Do for-profit institutions have students’ best interests at heart?

Despite its tarnished reputation and history of collapsed ventures, the for-profit sector retains a strong foothold on the US academy. Paul Basken tracks its successes and failures

April 4, 2019
Mortarboard made of money
Source: Getty

In the troubled for-profit sector of US higher education, Mitchell Fuerst is a clear leader: he has already helped eight failed for-profit companies to close down by hosting classes for their remaining students.

It’s a stark tally, but not one that deters him. As president of the Southern California-based Success Education Colleges chain of institutions specialising in allied health, he remains convinced that for-profit higher education, done properly, meets a clear public demand – and will do so long into the future.

“Our sector has been small, family-run schools for generations,” says Fuerst, whose mother opened the first of SEC’s nine campuses in 1966 near Los Angeles. And with the ongoing collapse of large-scale, investor-driven behemoths, he predicts, locally focused for-profit schools will again prove their value. Although he once feared this “800-pound gorilla” model, it “never really made that much sense because, at the end of the day, stockholders and students have divergent interests”.

Fuerst’s sentiment is echoed by many observers, both inside and outside the for-profit sector. Even the head of the for-profit industry’s main lobby group, known as Career Education Colleges and Universities (CECU), regularly mixes praise for the nimbleness and responsiveness of the for-profit format with a clear recognition of its damaging history of excess.

“We live with that bad PR every frickin’ day,” Steve C. Gunderson, the CECU president, told the annual conference of the Council for Higher Education Accreditation in January.

That stain appears far from cleansed. Just last month, closure warnings came to the Argosy University and Art Institutes chains, once part of the 150,000-student Education Management Corporation, the second-biggest owner of for-profit colleges.

Education Management folded after accepting a $100 million legal settlement in 2015 to resolve widespread complaints of misleading students. The Trump administration then allowed Argosy and the Art Institutes to be bought by the Dream Center Foundation, a religious non-profit with no higher education experience.

The Dream Center itself then collapsed, leaving tens of thousands more students suddenly in limbo. Some were seen wandering their campuses crying about years of lost time and money and fretting for their futures.

That all followed the recent closures of the huge ITT Technical Institute and Corinthian Colleges chains, also accused of recruiting students with government-subsidised loans but little chance of academic success.

Donald Trump himself has been implicated, too. Shortly after being elected president, he paid $25 million to settle a long-running fraud lawsuit over his now-defunct for-profit “Trump University”, which ran real-estate training programmes. A group of 3,700 former students claimed that they were the victims of highpressure sales techniques and false claims that they would be taught by expert real estate tutors “hand-picked” by Trump.

Even for those on the inside, the pattern is hard to ignore. “In the strongest terms,” Thomas Corbett, former campus president in the ITT Tech system, wrote in Inside 
Higher Ed in February, “I want to make plain to federal policymakers that some education companies do not have students’ best interest at heart and do not seek to honorably educate them.”

Students at Everest College
Stranded: the closure of Everest College in California by Corinthian Colleges, one of the US’ largest for-profit chains, left 16,000 students trying to find alternative provision

The carnage across the sector in the past few years has been huge. Overall, for-profit higher education in the US has lost nearly half of the 3.7 million students it had in 2010.

The schools are far from the only, or even the main, victims. Americans collectively owe some $1.5 trillion in student loan debt, with for-profit college students most likely to be holding a share and most likely to be defaulting.

It gets even worse when outside investors are involved. A study last year for the National Bureau of Economic Research covering nearly 1,000 colleges with private equity ownership found that such investor buyouts lead to higher enrolment and profits. However, the study, “When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education”, also found that they lead to higher tuition and per-student debt, alongside lower graduation rates and graduate earnings.

Another study last year, “Private Equity’s Failing Grade in the For-Profit College Industry”, by the consumer watchdog coalition Americans for Financial Reform, found that for-profit colleges with private equity owners get about 80 per cent of their revenues from federal aid. Public colleges, by comparison, receive about 21 per cent of their funding from state governments and 16 per cent federal sources, according to figures from the Pew Charitable Trusts.

Yet the sector lives on. The nation’s biggest and best-known for-profit operator, the University of Phoenix, is getting by with about a quarter of its 2010 peak of 600,000 students. Last year, it relinquished its most famous asset, the naming rights to the Arizona American football stadium, barely halfway through a 20-year $154 million sponsorship deal.

The CECU’s Gunderson, a former Republican congressman from Wisconsin, largely blames Democrats and their “excessive regulation” for the rough shape of the for-profit sector. And it is true that some in the party have taken a hard line. Representative Donna Shalala of Florida, a former university president and Cabinet secretary, has proposed making for-profit colleges ineligible for the federal Pell Grants that serve the economically disadvantaged. “I don’t see any place for taxpayer money to subsidise a business,” she told a conference last month.

The Obama administration played a major role in cracking down on for-profit schools. In 2015, it enacted a “gainful employment” rule for vocational education programmes that set minimum ratios for student debt to workplace income. That definition covered most for-profit colleges, and the penalty for poor performance – loss of student eligibility for federally subsidised loans – was largely unavoidable.

The administration justified its action with reference to a litany of industry failures, including data showing that the for-profit sector accounts for only about 10 per cent of all US college students but for more than a third of all federal student loan defaults.

But the Trump administration has taken a very different tack, installing several former for-profit leaders in key Education Department posts. These include the education secretary herself, Betsy DeVos, who came to the job with personal investments in for-profit colleges and a major student-loan collection agency. While in office, she has worked to block legal investigations into for-profit colleges and to weaken the Obama-era regulations. In one of her most controversial moves, DeVos restored the federal accrediting authority of the Accrediting Council for Independent Colleges and Schools, despite the non-profit body’s track record of granting approval to the ITT Tech and Corinthian chains.

Gunderson and his allies have promised to respond to the Trump administration’s trust in his sector – even as the for-profit closures continue – with greater attention to self-regulation. The problem, however, is that meaningful student outcomes data are difficult to compile. And government-approved accrediting agencies – whose institutional assessments serve as the primary gatekeeper for federal student aid eligibility across all college sectors – are largely confined to measuring indirect indicators of institutional health such as campus budgets.

“Nobody’s got a great answer for that,” says Michael B. Goldstein, a higher-education attorney with Cooley LLP.

Given that reality, much of the private-sector investment activity surrounding US higher education is, in a sense, going underground. It is manifesting itself in strong growth in private companies that provide education-related services to traditional colleges: “almost all” private equity in higher education now involves companies supporting traditional colleges, Goldstein says. Examples cover the full range of activities taking place on campuses, from enrolment and personnel management to alumni tracking, as well as public relations, marketing and dining services.

More recently, colleges have been letting private companies into their academic cores – eager for the gains in student audiences promised by new communications technologies but wary of trying to do it by themselves. Examples include 2U, which helps colleges convert their existing courses into online formats, and Trilogy Education, which creates courses that colleges adopt as their own offerings.

In addition, a growing list of for-profit colleges are converting themselves – at least nominally – into non-profit institutions. The tactic typically involves creating separate for-profit divisions to handle the key institutional functions for a fee, while letting the overall college present itself as charitable. Leading examples include the conversions of Grand Canyon University in Phoenix, Florida’s Keiser University and the colleges sold by Education Management to the Dream Center. The online Ashford University is also involved in an ongoing conversion attempt.

Occupy Wall Street demonstrators
Occupy Wall Street demonstrators in a street theatre production protested against rising student debt, wearing placards to indicate their current debt

An especially noteworthy example is Kaplan University. Until recently, this was yet another struggling for-profit provider, mostly offering courses online while facing repeated accusations of leaving students with large debts and poor job prospects. But, in April 2017, it was announced that the company was to be acquired by Purdue University and converted into a non-profit venture.

The Indiana research university’s president, Mitch Daniels, is a former Republican state governor. Under his leadership, the state created WGU Indiana, an affiliate of the private non-profit online Western Governors University in Salt Lake City. At Purdue, he saw Kaplan as another opportunity to expand his state’s higher education offerings. Despite some dissent on campus and beyond, he bought the chain for $1 and rebranded it as Purdue University Global.

Kaplan’s 15 locations and 32,000 students – mostly military veterans and other adults – have given Purdue both the promise of revenue and a continuation of the controversy. Since the completion of the merger last year, critics have discovered language inherited from Kaplan – and unusual in traditional higher education – that assigns ownership of faculty-developed course materials to Purdue University Global; it also bans faculty from criticising Purdue after they leave the institution and forbids students from suing over any grievances.

One leading critic, Robert Shireman, a deputy undersecretary of education in the Obama administration, wrote that the Purdue-Kaplan merger looks “more like a for-profit private college beholden to investors than like the non-profit public institution it purports to be”.

The university subsequently announced that it will no longer enforce the Kaplan language. However, an uncomfortable truth for traditional higher education is that the lines are already being blurred. Squeezed by government budget cuts, the leaders of non-profit colleges are increasingly forced to watch their balance sheets and consider cost-cutting moves that reduce the quality of the student experience. Working closer with profit-making businesses appears to be part of that evolution.

As Goldstein puts it, there may be little point in arguing whether Purdue created its own online operation or simply bought Kaplan and decided that Kaplan’s offerings meet Purdue’s quality standards.

“Did their faculty build this from scratch?” he asks. “The answer is: ‘Who cares?’ ”

Many traditional colleges are, in fact, happy to ally with or mimic the practices of for-profit actors if it helps them address fundamental, existential issues such as recruiting enough students, meeting their needs and holding down prices.

Last month, the University of Massachusetts at Amherst became the latest traditional university to announce plans to dive deeply into the world of online education – long the domain of the for-profit sector – in an attempt to weather the coming demographic decline caused by the great recession of 2008. The institution joins pioneers such as Arizona State University, Pennsylvania State University, Southern New Hampshire University, as well as Purdue. Many key questions about types of classes and instructors available from the “college for adult learners” remain unclear, though the UMass system president, Martin T. Meehan, says he felt he had to act sooner rather than later to address “an existential threat to entire sectors of higher education”.

Those concerns reach all the way to the top of the higher education food chain. In 2012, Harvard University and the Massachusetts Institute of Technology launched the online course platform edX, which is still trying to find a clear audience. More quietly, Harvard is among several top universities that have begun working with Trilogy to create vocational-level course offerings, such as computer coding skills classes. Harvard already has one of the world’s top computer science departments. By using Trilogy to add a basic computer skills course “we serve the broad needs of learners across their careers”, said Huntington Lambert, dean of Harvard’s Division of Continuing Education, during December’s announcement of the plan.


The value of a concrete skill in a fast-changing job marketplace suggests that the for-profit sector will maintain a presence in the higher education universe despite all its failings. In fact, some for-profit advocates suggest that it is traditional higher education, with its emphasis on personal growth and lifelong skills, that will eventually need to prove its worthiness for taxpayer support.

According to Success Education Colleges’ Fuerst, government financing of the liberal arts is “ridiculous – institutions are not there to train people to be people. They’re there to give people higher education to get them a better job.” Shrinking enrolments in those subjects, Fuerst continues, attests to the fact that many students agree with him.

His view broadly reflects the attitude of the Trump administration, which has threatened to take the gainful employment concept that the Obama administration imposed on for-profit colleges and apply it to all higher education institutions.

Such an idea seems unlikely to be implemented at the moment. And the for-profit sector still faces a long road to reputational rehabilitation. Fuerst clearly remembers the initial sense of awe that Corinthian created with its billion-dollar presence in his community. He also remembers the contrast of walking into Corinthian’s boardroom during its waning days, and being asked for help.

He witnessed the Brightwood College chain follow a similar trajectory after opening a 60,000-square-foot facility in San Diego so screaming with overambition that it needed about a thousand students just to cover its $125,000-a-month rent payment. Its inevitable demise, Fuerst says, was another clear sign of the “disconnect between the needs of the community and what Wall Street demanded”.

Some experts who have long studied for-profit actors warn that they are merely changing shape, embedding themselves into traditional institutions in ways that will make future abuses of students tougher to see and prevent.

One such expert is Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities. Yet even he sees possible upsides. “The for-profit model tends to work best in very concrete and very intensive programme offerings,” he says. Trilogy’s computer coding camp at Harvard is a “perfect example”.

And the nation’s top lobbyist for traditional higher education, Terry W. Hartle of the American Council on Education, is confident that his member institutions can reap the advantages of for-profit alliances without causing harm to their missions. Once for-profits become part of a larger institution, says Hartle, the council’s senior vice-president for government and public affairs, “they will have to incorporate themselves into the culture of that school”.

One possible compromise between the for- and non-profit worlds is exemplified by the 47-year-old Pima Medical Institute, a for-profit trainer of healthcare professionals operating in eight western states. Its key ingredient is an employee stock ownership model. That, according to Fred Freedman, Pima’s president, gives the entire staff a more direct interest in maximising student outcomes, better aligning their interests with those of students and employers. With shared ownership, Freedman says, many employees stay a decade or more – far longer than at a typical for-profit college – and thereby learn the importance of consistently turning out successful students. “They feel a sense of something bigger than just a pay cheque,” he says. “Pride, not greed, is the driving emotion.”

Whatever the method, Freedman hopes his sector can somehow overcome its reputational handicap.

“Greed is greed, there are bad players in the for-profit sector, there’s no question about it,” he says. “Where we get a bad rap is that some people just got a little bit overzealous in recruitment, without spending enough time on student outcomes.”


Print headline: A private function

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Reader's comments (3)

This is the essential problem of the transition of institutions of learning to business models. In the UK many universities are now referring to their students as 'financial units' in their discussions about their 'business'. All of this is typical of the mentality which defines the human experience on the balance sheet. The cost of this accounting for education is felt by student and academic populations; the needs of the bottom line dictate course provision, management of staff and the relationship to the 'student experience'. You get what you pay for!
The deeper problem here is that many university administrators and policy-makers simply do not understand that there is such a thing as "the charitable business model" that is distinct from both the for-profit and the state-nationalised models - that it has a particular structure, particular legal obligations, and particular historically-learned advantages when it comes to the long-term provision of education. It is a model that has largely disappeared from public consciousness since the 1960s, when everything became polarised between nationalisation and privatisation, and no-one seems to be able to think outside that box, despite the fact that the idea of education as a legally-defined charitable goal has been around since the days of Elizabeth I, and used on a practical basis by universities since long before that. It is predicated on the simple but terrible fact that education may be an absolute necessity in an advanced society, but it tends not to be profitable in the long term. Those that try to make it for-profit tend to alienate staff, students and alumni, get embroiled in dodgy dealings out of desperation and, ultimately, fail on the financial front. After all, why should universities be 'learning from business' when the average life expectancy of an established Fortune 500 company is 12.5 years? My own university has lasted fourty-two times longer than that!
According to Mr Fuerst, institutions of higher education 'are not there to train people to be people. They’re there to give people higher education to get them a better job'. As if the preparation for the workplace does not already inculcate a fairly narrow conception of personhood.