Last week the for-profit behemoth University of Phoenix said it would close 115 locations. The move comes on the heels of a late September decision by Kaplan Higher Education to stop new enrollment at nine of its sites and consolidate four campuses. Critics are elated, hoping that these moves signal the death knell of for-profit education. And indeed, the stocks of the for-profits are down almost 50% this year according to the Bloomberg index that follows the industry. But love it or hate it, for-profit higher education is unlikely to disappear and is instead shifting to a leaner incarnation online. Before too long, such schools likely will be an accepted part of the landscape alongside traditional public and private universities.
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Such a prediction sounds crazy, given what we’ve been learning about for-profits. Investigations by the federal government and the media have revealed a litany of appalling practices. Among the problems: Misleading recruiting claims aimed at the most economically vulnerable students, frequently low quality and worthless degrees, and low graduation and job placement rates. Student loan default rates are substantially higher for students at these schools. In other words, for-profit colleges are not as bad as you think — many are worse.
But policymakers are waking up to the extent of the problems and trying to use regulatory authority to rein in at least the worst schools. Meanwhile, new competitive ventures like MOOCs (massive open online courses) are springing up. and attracting different kinds of students into the online sector. For many students at today’s for-profits, the choice is between an online option, maybe a class or two at a community college or no further education at all. So these ventures may be shady, or at best unproven, but they are responding to a genuine demand for greater flexibility because of a student’s work and family obligations that existing institutions are not meeting.
This pattern of low-quality products entering a market then evolving and improving while changing an entire sector along the way is an established one. Harvard Business School professor Clayton Christensen is the best-known proponent of this idea, dubbed “disruptive innovation.” Radios are one common example. When cheap transistor radios entered the U.S. consumer market established makers of big radios assumed no one would want one. Who did? Teenagers, for whom the choice was lousy (but easily portable) radio or no radio at all. From import cars to floppy disks and online music the trajectory is the same: At first something beats nothing and then that something gets better.
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Colleges and universities are starting to respond. Big name schools such as Harvard, MIT, and Berkeley are experimenting with online courses that promise higher quality online instruction through their “edX” initiative. The University of Texas just joined edX last week, committing $10 million to the effort. In August, Stanford announced that it was creating a Vice-Provost for Online Learning to support its various online initiatives, which include for-profit companies. Meanwhile, ventures like Udacity, Coursera, Straighter Line and a slew of others are poised to flood the marketplace with new online ideas and options that could make old ideas about time and location in higher education obsolete.
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Established for-profit colleges know things are changing. Some are trying to self-regulate but as an article earlier this month in the Chronicle of Higher Education showed, so far those efforts are illusory because few schools are signing up to embrace voluntary standards. Policymakers are not waiting for the schools to get their act together. In 2011 the Obama Administration released a new regulation intended to ensure that graduates of for-profit schools can repay their loans and that their debt is not too high relative to their income. In July a federal judge struck down parts of the regulation as too arbitrary but acknowledged the problems and affirmed the government’s ability to regulate these schools. How aggressive that regulation is in the short-term hinges on the outcome of November’s election. Governor Romney has signaled more friendliness toward today’s for-profits. Longer-term, stronger regulation is a question of when not if.
Obviously, a college education is different than a transistor radio but the trends are the same. The demand for more options coupled with increasing competition in the online sector and increased government oversight means what we regard as the sub-basement of higher education today will move up the food chain and become more mainstream tomorrow. Good news for students and would-be students for whom the current system — for-profit and non-profit — does not work now.