What is the future of for-profit higher ed?
The business model of the future is one that combines for-profit and traditional models together.
The latest of John Grisham’s New York Times bestsellers, The Rooster Bar, centers around three third-year law students who “all borrowed heavily to attend a third-tier, for-profit law school so mediocre that its graduates rarely pass the bar exam, let alone get good jobs.”
And while a portrayal in a fictional novel is hardly a thing for higher education leaders to bat an eye over, Career Education Colleges and Universities Executive Vice President and Director of Government Relations Michael Dakduk told an audience assembled in Washington, D.C. for the recent Council on Higher Education Accreditors annual meeting that Grisham’s account is indicative of the uphill public perception battle the for-profit education industry is facing today.
Meanwhile, in Maryland, lawmakers are renewing a push to impose an annual fee against each of the six for-profit institutions operating in the state that would serve to reimburse students for any tuition paid in the event that “in any given year if the largest of the six for-profit colleges in Maryland goes under,” said State Sen. Paul G. Pinsky, vice chairman of the Education, Health and Environmental Affairs Committee. The state’s higher education commission has instead proposed a one-time fee equal to 25% of tuition revenue, which could be replaced by a financial guarantee from a bank assuring the availability of money, according to the Washington Post.
Many expected to see a resurgence of for-profit education with the election of Donald Trump as president, and while there has been some promise in the form of relaxed regulations, many industry insiders believe for-profit education — and higher education as a whole — is going through a transformative stage. But scrutiny and criticism still abounds, as many for-profits continue seeking shelter from stigmatization by way of conversion to nonprofit status.
A complete shift in the model looms ahead
“Ultimately, I think that there won’t be for-profit universities or institutions as we know them today. And by the same token, I don’t think there’s going to be traditional universities the way we know them today” either, said former University of Phoenix President Bill Pepicello in a recent phone conversation. Pointing to the industry-disrupting model initiated by Purdue University’s acquisition of Kaplan University, Pepicello predicts “the future of higher ed in general is going to be an institution that comes out of the morphing of for-profit and traditional institutions.”
“What I predict is the Purdue-Kaplan thing will begin to develop a business model that looks more like a for-profit business model. Whether you’re a fan of for-profit or not, it does have a functioning business model, and in that fact, I think that’s where higher ed in the U.S. is suffering right now: The current business model is not sustainable,” he said.
“We’ve seen some other pieces of this morphing — as you look at some of the state systems that are wanting to combine the community college system with the four-year schools, that’s a really, really significant move,” he said. In one way, it’s a cost-saving measure, but it’s also “an acknowledgement that community colleges are providing a very, very valuable service right now that the four-year institutions should be providing and aren’t,” specifically the link to the workforce, Pepicello said.
This, he believes, is where greater collaboration with for-profits will come into play.
Grand Canyon University President Brian Mueller said he’s had a number of traditional nonprofit institution leaders approach him about partnering to offer GCU’s online courses to students at other institutions, which he says he considers a good business opportunity for GCU. “We would help other universities thrive as this hybrid model [of online and brick and mortar classes] has allowed us to thrive, and it would be profitable for us to do that,” he said.
“Anything that we can do to provide service to others in a profitable fashion allows us to accomplish our first goal, which is not to have to raise tuition for our students — we haven’t done that in 10 years. Moving to this [more collaborative] model may allow us to continue that, and that’s very important to us.
But Grand Canyon administrators are also awaiting a ruling on whether the institution should be granted nonprofit status. Similar to the arrangement in Purdue-Kaplan, the academic assets and business operations would transfer to a newly formed nonprofit arm, while the student affairs, human resources, and communications would remain functions of the for-profit entity.
Pepicello predicts a more “symbiotic relationship” between for-profit and nonprofit institutions that will form “a new type of institution moving forward.”
“One of my gripes about higher education is that the rest of our society has already gone online and virtual. I always point to banking and retail,” Pepicello said.
“I can’t remember when the last time I was in my local bank was. … If I can take care of what I want to do at home, on my computer, I want to do that. On the very, very few occasions, I do need to go into that bank and conduct some transactions, I expect those ppl to be there. And the same thing goes for retail. … “When I see things reported like the struggles with faculty and institutions trying to go online, it concerns me, because what it says is that higher education is not keeping up with society.”
This worked in the past, Pepicello said, because knowledge was largely contained in the minds of faculty, in libraries and textbooks — but “all of that information is now publicly available,” said Pepicello, thanks to the internet’s democratization of education and the preponderance of information available online.
Mueller is a firm believer that investing in physical spaces is as important as shoring up an institution’s online delivery strategy.
“I think the future of education delivered in innovative ways that are technology-enabled is very very bright. The tremendous amount of innovation that will be brought to delivery models that will be tremendously beneficial to people and families around the world, and I think we’re on the beginning edge of that,” said Mueller.
But at the same time, he said, Grand Canyon University is putting $1 billion into classrooms.
“For an 18-year-old student to be on a campus like this and to have the sense of community that exists here … that’s more desired and important and necessary in our opinion than it’s ever been, but it can’t be at $200,000 worth of debt. We think both sides of that equation should flourish if we come up with the right financial models to make it affordable for people.”
Pepicello hopes that when we talk about higher education in the near future, we won’t be talking about online vs. in-person, we’ll simply talk about educating, because those transitions and experiences will be seamless.
Opportunities for for-profits
In many ways, it is the failure of traditional institutions to keep up with society and address student and employer needs in real ways which have opened the doors for for-profits to enter the marketplace in the first place.
“People assumed that for-profits were this great machine that had virtually unlimited capacity to grow and bring students in, and of course I’m the poster child for that,” said Pepicello. “When I came to the University of Phoenix, we had, I don’t know, 25,000 students, and at its height we had half a million, but I was always aware that bubble was going to burst.”
“When you can use the public markets to create something that’s new and innovative and that ends up working for people, that should always be considered — that’s America,” said Mueller. What I tell our people is you should be very proud of how we’ve done this, because we had an idea, we’ve pitched it to public markets, they liked it, they invested in it, and we’ve created a product here, from nothing almost.”
From coming back from the verge of bankruptcy in 2004 to an institution that is thriving 14 years later, Grand Canyon University certainly stands as an example of the type of turnaround many in the industry expected to see after President Trump took office, and Mueller believes the institution will collaborate with others but stand strong on its own for the foreseeable future.
And despite prevailing questions about whether employers value for-profit degrees the same way they value degrees from other institutions, Pepicello said, “the reason we have alternative credentials is that employers aren’t as concerned anymore with a four-year degree. Institutions are, and sometimes employers will tell you they are, but I can tell you having worked with a lot of those employers that they’re not.”
Obama wasn’t the industry’s biggest threat
Pepicello said a focus on the adult learner has been the biggest strength of the for-profit industry, but as other institutions begin to recognize the importance of catering to this demographic — even if they don’t always understand how to go about it — competition is kicking up.
“It’s like suddenly, people realized there are adult learners, and I’ve been talking about adult learners, obviously, since the 1990s,” he said. “I can remember going into various state education agencies and talking with them and more than one state said to me, ‘we understand we have a large adult population who aren’t being served, but we aren’t going to let you serve them … if anyone’s going to serve them, we’re going to.’”
“So what happened was the student pool for the University of Phoenix or for any for-profit simply began to dissipate, because those students were going to other types of institutions that offered the same types of services. And say, frankly, you live in Michigan and you have the opportunity to take an online class or an evening class at the University of Phoenix or your local branch of Michigan State — where your father went and your brother went and you recognize the name. I think for a lot of people, that was an easy decision,” he said.
The biggest threat to the industry he sees moving forward is not traditional institutions, but companies like Pearson and Amazon, which Pepicello believes are far ahead of higher education in general, and if they ever get the quality of content that currently lives on college campuses, they could be a real threat. This, he said, is the biggest motivation for institutions of all types to work more closely together to deliver a higher quality product in better ways.
“You can’t be entitled, you really have to earn that spot, and I think we’re not doing as good a job of that as we could,” said Pepicello.