Predicting the Precarious Future of For-Profit Higher Education

It’s no secret that for-profit universities are in trouble; their aggressive marketing tactics and questionable outcomes have led regulators, and the general public, to view the for-profit space with skepticism. New regulatory action against them, plus the shift in Apollo Education Group (the University of Phoenix’s parent company) from publicly traded to privately owned, are all indicators of a change in the for-profit market. Does this mean for-profits are doomed to extinction, or will they find a way to evolve? And what will that new model look like?

Changes in the For-Profit Space

So why are we talking about this now? Regulators have been eyeing the for-profits for years, and rightly so. There have been reports of aggressive and misleading recruitment efforts, higher than average tuition, high loan default rates and low retention and job placement rates. There’s even a lawsuit alleging that Premier Education Group (which owns the for-profit chain of trade schools Harris) falsified records to keep federal grant money flowing.

The government is taking action; the Federal Trade Commission is suing DeVry University and its parent company, DeVry Education Group, for falsely inflating job and income rates after graduation. At the same time, the U.S. Department of Education has sent a limitations notice to DeVry, to stop the university from making such claims.

Enrollments are reflecting these trends. According to the Education 4Q Preview from BMO Capital Markets, in Fall of 2010, four-year for-profits showed enrollment growth of 14.8 percent. By Fall of 2015, enrollments were down 13.7 percent. While non-profit four-year universities also demonstrated a decline in enrollments (0.4 percent growth in 2015 for four-year public institutions, and -0.3 percent growth for four-year private non-profit), the change has been dramatic in the for-profit space.

And of course, the biggest news is Apollo Education Group’s decision to go from a publicly traded for-profit company to a privately held one.

The Path Forward

To paraphrasing Mark Twain “The reports of [for-profit university] death have been greatly exaggerated.” While many in the non-profit space find the for-profit universities problematic, I do not think that we will see for-profit universities disappear in the next five or even 10 years. I do think we will see a significant change in how they operate, their corporate structure and their mission, however.

Becoming Non-Profit

Although there is no clear path for the University of Phoenix, it’s possible that a ramification of shifting to a privately held for-profit company is that the university will eventually become a non-profit. This will help lend legitimacy to the educator (still one of the largest universities in the United States). Grand Canyon University has been exploring becoming a non-profit university for the past year, and recently told investors that a plan could be available in early 2016. In addition to converting to a non-profit model, GCU also is exploring spinning off some of its services, expanding its market significantly. Other for-profits could follow suit, as Keiser University did several years ago, if the perceived public markets continue to be an unfriendly place for for-profit institutions.

Identifying Their Niche

Those for-profits that understand what they do and focus on doing it well still have a viable place in the market. Walden, for example, focuses primarily on graduate programs and maintains a strong reputation in the marketplace. Capella is focusing on competency-based education, while Kaplan, through Mount Washington College, allows students to attend college without any tuition obligation for an introductory period. Should students choose not to continue their education, they do not have to pay for their classes in the introductory period. This demonstrates that not only do the for-profit colleges have an opportunity to carve out a niche for themselves, but they also have more freedom to try new educational models than a non-profit college. It is worth our time in the non-profit space to keep an eye on what initiatives the for-profits are trying, as in a few years they might need to be implemented at our own institutions.

One of the areas where for-profits have led the way is with metrics. The for-profits have always focused on streamlining and optimizing their operations, using metrics and process mapping methods to continually improve performance. I talk about the importance of metrics and measuring outcomes a lot; this is an area where the for-profits have a leg up on the non-profits, which are just beginning to implement these measures. This focus on metrics and operations will make those for-profits that survive this transition formidable competitors in the higher education space.

Lowering Enrollment Expectations

Because of the massive amounts of growth this sector experienced in the 1990s and 2000s, I think the expectations of growth are a little skewed. I anticipate that enrollments will shrink, with for-profit schools having 30,000, 50,000 or even 100,000 students…still a significant number of students. I think by readjusting expectations to the new reality of increased competition and tighter regulations, for-profit universities will find a way to succeed.

Those for-profits that will succeed are the ones that focus on quality over quantity. In some areas, for-profits are already leading the way — they have been focusing on course development specifically for the online sector, and training faculty to provide an engaging online experience. Those schools that continue to focus on delivering an exceptional online experience will survive, especially as the for-profits that do not focus on excellence close.

Diversifying Education Options

As I keep saying, education is evolving. While the four-year degree remains king, smaller, more specialized programs are becoming increasingly popular. This is an area the for-profits can exploit. Apollo, Strayer, and Kaplan all own coding bootcamps, and there is opportunity to expand these learning environments to other skills.

Focusing on Vocation

The for-profits have a long history of focusing on vocational education, with HVAC, automotive repair, cosmetology and more. There is still significant room in this market. As community colleges have been slow to adapt to the need for these programs, for-profit universities have an opportunity. Existing for-profit institutions could offer skilled trade programs (many of them already do), using their existing infrastructure to develop and deliver curriculum designed to help students acquire the skills they need for specific jobs. ITT Tech is a good example of how this model might play out. The trick here will be to offer actual skills-based training and set up a pipeline to help students get jobs — essentially, to do vocational training right, and not take shortcuts.

Implementing Corporate Partnerships

The for-profit space has been leading the way in developing close ties with corporate partners. They will continue to try and penetrate the market by offering deep discounts to corporate partners. Strayer, for example, partnered with Chrysler to offer free education to all employees and their immediate family members. However, non-profit universities are also exploring these partnerships (as the ASU/Starbucks partnership demonstrates), so for-profits face competition. They will have to demonstrate their value to corporate partners to ensure this strategy works.

Regardless of how the for-profit universities choose to adapt to the new environment, it’s clear that the existing model is broken, and that change needs to happen. What do you anticipate will be the future of for-profit universities?