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Down Economy Presents Opportunity for Private, Market-Funded Universities

University Business, Jul 2009

In the fallout of significant budget cuts at public universities, it's difficult to see a bright spot. Programs are being eliminated, salaries are frozen, faculty furloughed, and institutions with a strong history of serving their communities are forced to make bone-deep cuts. There is, however, a solution that can help us navigate through this crisis and we're seeing it at work: private, market-driven institutions of higher education. Because these institutions are operated by investors and owners and do not rely on government funding from tax monies, a market-driven university is compelled to adapt to changing economic and social trends for long-term sustainability. As such, market-driven universities have continued to thrive during the economic downturn.

Ironically, as bad as the situation is today for public institutions of higher learning, it is fertile ground for market-driven private universities to experience success, and it's an ideal time, financially, for students who otherwise wouldn't consider a private college experience to go that route. This is particularly true when considering the aggressive financial incentives currently being rolled out for incoming students.

Moody's, a widely referenced resource for credit rankings, recently predicted that private colleges nationwide would suffer in light of the current economic circumstances. A market-driven model, however, is primed to grow this industry. Here's why:

— Private higher education is not encumbered by the limitations set by state budgets, and curriculum can be developed based on demand, which is currently occurring in the two more recession-resistant careers of healthcare and education.

— Educating a student at a private university costs taxpayers nothing, whereas taxpayers foot most of the bill for students to attend public institutions. In fact, market-driven universities create tax revenues through property and employment taxes.

— At some market-driven schools, students can attend classes and reside on a traditional campus with a student/instructor ratio that is one-fifth the size of classes at public universities.

— Attending a private university in this economy is surprisingly affordable especially in light of the increased tuitions that state universities will eventually command incentives, including scholarships, grants and other aid lessens the financial gap.

— Athletic programs on smaller campuses can offer a robust experience and competitive play, and unlike many of the larger public universities the programs are not dependent on alumni and donor support for survival.

— Smaller campuses foster a greater sense of community and belonging over large public institutions.

During my tenure at Grand Canyon University (GCU), I’ve experienced this positive trend firsthand. GCU is a case study in how private ownership of a former not-for-profit institution can both strengthen its academic programs and restore a failing organization to a firm financial footing.

In December 2003, the nondenominational Christian university found itself $15 million in debt, with its student population shrunk to only 1,500. Enrollment had declined for five straight years. The school had 30 days to make good on its obligations or it would have to file for bankruptcy.

How Grand Canyon University dramatically transformed itself comes down to a local businessman named Brent Richardson, an entrepreneur with a specialty in educational enterprises. Richardson bought the school, saving it from bankruptcy. He also immediately converted it to for-profit status and installed himself, a non-academic, as its chief executive officer.

The school currently has 28,000 students enrolled, nearly eighteen times more than 2003 enrollment. Revenue at GCU has grown by over 600 percent -- from $24 million in 2004, the first full year Brent stepped in, to $161.1 million in 2008. Additionally, with enrollment rates increasing annually, the number of GCU employees has tripled to more than 1,000. As such, GCU is indeed unique -- the country's only private, for-profit Christian university with a traditional campus and 16 NCAA athletic programs.

The emphasis on treating students as customers, an aggressive marketing strategy, and a unique approach to student retention -- in short, the meeting of unmet needs for students and parents alike -- has salvaged the school's reputation and assured its future.

Simply put, at private, market-driven universities there is capacity, there is a desire to serve, and there are resources. We want more students. We want to pick up the slack. We can work to fill the gaps that our state universities cannot accommodate. We care about our future. We care about stimulating our attitudes and our economy. We want to create compassionate, caring professionals. As a higher education institution with ample room, we can offset the diminished capacity of our public universities and work together through this crisis.

Brian Mueller is the CEO at Grand Canyon University (Ariz.).