with their colorful and fiery founders like John Sperling, their origin stories of beginnings as garage businesses, their populist beliefs in providing educational opportunities to first-generation college students, their Yankee innovation, and their pure bravado.

The counter-culture disposition of the University of Phoenix is more apparent than at other for-profits like DeVry University and Argosy University. While some of the leadership of the latter two is of the age to have been influenced by the 1960s, the organizations themselves are older than the University of Phoenix. However, I found that the top leadership at for-profits often come from nonprofit backgrounds and espouse values and beliefs consistent with such organizations.

The for-profits aren’t just about making money. Although they have for-profit legal status, many of their faculty members and staff express commitment to a social agenda. In fact, the cultures of the University of Phoenix and other for-profit universities have an interesting mix of corporate and counter-culture characteristics. Their leaders’ roots in the 1960s free speech and anti-war cultures inform their tendencies toward combativeness with traditional higher education, as well as affecting their willingness to debate mainstream assumptions about higher education.

The University of Phoenix’s story is much more akin to that of a successful business created by a solitary owner with a strong vision and will than to that of a university with a religious or state affiliation. When discussing the culture and rhetoric of the University of Phoenix, the starting point is generally its enigmatic leader, Cambridge-educated economist John Sperling, whose life established the themes embodied in that culture.

Born into the working class, Sperling wandered from job to job until he found his vocation: higher education. His conflict with the education establishment as a faculty member and leader of the faculty union at San Jose State University and his subsequent break with traditional education revealed both the need to innovate and the necessity of going outside the academy to do so.

One cannot help but think that Sperling has out-witted traditional higher education by using a capitalist model to accomplish essentially progressive aims. It is both a personal and an ideological victory. Although Sperling argues that the fear many traditional academics feel regarding the University of Phoenix is unfounded, he seems to derive more than a little pleasure from the reaction.

This enjoyment of playing the rebel runs throughout the organization. As one leader in the organization told me, “We kind of like being dubbed the Anti-Christ of Higher Ed. In a sense, we are the ones forcing everybody to analyze what they do. Because it makes us stronger. We kind of lock arms and walk down the street together.”

Indeed, one repeatedly expressed concern at the University of Phoenix is that as the organization grows and becomes increasingly mainstream, it may lose this outsider identity: “We have gone from being way over in the fringe element to being pretty close to mainstream. And my fear is that we will be mainstream and we will lose our whole reason for being.” As with many baby boomers, the leaders of this infant terrible seem to ask, “When you grow up and become part of the establishment, do you lose your political soul?”

So what do these institutions have to teach their more established peers?

THE ACCESS AND AFFORDABILITY DILEMMA

At the release of the report Measuring Up 2004 by the National Center for Public Policy and Higher Education, Anthony P. Carnevale from the Educational Testing Service commented that according to this national report card, “higher education is, in fact, becoming a bottleneck to opportunity in America.” The report’s disturbing message is that across the country, postsecondary education has become less affordable and accessible, especially to low-income students.

For decades, both public and private institutions have been increasing their tuition levels at rates higher than the annual consumer price increase. These increases have been driven largely by traditional higher education’s inability to make productivity gains. In business, such gains have been made by substituting capital for labor, but education remains a labor-intensive business: while salaries increase, the student-to-faculty ratio stays the same.

According to a RAND report, Breaking the Social Contract: The Fiscal Crisis in Higher Education, if the present trend of rising costs, demand for higher education, and lessened state and federal funding continues, within a few years millions of Americans will be denied a college education. Disproportionate numbers of these would-be students will be poor, and increasing numbers of them will be non-white.

RE-DEFINING AFFIRMATIVE ACTION

In 1998, Black Issues in Higher Education revealed that for-profits serve minority populations to a surprisingly large degree, enrolling 16 percent of all African-American, 14 percent of Hispanic, and 4 percent of Native-American students. Of the top 100 institutions conferring degrees on people of color, proprietary colleges–particularly in the fields of engineering-related technologies, computer science, and business–had risen dramatically in number. In fact, the top producer of minority baccalaureates in engineering-related technologies was ITT Technical Institutes in California, and the number two and three institutions conferring bachelor’s degrees in computer and information science on African Americans were Strayer College and DeVry University.

Clearly, for-profits are serving minority populations. Depending on your point of view, this is either exploitation of or better service to these underserved populations. One of the common criticisms of for-profit and vocational institutions is that they intentionally concentrate on recruiting minority students who are unable to gain admittance to traditional institutions. Detractors argue that the reason for the for-profits’ success with minorities is because of their emphasis on marketing and recruitment, low admission standards, and perhaps even misleading and exploitative recruitment practices.

But why are these schools so popular with minority students? The success for-profit colleges have in attracting minority students challenges the conventional wisdom on how to achieve diversity in higher education. While many for-profits have identified a market of minority learners who need and want to pursue degrees and consciously market their programs to these underserved populations, they do not seem to have academic or student services specifically designed to accommodate different ethnic groups.

Instead, a general focus on serving students, very much in line with a customer-based business philosophy, permeates the for-profit universities. As one leader I interviewed put it, “The number one differentiating factor we’re going to have–and will continue to have–is an absolute, astonishing attention to student service.” For-profit leaders speak in business terms about their singular focus on specific populations much as a company would discuss product differentiation. This strategy seems in general to be more effective than traditional affirmative action policies in attracting students of color.

For-profits pay special attention to the psychological and social barriers typically encountered by their target student population. For instance, for many families with a history of going to college as 18-year-olds, the experience of leaving home and living in a residence hall is strongly connected to the quality of the educational experience. However, first-generation college students often value the residential experience less than their more privileged peers. Close family ties and cultural attitudes about staying close to family are often more crucial.

They also attend to the practical barriers preventing these students from attending college. While the tuition costs of the average nonprofit institution cannot compete with those at most community colleges, for-profits make sure that first-generation college students are made aware of federal financial-aid programs and offer counseling at night and on weekends on how to apply for them.

Campus locations also contribute to high minority enrollments at for-profit institutions, with many placed in metropolitan areas near large minority communities. Finally, this customer service emphasis leads to a learner-centered pedagogical approach. Administrators and faculty members at proprietary institutions speak both about the importance of customer service and the need to create the most productive and efficient learning environments.

SERVING ADULTS

One of the historical strengths of higher education in America is to serve the traditional college-aged student attending college full time in a structured, residential experience. However, this is no longer the primary paradigm for undergraduate students. Perhaps the biggest change in higher education over the past few decades has been the large numbers of adult learners who have entered colleges and universities. By the late ’90s, national attendance figures showed that 42 percent of undergraduate and 59 percent of graduate students attended part-time. Of those part-time students, the largest segment was comprised of women 35-years-old and above.

This is the population targeted by many for-profit institutions, whose emphasis on customer service helps them deal with the special needs of people who often view themselves more as customers than as traditional students. In addition to more responsive student services than are typically offered at traditional institutions, these students characteristically demand an increasingly vocational and professionally oriented curriculum. In response, for-profit institutions generally specialize in applied curricula aiming to meet the needs of businesses.

Adult students also need more convenient scheduling and location of courses in order to accommodate their work lives. An administrator from a community college, a segment of the traditional higher education system that serves this same group of students, spoke about the inflexibility of some research institutions in accommodating working adult students: “One of the biggest issues we have is that you really need to be a full-time student at the University of California…. How can they work with our students when the majority of our students are part-time?”

Adult students worry about children at home, their partners, their careers–all while going to night school. A faculty member talks about how working at the University of Phoenix requires him to factor in student home life and other educational distractions: “They have full-time jobs; some of them have second jobs. Many are single parents who are caring for children. They’re caring for their own parents. They have long commutes and then they are full-time students…. If I were teaching at UC Davis, or San Diego State University, or California State University Dominguez Hills, my approach would be different.”

Although it has recently lowered its minimum age requirement, the University of Phoenix has generally avoided the 18-to-22-year-old student market. Concentrating its mission on adult learners is an organizational strength. As one of its leaders put it, “A singular focus on that population, to some degree is a luxury that we enjoy which our traditional colleagues don’t. We can focus on one kind of student in certain types of programs and really cater to their needs and create a learning environment that speaks just to them. The mandate of most four-year institutions is so broad that it’s almost un-doable in the larger sense.”

As the challenges of a changing student demographic weigh down traditional institutions, the relevance of the for-profit universities and their model for traditional higher education emerges, and not only in demonstrating the advantages of a focused mission. Proprietary institutions by their very structure as for-profit companies are organized to achieve efficiency and growth. Managed professionally as businesses, the for-profits continually refine and focus their organizational missions. They create and maintain responsive student services and quickly adopt distance-learning methods.

They also openly embrace student-learning assessment. As a result of years of pitched battles with regional and professional accrediting agencies, they have honed their arguments about quality. Rather than simply complying with accreditation guidelines as most institutions do, the University of Phoenix and other proprietary institutions have engaged in a debate about how quality should be demonstrated. Rather than equating quality with resources and numbers of full-time faculty, they have redefined it as being clear about what an institution intends its students to learn and then proving that they have done so. In this way, the for-profits are forcing a re-examination of the core philosophy and practices of American higher education.

THE SOUL OF THE UNIVERSITY: CAN UNIVERSITIES MAKE MONEY AND PRESERVE QUALITY?

A focus on balancing budgets is not unique to for-profit universities. Moody, the financial-services group, defines at-risk universities as having fewer than 3,000 students, accepting more than 70 percent of applicants, and with financial resources per student of less than $50,000. Using this definition, there are numerous colleges in the United States that might be considered at-risk. For-profits and nonprofits alike must be aware of their budgets or face their own demise.

However, even when they try to generate “excess revenues,” nonprofit institutions are not necessarily good at it. One telling illustration is organized sports. In Shulman and Bowen’s The Game of Life: College Sports and Educational Values, the authors come to the conclusion that universities generally do not benefit monetarily from college athletics. In fact, when all capital costs are accounted for, none do: “As a money-making venture, athletics is a bad business,” the authors conclude.

Another form of entrepreneurial activity, corporate-sponsored research, may also be an unsuccessful way of raising funds. According to one study, only one in 10 patented discoveries recovers the money spent on filing the patent, one in 100 makes between $20,000 to $50,000, and only one in 1,000 is a major money-maker. It appears that many traditional institutions are engaged in money-making attempts that are inconsistent with their core missions and aren’t even profitable.

While nonprofit organizations may assume that a non-commercial attitude keeps them safe from being controlled by the pursuit of revenue, the for-profits openly grapple with the tension between academic and business interests. An unpublished study by Gregory Rutherford in 2002 about the University of Phoenix found that three major tendencies make the institution productive: a desire to accrue value to the consumer (students and employers), a willingness to improve business value, and awareness of the tension between the extremes found in academics and economic values. The traditional institutions might do well to be equally conscious of the tension between, and the need to balance, the pursuit of revenue with the pursuit of academic quality.

While interviewing higher education leaders, I often wondered if “for-profit” is really the defining characteristic of this group of controversial institutions. After all, those nonprofit universities at-risk often are as interested as proprietary institutions in making a “profit” in order to survive. Particularly when regional accreditation ensures a certain level of quality, a simple for-profit versus nonprofit dichotomy may actually be misleading.

FOR-PROFIT UNIVERSITIES: POPULIST OR CORPORATE?

Given the affordability and access dilemmas facing the swelling number of adult and first-generation students who desire a college education, where the for-profit solution lies politically is intriguing to consider. From the student’s perspective, the for-profits generally have lower fees than nonprofit independent universities, reduce the time needed to complete a degree, and are sensitive to adult student concerns. In that sense, they seem to reflect a populist agenda.

Internationally, publicly supported institutions dominate higher education in Great Britain, while in Asia private education is more prevalent. In fact, in Japan it is the major government-supported institutions that are selective, while the privates provide broad access to the public. Perhaps in a similar way, for-profits in America are functioning like privates in Japan in providing greater access in the face of a narrowed “bottleneck” to higher education through customary routes.

On the other hand, much of the cost-effectiveness of these institutions comes at the expense of faculty members through lower compensation rates, lack of tenure, and less influence on the management of the university. In that sense, the for-profits seem to privilege corporate interests over those of workers. Furthermore, the diminution of faculty status and power at many for-profits may affect the attractiveness of university teaching as a profession if it becomes a widespread phenomenon, especially for faculty at financially at-risk institutions.

Be that as it may, it is a mistake to dismiss the for-profit universities as mere businesses. I found that those who lead for-profit institutions often express belief in ideals that are found in traditional universities. While there are certainly many MBAs and corporate-experienced managers at the for-profits, one also finds leaders who come from top research institutions, accrediting agencies, and religious and charitable organizations. Many of those interviewed identified a clear social agenda for their work in education and expressed values consistent with those of professionals associated with traditional institutions. At the very least, insofar as they use the capitalist system to turn traditional higher education on its ear, the rise of for-profit universities marks a reconfiguration of the politics of higher education in America.

I must confess that my study of for-profit universities in America has led me to think hard about beliefs I have long held about public, private, and for-profit higher education; the effectiveness of education in promoting social mobility; and the potential benefit of new educational models. I hope that it stimulates the same re-examination in others.

Gary A. Berg is dean of extended education at California State University Channel Islands. This article draws from research published in his latest book from Praeger and the American Council on Education, Lessons from the Edge: For-Profit and Non-Traditional Higher Education in America. Some of the data used for this article came from The Good Work in Higher Education Project, funded by the Hewelett Foundation, Carnegie Corporation, and Atlantic Philanthropies (Howard Gardner–Harvard University, William Damon–Stanford University, and Mihaly Csikszentmihalyi–Claremont Graduate University), described in an article in the September/October 2003 issue of Change. Special thanks to the editors of Change and Linda Venis for suggestions and comments on this article.

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