The pictures show a lovely celebration. A crowd of 100 or so is seated on a well-groomed lawn in front of a trim orchestra and a grand old plantation house. A retired astronaut has been flown in to address the group. Late in the day, two hot-air balloons skim the dusky sky.
That fall day in 2007 seemed an auspicious start for a college with only five professors and 10 students. But as the year wore on, the students, professors, and staff members became convinced that it was a sign of something else entirely: an elaborate facade.
Founders College, in rural South Boston, Va., was pitched as a sort of Great Books college for devotees of Ayn Rand. And while the for-profit college was never accredited, it operated with authorization from Virginia to issue degrees.
At the time the college was approved, it had no official faculty, no facilities, and, it turned out, shaky finances. "I'm stunned that the state would register a place like that," says Ray Weiss, the onetime enrollment director. "What did we really have going for us when they registered us?"
As strange as the particulars of Founders College are, they do raise questions about just what the standards are for opening a college. To some extent, the bar is necessarily low. A new college is, after all, unproven—and if a state is going to allow for innovation, it has to allow for failure.
But a college isn't like a barber writing hot checks all over town, or a restaurant that's poorly managed. College is something more—a promise of an education, of a degree with value in the marketplace, and, for students, of a place that has their best interest at heart. "For crying out loud," says Marshall Hill, executive director of Nebraska's Coordinating Commission for Postsecondary Education, "if we don't want consumer protection in higher education, we're nuts."
New rules issued last month by the U.S. Department of Education are a reminder of that. State agencies with limited resources and proscribed authority, however, can vet only so much. "There's a certain expectation of honesty," says Kirsten Nelson, director of communications and government relations at the State Council for Higher Education of Virginia. "Otherwise you'd never be able to get anything done."
Founders certainly started with high aspirations. It was the inspiration of Gary L. Hull, a longtime visiting professor of sociology at Duke University and director of its Program on Values and Ethics in the Marketplace. Mr. Hull has long been a high-profile proponent of objectivism, the philosophy of Rand. And he had wanted to shake up the college market for years. Where most colleges saw degrees, he saw a hodgepodge of classes and incoherent goals. He hoped to create an objectivist college where all students would have the same academic foundation and be taught to think rationally.
However, not all of the students who would end up at Founders knew that. English Tong, who was home-schooled, found out about the college through a friend who had heard Mr. Hull promote Founders as ideal for home-schoolers. "Not until I arrived did I realize it was an objectivist school, so I was thrown into that without really agreeing with it," Ms. Tong says. "It was kind of weird. They had advertised the college to everyone differently."
Jade Fogg was sold on the college because she was told it would have an equestrian center. Josh Walsh was intrigued by its business focus and the opportunity to learn hospitality management firsthand at the inn on the property. Several students came because of Mr. Hull. Upon arriving, they were disappointed to learn that he had abruptly pulled out of Founders' day-to-day operation.
And none of the students expected to find so few peers. There were supposed to be around 100 students, but the college came up 90 short. Those were the first of many surprises.
Since Colonial times, the government has recognized that colleges are somehow different than other businesses or charities. The new rules issued by the Education Department require colleges that participate in federal financial-aid programs to certify that they are approved to offer degrees in each of the states in which they operate. Previously, states were primarily responsible for enforcement.
Many of the details of those approval processes, however, remain the province of individual states—causing consternation about how each state will interpret the new rules. What they assuredly mean is more red tape for certain colleges, including some established nonprofits and online-education providers. But the new rules don't apply to colleges that, like unaccredited Founders, can't participate in the federal financial-aid program.
"Some groups are hollering about it, but I don't think it's changing much," says Alan Contreras, administrator of the Office of Degree Authorization of the Oregon Student Assistance Commission.
Many states' regulations have already been tightened in the past 10 years, he says. The worst operators, diploma mills, have been largely eradicated, pushed overseas to the Caribbean and other outposts. Students can now largely be confident that a college operating legally in the United States isn't a blatant scam. But beyond that, state authorization isn't a promise of quality. And the new federal rules are unlikely to change that.
"Legal authority to issue degrees is not the same thing as the qualitative oversight of college programs, a much broader and more complex issue," Mr. Contreras wrote in a paper on the topic last year. "A college having the legal authority to issue degrees is no guarantee that its degree programs are good or even adequate."
Most states, including Oregon, do ask colleges to demonstrate a few key things: that faculty members' qualifications are in line with what they will teach; that the institution has policies on academic credit and sensible admissions standards; and that the college has a coherent fee-and-refund structure. Founders College supplied the State Council of Higher Education for Virginia with a 44-page business plan, a proposed list of faculty members, and other documentation, including a plan for gaining accreditation. The college was also required to have a bond of $54,000 to cover a portion of students' tuition, in case it didn't properly issue refunds.
But once Founders was authorized, in August 2006, the state wasn't scheduled to review its operation until October 2007.
In the meantime, just about everything about the college changed.
Mr. Hull had incorporated Founders College Education Inc. and Founders College Education LLC in Delaware and then hunted for a campus in North Carolina, then Maine, and finally Virginia. Along the way, he joined with Tamara K. Fuller, a consultant and real-estate executive. He did not return calls for comment, and she declined to answer questions about the specifics of the college.
She wrote in an e-mail that she was grateful to the students, faculty, and staff who took a risk to join Founders. "These individuals stepped forth with courage, hope, and excitement for this project and yet, despite heroic efforts, we did not succeed financially," Ms. Fuller wrote. "Responsibility for the closing of Founders in 2008 rests squarely with me as leader, and I know it has been a disappointment for everyone involved, particularly the students."
Before the college opened, Ms. Fuller had informed the state that she was taking over as CEO and that Mr. Hull had pulled out of all academic activities. But none of the other original faculty members showed up. And Founders' location changed yet again, after a local planning commission rejected the college's plan to purchase and rezone a resort in Lynch Station, Va. Instead the campus was opened near the North Carolina border at Berry Hill Plantation, which included an inn and conference center that once landed in The New York Times as "A Hotel Stephen King Might Find Just Right."
The former tobacco plantation was a draw for some staff and students. It certainly had the look of an idyllic liberal-arts campus. Mr. Weiss, the enrollment director, who had spent his career in sales, tried to use that look as a selling point. He also assured students that attending an unaccredited college was no problem. Mr. Hull told him that other colleges would accept Founders' credits, Mr. Weiss says now. "Then I started to research it and realized it wasn't true."
And the college's effort to attain accreditation wasn't going well. Founders had started the process with the American Academy for Liberal Education, but the Department of Education had suspended its authority to accredit new institutions. Founders' leaders instead decided to seek accreditation from the Southern Association of Colleges and Schools, which had a longer and stricter review process. "They were going to make us do it the right way," says Mr. Weiss.
The association has no record that Founders sought accreditation. Mr. Weiss was also becoming concerned about the admissions process. Applicants hadn't materialized in anywhere near the numbers the college had hoped, and he was pressured to accept a student he thought was woefully underqualified. (The student never enrolled.)
In retrospect, Mr. Weiss isn't even sure he was suited to admissions work. "I didn't even go to college," he says. "Do I think I was qualified to say, 'You belong at this school'? No."
At the time, Mr. Weiss says, he trusted that experienced leaders and faculty knew better. A few months after the college opened, he left. Mr. Walsh, a business student from North Carolina, also left before the first semester had ended. He felt he was learning a lot, and he wasn't paying tuition or room and board—but it was clear that things weren't going well. "I didn't want to waste any more time," he says.
He did not think to tell the state council about the situation at Founders. And that fall, when the college was up for reauthorization, the council gave its approval. Linda Woodley, director of private and out-of-state postsecondary education, says the council knew how few students the college had. But on the basis of financial documents it provided and the federal formula for financial health, she says, the state didn't have cause to shut it down.
Around that time, the previous owners of the Berry Hill resort were awarded a judgment of just over $3-million against the college for not paying a loan for the property, according to court documents.
None of the students at Founders, with the exception of Ms. Tong, were paying anywhere close to full tuition or room and board. Some were on full scholarships, they say, and others simply weren't paying, or paying very little, until they heard more about their eligibility for federal aid. Still, in the beginning, the students were living in resort-style rooms and eating gourmet meals.
"Friday nights were jazz nights, and we were able to sit with the public and order filet mignon and scallops," says Ms. Tong.
The college also had an enviable faculty-student ratio: six professors and, at the high mark, 10 students. Four of the faculty members had Ph.D.'s, and most had extensive teaching experience, according to college records. None wanted to be interviewed for this article—but their former students universally said that their teaching was a highlight. "The professors were fantastic," says Ms. Fogg. "I don't think I realized that until I left."
The faculty, however, was paid inconsistently, according to students and local news reports. And the college's bills were mounting. The inn on the property had not been profitable for years, and it remained in the red after Founders purchased it, say former employees and students.
Plans to build a retirement community and shopping center on the 650-acre property never materialized, nor did a golf course. All were supposed to make money for the college.
At the end of the first semester, students say, the inn ran low on food. The English professor told students he was resigning because he wasn't getting paid. "He tells us goodbye and walks out," Ms. Fogg says. "He gave us a letter that says he will not be conducting final exams."
Ms. Fogg thinks he was finally paid, because she and the other students later took the exam at his home, off campus. He refused to come back to the property, she says. "It was extremely stressful."
By Christmas, Founders and the Berry Hill Inn had lost no fewer than 17 employees, including Mr. Weiss and the English professor. Among the others were three professors, the general manager, the vice president for operations, two accountants, and a sous-chef, according to South Boston's The News & Record. Locals, it said, were also "grumbling about unpaid bills around town."
Still, five students, including Ms. Fogg and Ms. Tong, returned for the spring semester. The college's finances continued to deteriorate, including a judgment of more than $8-million against Ms. Fuller and several of her companies for not paying the mortgages on properties in Maryland, according to court documents. Some of the properties had been used as collateral for a loan to purchase the campus.
Professors sped up classes to finish the year early. Students took economics for six hours each Saturday, Ms. Tong says, because the professor would make the drive from Washington only one day a week. At some point, Founders had arranged for the students to be dual-enrolled at Southside Virginia Community College, so they would have transferable credits. Southside says it reviewed Founders' curriculum and faculty qualifications and charged Founders for the students' tuition.
But, toward the end of the year, Ms. Tong says, the students heard that the community college hadn't been paid—and they were concerned that they'd be left with nothing to show for their work. Whatever the case, the students did ultimately get credit for most of their classes.
Ms. Fuller held a final meeting with the students. "She asked us if anyone was coming back next year," Ms. Tong recalls. "I was amazed at the delusion."
The Virginia higher-education council says that it received one complaint about the college, but that it was from an employee, and the council does not have authority to investigate personnel matters. It received no complaints from students; many don't appear to have known whom to complain to.
In a way, that's the biggest limitation of state oversight. State agencies, people in the field say, don't have the manpower, the resources, or often the authority, to go digging unless a complaint gives them reason to. If the Virginia council doesn't receive any student complaints, it visits each of the 340-plus colleges it authorizes only once every three years. A lot can happen in that time, but even that frequency is onerous for the council, says Ms. Woodley.
Founders College closed in November 2008. The state never stepped in.