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Nonprofit Colleges Compete on For-Profits’ Turf

By  Goldie Blumenstyk
June 16, 2013
Industry-focused for-profit colleges, like the American School of Technology, where students learn air-conditioning repair, may have the brightest future in the business, says an analyst.
Ken Frick for The Chronicle
Industry-focused for-profit colleges, like the American School of Technology, where students learn air-conditioning repair, may have the brightest future in the business, says an analyst.
Orlando, Fla.

On top of all the forces now weighing against the for-profit-college industry—continued government scrutiny, falling enrollments—there’s one that hasn’t grabbed any headlines but has the potential to upend some of the most visible players in the sector: robust and inventive competition.

MOOCs for credit, new ventures like the competency-based degrees from Southern New Hampshire University’s College for America, and online programs like the one the University of South Carolina is creating with its Palmetto College are some of the emerging ventures that now offer as much (or more) of the convenience and flexibility that were once for-profit colleges’ chief selling point.

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On top of all the forces now weighing against the for-profit-college industry—continued government scrutiny, falling enrollments—there’s one that hasn’t grabbed any headlines but has the potential to upend some of the most visible players in the sector: robust and inventive competition.

MOOCs for credit, new ventures like the competency-based degrees from Southern New Hampshire University’s College for America, and online programs like the one the University of South Carolina is creating with its Palmetto College are some of the emerging ventures that now offer as much (or more) of the convenience and flexibility that were once for-profit colleges’ chief selling point.

By the end of 2013, at least 87 percent of the United States population will have the option of taking online courses from an in-state public or nonprofit college, according to an analysis from Deutsche Bank Securities. The same analysis shows that “progressive nonprofits"—those active in online education, like Western Governors University and Liberty University—have been growing in enrollment by at least 15 percent a year since 2006, while for-profit colleges’ online-only enrollments began to fall off sharply in 2009. In many cases, those public and nonprofit options are far less expensive than the for-profits are.

The sector that was once a major disruptive force in higher education is being disrupted itself.

And judging by the subdued (call it glum) mood among many attendees at the Association of Private Sector Colleges and Universities’ annual convention here this month, its executives know it.

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David Pauldine, chairman of Apscu’s board and executive vice president of DeVry Inc., said the industry faced stark choices. College companies that don’t take steps to make their programs more affordable will meet “a Darwinian end,” he said. “Those that are navigating the disruption can do quite well.” DeVry is among several that have begun offering scholarships and discounts.

Mr. Pauldine was chatting at the rear of the exhibit hall, a space that one vendor described as being “a ghost town.” The Apscu convention drew only about 1,000 college attendees this year, down more than 37 percent from last year. (Attendance by Apscu members is always higher when the convention is held in Las Vegas, as it was in 2012.)

Another sign of the times: In years past, the convention would be swarming with private-equity investors, business brokers, and bankers, looking for growing colleges to buy or sell. This year, with most of the colleges still facing falling enrollments, those dealmakers were scarce, and so were the transactions.

“If there are any, they’re little,” said one of the few brokers to be found. (He asked that he not be identified.)

‘They’re Not a Player’

That America needs for-profit colleges has become a truism, one dutifully voiced more than once during the convention in keynote speeches by Purdue University’s new president, Mitchell E. Daniels Jr., and the University of Maryland-Baltimore County’s president, Freeman A. Hrabowski III. Yet in many of the fields where the economy will need the most high-skilled workers, like engineering and the biosciences, for-profit colleges actually produce few graduates.

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“They don’t have a heavy presence in STEM,” said Brian K. Fitzgerald, chief executive of the Business-Higher Education Forum, an organization of mostly Fortune 500 executives that is a leading advocate in the campaign to promote nationwide advancements in the teaching of science, technology, engineering, and mathematics. “They’re not a player in this.” (One of the notable exceptions is DeVry; its Chamberlain College of Nursing is one of the largest in the country to train registered nurses. And about 28 percent of DeVry students are enrolled in its College of Engineering and Information Sciences.)

Forum officials say major corporations rarely collaborate with for-profit colleges on science-and-technology activities, because many of the companies have ties with academe that grew out of their scientific-research relationships. For-profits don’t conduct such research.

But that may not be the only reason. A few years ago, Mr. Fitzgerald recalls, a group of companies near Washington was looking to support the creation of professional-science master’s-degree programs in the region. “Sure, they could have gone to the University of Phoenix,” he said. But five went to UMBC, and the sixth went to the University of Maryland University College. “I think we’ve seen our members voting with their feet,” he said. “These are very sophisticated people who are looking at the marketplace and making judgments.”

Georgetown University’s Anthony Carnevale, a labor economist who studies the connections between academic credentials and job markets, says the growth of online education in the nonprofit sectors and the rise of MOOCs and other alternative forms of higher education change the equation regarding the “need” for for-profit colleges. Without them, he said, “the loss wouldn’t be monumental” to the economy, but the nation would “lose a substantial set of earnings opportunities for people” being trained for jobs in medical technology, culinary arts, and high-tech mechanical fields.

“They’re good at HVAC,” said Mr. Carnevale of for-profit colleges. “The question is whether the earnings are worth the price.”

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The U.S. Department of Education announced last week that it would again propose a “gainful employment” regulation that could close down programs that don’t measure up as a good financial value for students.

Focus on Jobs

Back at the Apscu convention, some of the most relaxed attendees came from colleges least affected by the competition from a Western Governors or a Southern New Hampshire.

“We don’t care that Amherst won’t have MOOCs,” said Scott Cohen, vice president of American School of Technology, in Columbus, Ohio. The school enrolls about 200 people a year in a 50-week course in heating, ventilation, and air-conditioning/refrigeration, and the only “disruption” that threatens its business is an unseasonably warm winter, which can discourage company hiring and “kill our placement numbers.”

And there was Jack Larson. From 1994 to 2006, he ran Career Education Corporation, a publicly traded higher-education company that owns American InterContinental University, which grew largely through its online operations; Le Cordon Bleu, a culinary school; and Sanford-Brown, which offers degrees and certificates in medical fields.

Mr. Larson is also on the board of a company that could be classified as part of the “alt-ed” movement, called 2U. It works in partnership with traditional nonprofit institutions, like the University of Southern California, to offer degree programs online.

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In the Apscu exhibit hall, he was manning a booth for his latest venture, the Auguste Escoffier School of Culinary Arts, a mostly online cooking school where the courses can be completed in four to six months and the tuition is $3,995. “It’s affordable,” he said. About 30 percent of the students are cooking enthusiasts, he said. The rest are using the course to get hired in restaurants.

The for-profit-education industry “has go back to some things that were successful,” said Mr. Larson. “People are a little bit in denial” about the competitive challenges they face.

In fact, Mr. Larson’s move may be just where for-profits ought to be heading. With all the competition afoot, “the sector really has to back to its roots and focus on jobs,” said Jeffrey R. Silber, an analyst with BMO Capital Markets (and one of the few stock analysts who attended this year’s convention).

The country still needs people working as sonogram technicians, auto mechanics, and in other good-paying jobs. You’re not going to find training for those jobs at Penn State, Mr. Silber said.

“I don’t think the sector is disappearing,” he added, but “it’s never going to be what it was.”

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We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
Goldie Blumenstyk
The veteran reporter Goldie Blumenstyk writes a weekly newsletter, The Edge, about the people, ideas, and trends changing higher education. Find her on Twitter @GoldieStandard. She is also the author of the bestselling book American Higher Education in Crisis? What Everyone Needs to Know.
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