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Why America Needs More For-Profit Universities

September 14, 2017

 

 

 

 

The past few years have been hard on private, for-profit universities. Many have closed, some are mired in scandal,  those that remain have shrunken.  Their market value has diminished, their regulatory challenges have risen, their reputations have taken a beating.

 

I’ve spent 20 years working at independent, non-profit colleges and universities. From my perspective, the for-profit model deserves another look. The vices of for-profits, after all, are not inherent in their business model.  And there are actual (and potential) virtues in that model that deserve further exploration.

 

First, the vices.  For-profit universities have been condemned for charging exorbitant tuition, for spending too much on marketing, for recruiting under-prepared students,  for failing to graduate many of them, and for lapses in ethical commitment and academic quality. In some cases (recruiting under-prepared students, say, or the allocation of marketing dollars), the pressure to make a profit drove questionable behavior, to be sure.

 

But one only need look at this list to see that among non-profit and state universities, the same flaws exist. Tuition rates are exorbitant at non-profits, too. Every college or university I know is increasing its marketing spend, and only elite schools can avoid the trend towards more aggressive student recruiting. Graduation rates tend to track with the socioeconomic status of the student and scandals plague the nation’s most visible and prestigious institutions of higher learning.  This is not to say that the behavior of for-profit universities over the past decade is to be praised.  It is just to say that schools with different business models find themselves with the same set of problems.

 

And now the virtues. For-profit universities have avoided some of the dubious practices of their public and non-profit competitors.  They do not, for instance, spend tens of millions of dollars on buildings and grounds in order to suggest prestige or enhance curb appeal.  They have avoided the assumption that athletics are either necessarily good for the bottom line or for the well-being of students.  And they have pioneered approaches to course design, to faculty roles, to measuring outcomes, and to student support that align with data and escape practices (equating learning with seat-time, for instance) that almost no one believes to be true.

 

Even more attractive than these actual virtues are the potential ones in a for-profit model--virtues that could be at the heart of the renewal of higher education in America. Let me touch on three clusters of problems that could be helped through a for-profit business model.

 

Think first of the problem of academic quality and innovation.  Public and non-profit higher education rely on tenure and (very modest) pay incentives to encourage both. But neither tenure nor compensation reliably provide incentives that support academic quality or innovation. And there is nothing in either business model that puts quality and innovation at the center. (To be clear, I am not arguing that tenure by definition impedes or discourages good work. I am simply noting that by and large tenure is a neutral force on quality and innovation.)  

 

A for-profit institution could, though, use an employee-ownership model to make faculty and staff co-owners of the college. Faculty work, academic performance, and the economic well-being of the institution would thus be tied directly together.  Further, employee ownership would put real meaning into the faculty governance systems that today have little power to actually influence the key business and policy decisions that shape colleges and universities.

 

Or, contemplate the problem of engagement.  Schools spend millions of dollars to encourage prospective, current, and graduated students to “engage” with them.  Most such efforts point more towards entertainment and comfort (think about clubs, organizations, and alumni gatherings) than towards meaningful participation in the colleges. And most schools struggle to get the volume of engagement that points towards healthy learning and healthy support.

 

But  imagine a college set up as a co-op.  Students, parents, alumni, employees, and community members would all be members.  That cooperative model has built into it opportunity and encouragement for things--like a vital student voice, alumni engagement, and lifelong learning--that are rhetorically central but operationally challenging in a non-profit system. And in a co-op, influence is equal among members rather than distributed according to the size of the donation or proximity to the president.

 

Or consider, finally, the role of colleges and universities in the economic well-being of the communities they serve. The not-for-profit and public models of higher education rely on heavy subsidies from their host communities, be it in taxpayer support for infrastructure or tax exemption in return for maintaining a presence in the place. That is, non-profit and public institutions get the same sort of tax breaks used to attract and retain large business.  I will leave it to economists to decide if these sorts of subsidies make sense in prosperous times and in big cities.  But it is almost certainly the case that they do not for the small towns and marginal cities where many small non-profit and public colleges reside.

If one were to design a college among whose goals it was to contribute to the local economy--to be truly civically engaged--one would choose a for-profit model. That school--perhaps set up as a B-corp--would pay local taxes, support local businesses, and speak freely on public policy matters, things that non-profit or public institutions do not or cannot do. And by so doing, the college could be much more actively involved in building a healthy community--a goal of American higher education as long as there has been such a thing.

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