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Trading places

Private sector higher ed’s perilous journey to transformation, self-regulation, and redemption
University Business, June 2016

This FutureShock is the third in a trilogy of commentaries on the for-profit (private sector) higher education industry and the implications of an increasingly complex and skeptical regulatory environment. In this piece we focus on the emergent, some say irreversible, megatrend turning private sector schools, colleges, and universities into nonprofits and vice versa.

Consumer activist Sen. Elizabeth Warren (D-MA), is seeking to ratchet up the regulatory voice in the interest of protecting those victims whose higher education debt could be discharged as a result of institutional bankruptcy. Some see this as subsidized by taxpayers, who may have already paid their own way through college. Warren’s perspective suggests there would be even tighter regulation and enforcement of private sector institutions, no matter their student success outcomes and importantly, their positive economic and workforce impacts.

Now in the crosshairs of for-profit critics, private sector industry insiders worry that a few bad apples are pushing the federal government and accreditors to paint with an overbroad brush. Taken to an extreme, arbitrary regulation and for-profit profiling would force private sector institutions into bankruptcy, or under receivership without process, recourse, or deliberation.

In the wake of this regulatory and enforcement tsunami, a recent decision of the United States District Court should send a clear message that the Judiciary will not sit on the sidelines and watch the Consumer Financial Protection Bureau undermine the integrity of the national accreditation process. The Court was unconvinced of the Bureau’s enabling legislation and suspicious of the Bureau’s motives for targeting the Accrediting Council for Independent Colleges and Schools (ACICS). Indeed, some observers believe that agencies like the Bureau play out their activist role by making new rules by administrative fiat, rather than by legislative deliberation or regulatory promulgation - open to constructive criticism in Congress, and significantly, in the Court of Public Opinion.

In a Forbes Magazine article, entitled ‘In Defense of For-Profit Colleges’, we learned about the rest of the story. The Forbes piece reports on actual private sector graduation rates which often meet or exceed community, technical, municipal, and county colleges without receiving State funding for operations and faculty and staff support. That said, recent media reports sensationalize the motivation behind private sector higher education by suggesting a nefarious plot to trap students in lifelong family debt. Yet, the private sector has been able to respond nimbly to fast changes in the emergent economy, and align curriculum and academic resources more efficiently than their public sector cohorts - especially in the high demand STEM fields.

We learned from Steve Gunderson, President and CEO of the Association of Private Sector Colleges and Universities that: “…the combination of retiring baby boomers and projections of new skill demands present real opportunities for postsecondary career education. As many community colleges transition towards more liberal arts programming aligned with 4-year degrees, the traditional career college sector will see a significant potential for growth. In fact, most of the programs offered by these schools today are projected to increase well above the national occupational growth projections; in some cases as much as 2-3 times more…America’s workplace will depend on postsecondary career education for its future skilled workforce”.

Over the last several years, federal bureaucrats and accreditors have regulated small, regional, family operated private sector schools, colleges, and universities so tightly that they were incentivized to transform into nonprofits. Beyond regulatory and accreditation constraints, a number of for-profit to nonprofit transformations, motivated for the betterment of students, have already been met with success – i.e. Herzing University, Kaiser University, and Remington College.

While some private sector schools are turning nonprofit, ITT’s acquisition of Daniel Webster College offers a contrasting merger model. Playing the role of white knight, ITT preserved the educational mission of a nearly defunct nonprofit college in service to the larger Southern New Hampshire business and civic community.

Uniquely, the nonprofit Zenith Education Group, a subsidiary of the Educational Credit Management Corporation, took over 53 Corinthian College campuses with over 33,000 students. As a result of the acquisition, Zenith made sweeping changes by eliminating underperforming programs with poor student outcomes, adjusting curriculum to accelerate timeframes for program completion, investing in remediation, lowering tuition, increasing student grants, providing “graduation scholarships”, and importantly, creating a debt relief fund for former Corinthian students.

At the end of the day, these entrepreneurial private sector, nonprofit, and quasi-public institutions have deployed new forms of ownership, control, and governance to protect students and achieve a level and predictable playing field in the fast shifting for-profit regulatory environment.

—James Martin and James E. Samels, Future Shock columnists, are authors of The Provost's Handbook: The Role of the Chief Academic Officer (Johns Hopkins University Press, 2015). Martin is a professor of English at Mount Ida College (Mass.) and Samels is president and CEO of The Education Alliance.

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