Feature of the Week

February 19, 2012 11:52 pm

Knowledge comes at a price

Do US for-profit colleges widen access to universal education or are they just a way to make money? US for-profit colleges, such as the 373,000-strong University of Phoenix, account for about 12 per cent of students in US higher education, including a quarter of management students.

In recent years, growth at these institutions has far outstripped the rest of the sector. Enrolment grew 236 per cent between 1998-99 and 2008-09, compared with just 20 per cent at non-profit and public colleges.

But while some view this as a story of widening access and opportunity, others are not so sanguine. Critics point to complaints on internet sites, the testimony of ex-students at various Senate hearings, or evidence gathered by state attorneys. To the industry’s detractors, such material reveals a pattern of excruciating student debt, aggressive recruiting and marketing and less-than-stellar academic standards. They note that for-profit colleges account for 47 per cent of student loan defaults, implying an imbalance between tuition cost and subsequent earning power.

“Over the decades, the sector has taken a fairly clear mandate to prepare people for gainful employment, and twisted it by offering completely worthless programmes,” says Barmak Nassirian, associate executive director at the American Association of Collegiate Registrars and Admissions Officers.

Shift in financing

Though the UK government has delayed its higher education bill until at least 2015, David Willetts, universities minister, remains committed to a “conceptual shift” in higher-education financing that will remove barriers to private providers.

Under the existing system, universities are funded via teaching grants, which Mr Willets says allows public institutions to charge fees that private companies cannot match. From this autumn, though, students at private universities in England will be eligible for state-funded loans of £6,000 for their tuition fees.

There are only a handful of private providers with degree-awarding powers in the UK: the University of Buckingham, the College of Law, IFS School of Finance, Ashridge Business School and BPP University College. BPP was acquired by University of Phoenix-owner, Apollo Group, in 2009. As well as its business school, established four years ago, BPP has a law school and a school of health. Its chief executive Carl Lygo expects BPP to “come into its own” as the reforms come into effect.

BPP wants to concentrate on business undergraduates and MBA programmes taught with employers. BPP currently teaches an MBA with law firm Simmons & Simmons and a business-themed law programme for SJ Berwin.

“We haven’t got a long tradition of offering an MBA so our route into this market is designing programmes with employers as and when we need them,” says Mr Lygo.

In Securities and Exchange Commission filings in the US, Apollo has twice written down the value of BPP since its $600m purchase, citing “lower than expected” student numbers. But Mr Lygo says Apollo has made investments of £20m-£30m in BPP in the past two years and that the company sees the project as a long-term one.

“Having degree-awarding powers in the UK is a great thing to have and I know there are a lot of other private-sector companies that would like to be in the position that Apollo is with BPP.” BPP took seven years to win degree-awarding rights, he says, and such lead-times could put off “companies with a short-termist approach”.

Mr Lygo believes that opportunities in the UK are limited by onerous regulations, limits on the availability on students loans and a lack of acquisition targets. “I’m a strong advocate of good regulation to prevent those who are not high quality from entering the UK market. We’ve got a reputation to maintain here in the UK.”

“Millions of students have stepped forward to better themselves and ended up with crushing debt and no enhanced wage-making capability.” He says a flood of “counterfeit degrees” is devaluing “legitimate credentials”, including business degrees offered by traditional universities.

But for-profits strongly dispute the charges, arguing they are at the cutting-edge of educational delivery, offering greater flexibility and service than conventional colleges and catering to underserved parts of the market.

Brian Moran, interim president of the Association of Private Sector Colleges (APSCU), says “non-traditional” students are inevitably less able to repay loans. “They are often the first in their family to go to college. They don’t have the wealth that other students enjoy. They are older and ... not living with their parents. They bring less to the table. Of course, they’ll take out more loans and have more defaults.”

The debate is not just of US relevance. David Willetts, the UK universities minister, has made for-profit provision a key part of his higher education overhaul and several US companies are eyeing the British market.

The Obama administration however has been sufficiently alarmed about the US market that it has tried to regulate it more strictly.

Last summer it finalised new rules requiring colleges to prove they were preparing students for “gainful employment”. Colleges must now show that at least 35 per cent of former students are repaying loans, that the annual loan payment does not exceed 30 per cent of a graduate’s discretionary income and that the annual loan payment does not exceed 12 per cent of a typical graduate’s total earnings.

Courses that repeatedly fail these metrics can become ineligible for federal loans, which would in effect cause many to close. Some for-profit colleges receive up to 90 per cent of revenue from the US Treasury. The Department of Education says 5 per cent of 13,155 for-profit courses could close. But Mr Moran believes the effect may be wider. “We think this is going to have enormous impact on our students and our programmes, far greater than the department anticipates.”

The rules were originally meant to be much tougher, but were pared back after a lobbying campaign by the industry. The APSCU has also taken its case to the courts, arguing the Department of Education does not have authority to regulate so widely.

David Halperin, at the Center for American Progress think-tank, forecasts that the regulations, combined with negative publicity and campaigning, will prove salutary in the long term. “They [colleges] do have to worry they are going to be in that bottom 5 per cent. They can’t offer absolutely minimal educational value and expect to survive.”

Amid falling student enrolment recently, several companies have introduced changes aimed at renewing confidence. Kaplan and the University of Phoenix now have no-fee enrolment trials so students can get a feel for courses before signing up. California-based Corinthian has strengthened its career services and introduced checks to ensure graduates are placed in jobs.

. . .

Mark Brenner, senior vice-president of external affairs at Apollo, owner of the University of Phoenix, says the company is “concerned about the level of debt our students are taking on”, but does not expect any of Apollo’s courses to be affected by the gainful employment rules.

The largest for-profit player, the University of Phoenix, has been offering an online MBA since 1989 and its MBA programme is the largest discipline. Phoenix now buys more case studies from Harvard Business School than any other institution.

Student advocates insist for-profit colleges are needed and it is a question of what safeguards are in place.

“If public and private incentives are aligned correctly, there is no reason not to proceed,” says Pauline Abernathy, vice-president of the Institute for College Access & Success. “Our experience here shows the need for strong policies and oversight.”

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