Are For-Profit Institutions Too Big to Fail?

I was talking to an esteemed college president earlier this month. This individual operates a successful traditional liberal arts college that is strongly considering launching online degree programs as a means to attract non-traditional students. While this particular institution is relatively strong compared to many not-for-profit schools these days, the President felt that offering programs for non-traditional students would be a good opportunity for his college to increase enrollment and expand its mission. It’s difficult to argue with that!

A few minutes into our informal conversation, this individual expressed that he thought this was an ideal time to begin marketing online programs due to the scrutiny and pending regulatory action that face the for-profits. Further, the President asked if I thought based on everything going on, the for-profits would play a less significant role in the non-traditional student market and in some cases “cease to exist.” When I asked him his reasoning for believing that the additional scrutiny on for-profits would in effect take their influence back to where it was 25 years ago, the President had sound theories and scenarios that supported his clear conclusion – solid enough to give me pause to rethink my view that the influence of the for-profits will not be diminished by additional regulation, negative press, and consumer scrutiny.

After considering the President’s strong views on the topic, I compared for-profit post-secondary institutions to some of our largest financial institutions and auto manufacturers – who had much more questionable fates in 2008. Organizations including AIG, Citigroup, and General Motors to name a few were deemed “too big to fail.” And arguably so are the vast majority of institutions that make up the for-profit education sector. Unlike the AIG’s of the world, most for-profits are very healthy from a financial standpoint. By way of example, publicly traded for-profits generated an average profit of $ 229 Million in 2009, up from $ 150 Million in 2008. This is just one reason of many that I explained I expected very little long-term fall-out in the for-profit sector.

What are other reasons that the for-profits are “too big to fail?”

There are the economic factors. For profit education is a business that generates billions of dollars in economic activity. A 2007 study pegged that number exceeding $ 38 Billion and that measured economic input back in 2005. The figure is undoubtedly higher now with the explosive growth of many for-profit institutions over the past five years. Next, the space employs tens of thousands of individuals and with our current economic situation, every job matters. Finally, while outcomes are certainly an issue at many institutions including for-profits, these schools as a whole do produce a capable pool of graduates who gain a vocational/career education – graduates who despite the economy remain high in demand in fields such as health care.

Next, there is demand. According to the Career College Association (CCA) and the Department of Education, for-profit institutions enrolled over 2.75 Million students in the 2006-07 school year – many in two year or career-oriented programs. Many of our public community colleges especially in states such as California cannot effectively handle current student demand despite initiatives from the federal government aimed at assisting public two (2) year colleges. Furthermore, many of our four (4) year public and not-for-profit private institutions do not offer the types of emerging programs that cater to career-focused non-traditional students. Thus, it can be asserted that for-profits are needed to ensure that demand for post-secondary education and specifically career education is best met.

Finally, there are the political and social factors. As is the case with many large corporations, for-profit schools have powerful lobbyists as well as powerful friends in Washington D.C. For-profit education corporations and their employees contribute to political campaigns just as Wall Street banks or oil companies do. To be fair, there are several notable not-for-profit institutions that also contribute heavily to political campaigns. There has already been a good amount of chatter out there that the final regulations that will be enacted will be greatly watered down to a point that they may be more symbolic than transformational.

Tied in with political considerations are the social factors. The achievement gap is a huge issue in education in general. White students and those individuals from higher income backgrounds are more likely to achieve, attend traditional colleges, etc., while the for-profits serve a disproportionate number of students of color as well as individuals from lower income families – groups that are still not represented well in our traditional schools as a whole. For-profit institutions argue they are providing important access to educational opportunities that some underrepresented students might not receive but for their programs. Conversely, critics of for-profits argue that these institutions are preying on these populations. Without opening that can of worms any further, the fact is that these schools do serve a significant number of lower income and minority students. Until our public K-16 and private not-for-profit post-secondary schools come up with effective solutions that will close this terrible gap, it will be difficult from a sociopolitical standpoint for policymakers to reduce or eliminate the influence that for-profits currently enjoy.

None of the above means that for-profits are not in store for even more public scrutiny and potentially a more restrictive regulatory environment. That said, it is highly unlikely that at the end of the day these new realities will have a profound detrimental impact on the for-profit sector. What if, however, all these changes have a terribly adverse impact? Who will save the for-profits in that scenario? The answer is the for-profits themselves!

It is important to understand that the largest players in the for-profit world are multi-national corporations. As with any company that faces conditions that could impact or destroy a firm’s business model, for-profits will change and adapt to improve their image, accountability, and product. Unlike their not-for-profit cousins, these institutions have the money to spend to transform and reinvent themselves in any way they need to in order to continue achieving the main objective of a business – building shareholder value. There are many examples of companies in our contemporary history that have had to overcome the most adverse of conditions to preserve their standing, business model, reputation, and/or brands. Examples include Exxon (now Exxon-Mobil) after their oil spill in 1989, Apple after the launch of consumer personal computers and the explosive appeal of Microsoft Windows, and Bridgestone/Firestone to name a few.

Whether for-profit institutions are better equipped to educate non-traditional students compared to non-profits is a question I will let others more qualified than I debate and answer. On the other hand, the potential demise of the influence of the for-profits has been greatly exaggerated. This should serve as a warning to not-for-profit schools as well as a great opportunity. This also presents a clear opportunity for the for-profits – an opportunity that I am sure many for-profits are already working hard at to capitalize on. Finally, this presents an opportunity for several for-profits that are providing exceptional educational experiences for students already. I work with one that serves a niche audience, graduates 90% of their students, and produces positive employment outcomes for over 85% of their graduates. These are results that any institution – non-profit or for-profit would love to produce for their students! My hope is that whatever comes about, the additional scrutiny and regulations even if they are just symbolic will encourage all institutions to do better for all learners!

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On behalf of all of us at Greenwood Hall, we would like to welcome you to our new website and our new blog titled Insights 4.0. This blog is designed to provide regular updates on key student affairs issues impacting higher education today. We will focus on news, views, trends, and innovations as they relate to recruitment, marketing, student services, retention, and outcomes.  Additionally, we will focus on broader “marketplace” issues. Our vision is for this blog to be a resource of timely information as well as an exchange of ideas for higher education professionals. We welcome feedback, constructive dialogue, and guest writers.

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