The For-Profit Debate: An Essay in Progress

While the public policy shifts to encourage the growth of For-Profit Higher Education Institutions in the UK are discernible, relatively little is known about how these institutions operate. The policy makers, driven by the agenda of cutting public spending, have significantly altered the way Higher Education is funded in the UK, and at the same time, allowed significant concessions to private for-profit Higher Education institutions in the hope that this will attract private capital to the sector. Apart from recently lowering of the bar on how many students an institution requires to qualify for degree-granting powers, and the proposed extension of VAT exemption to For-Profit institutions, the government has even allowed For-Profit companies to take over and convert Not-for-Profit degree granting institutions into one of its own, in a significant departure from how Higher Education institutions have been formed in the past. (THE, No. 2078, 29^th Nov 2012, PP 6-7)

The main body of literature available on the functioning of the For-Profit Higher Education Institutions is to be found in the Press rather than within the academic domain, and the available commentary is mostly anecdotal and informed by a conservative negativity in an attempt to paint a black-and-white picture of poverty of the private sector (usually ignoring the For-Profit/ Non-Profit distinction in the UK). On the other end of the spectrum, the Business Analysts employed by the investor community project a somewhat opposite scenario: Parag Khanna, an influential commentator and Karan Khemka, a Principal with Parthenon Group, a consultancy, writes (HBR, Jan/Feb 2012): “In some countries, regulators have limited the expansion of private colleges and universities or the potential for investment in them. This is counter-productive. Private investment in Higher Education leads to more enrolment in Higher Education.” The article was titled “Enrol the World in For-profit Universities: Growth and Wealth will follow” and was listed as one of the most audacious ideas for 2012 by Harvard Business Review, a leading business journal.

However, in the United States, when the For-Profit Higher Education has shown remarkable growth in the last forty years, there is a growing body of research and literature in the functioning of For-Profit Higher Education Institutions.  While undeniably the growth of the For-Profit institutions in the US is deeply connected to a uniquely American Higher Education system, the trends and trajectories of its development are instructive. While proprietary colleges existed in the US for a long time, its rapid growth were set off by the Higher Education Amendments of 1972, which allowed students intending to study at For-Profit institutions to be eligible for federal student loans (commonly known as ‘Pell Grants’). A parallel development was set off in the UK recently by the Browne Review (2010), which transformed the system of Higher Education funding from one based on institutional grants to a system of student loans, and allowed For-Profit institutions to compete for it, which led to a significant restructuring of the For-Profit sector in the UK, and a rapid expansion of some of the institutions. In the light of these parallel trends, the literature from across the pond is both useful and instructive.

It is also to be noted that the current debate in the UK about For-Profit Higher Education is expectedly influenced by the events in America, where a major Congressional review of the sector took place recently, uncovering many unsavoury practices, and as a consequence, limiting the access to public funds the For-Profit institutions may have had. Also, in response, American For-Profit business leaders, laid out a vigorous defense, explaining the ethical violations as anecdotal and an aberration, rather than the norm in the sector. Andrew Rosen, the President of Kaplan, John Sperling, the Founder of University of Phoenix and Chairman of Apollo Group, and others argued eloquently about how For-Profit institutions are essential in creating a mass Higher Education system. The case they made has been based on (a) how the college fees have risen above inflation and therefore the need for  'efficiency' to reign in the cost spiral; and (b) that 'Harvard Envy' (a term Mr Rosen coined, to signify the drive of Public and Not-for-Profit institutions to become ‘bigger and better’, without regard to the bottom line) is driving public and private not-for-profits into more research pursuits, ignoring the core instructional activities, while the latter means more to the students.

To make sense of this debate, one should start with the well-laid-out rationale for the existence of For-Profits: To deliver the economic growth that the democratic governments need for its legitimacy, more and more citizens must be able to participate in a knowledge economy, and to leverage available technology for productivity growth and for improvements in the quality of life; and universal access to Higher Education is the only way this can be done. However, Higher Education suffers from an intractable 'cost disease' (which the economist William Baumol illustrate with the case of ‘String Quartet’, the highly skilled maestros who play Beethoven, whose productivity haven’t risen since the 19^th century, but costs have), and a more efficient means must be found to allow for its mass expansion. Hence, the need for a For-Profit solution, which will allow deployment of private capital in solving this urgent social requirement, and which, to become profitable, will eliminate the 'cost disease' and deliver mass Higher Education at a lower per capita cost to the state.

Given its contextual importance, whether and how the For-Profit institutions could actually eliminate the 'cost disease' should attract more serious enquiry, but it hasn't: The passions the debate generates, with most scholars and scholarly practises being put on the dock, outweigh the urge to pursue a more disinterested investigation. Despite a growing number of students opting for For-Profit institutions and tectonic shifts in public policy, there is very little to go by except the witch-hunt in the trade press and self-congratulatory publications from the For-Profit players themselves (and from various analysts and consultants). However, the battle lines are clearly drawn, and in the UK, where the Government has recently unleashed most profound changes in the Higher Education in last half-century, the debate on the legitimacy of the For-Profit institutions, and indeed of a new wave of For-Profit led expansion of Mass Higher Education, is under way.

For-Profit institutions in Britain, unlike their counter-parts in America, are at an early stage of their evolution and somewhat less prepared for their new-found role in the limelight, and therefore make an easy target for its detractors. The sector consists of mostly proprietary institutions, with limited capital outlay and sparse physical and academic infrastructure, mostly servicing international students from newly industrializing countries. The sector is deemed to be 'efficient' and offer a cheaper way to study, the reason why it attracts international students who would otherwise have to pay a 'overseas fee' in Britain's public institutions and subsidize the relatively richer 'home' students. However, the critics argue that most of these For-Profit institutions are deficient in almost every other count, inadequate infrastructure, poor teaching, credibility of awards, and stand out for 'cheap is cheap' rather than 'value for money'.

However, neither For-Profit institutions nor the criticism are new, and Graham Greene predated many of today’s detractors by his portrayal of ‘St Ambrose’s College, Oxford’ (When Greek Meets Greek, 1954), which offered solutions when ‘war conditions prevented (one) from going to Oxford’ and offered ‘degree-diplomas…. at the end of three terms instead of the usual three years’. Greene’s take on its teaching and assessments would also resonate with today’s critics of For-Profit Higher Education:

"'Priskett here is the science tutor. I take history and classics. I thought that you, my dear, might tackle - economics?'

'I don't know anything about them.'

'The examinations, of course, have to be rather simple - within the capacity of the tutors. (There is an excellent public library here.)  And another thing - the fees are returnable if the diploma-degree not granted.'

'You mean...'

'Nobody will ever fail', Mr Priskett brought breathlessly out with scared excitement."  

This essay intends to explore the rhetoric around the For-Profit Higher Education in an effort to advance the understanding of the sector beyond Graham Greene’s prescience. The author’s own work in the For-Profit Higher Education sector provides a perspective, as well as the emergent body of work, both scholarly and in business domain, about the functioning of these institutions. At the outset, however, one needs to recognize that the sector itself is in the middle of a great change: Primarily because of the new immigration regime, the burdens of which fell primarily on students at For-Profit colleges, have deprived many of these institutions of their lifeblood. In an estimate done by EducationInvestor, a trade magazine, roughly 2000 such institutions, big or small, have gone out of business in the last eighteen months due to lack of student demand (EducationInvestor, April 2012). The change in the regulatory regime, which accompanied the immigration controls, has also upped the costs of operation of a For-Profit institution and required fresh investment in physical infrastructure, at the same time as the demand is contracting. The effort required is well beyond most proprietary institutions, and has led to a number of ownership changes, the proprietors bailing out either in favour of Trade Buyers, mostly American For-Profit Firms looking to expand in Britain, or Private Equity, investor firms who want to restructure the operations of smaller institutions, and sell them for a profit to the trade buyers later.

However, despite the ongoing consolidation of the sector, and the infusion of new capital, it is still unclear whether these changes will result in a sector fit to deliver the efficiency that the policy makers are looking for. The claim that ownership by a larger corporate body rather than individual proprietors result in greater efficiency and more publicly spirited institution stands rather battered by the findings of the recent Congressional investigations in United States, which portrayed a picture of a largely fly-by-night sector afflicted with the problems of predatory selling and flawed economics maintained on a life-support by subsidized student loans. The below-par graduation rates and above-average student loan default rates made some observers identify this sector as the source of a new sub-prime debt crisis there. In light of these observations, an inquiry into the structure and functioning of For-Profit Higher Education in Britain become more significant, as an increasing amount of public money gets diverted into the For-Profit institutions.

The government has farmed out the responsibility of ensuring efficiency in the For-Profit Higher Education institutions to the Quality Assurance Agency (QAA); the underlying assumption is that gaining 'Confidence' from QAA will put For-Profit institutions at par with its Public sector counterparts, and thereafter, they could be expected to do the same job.

However, the limitation of this approach was apparent soon after the new regulatory regime was set in motion: The For-Profit institutions operate with a different set of rules and norms altogether, and serve a different kind of student population. To meet its mandate, QAA had to create a limited version of its review framework, presenting it something like a half-way house, to accommodate the For-Profit institutions, increasing complexity and defeating, in a way, the very goal of creating an unified accreditation framework for Higher Education. The For-Profit institutions, even the well-endowed ones like Greenwich School of Management, which is one the biggest recipient of the Student Loan Company money, fell short when they opted to go for the 'full' review with QAA. There may have been a number of reasons for coming up short, though it was interpreted as general lack of quality in For-Profits in the trade press (such as Times Higher Education); however, this further illustrates the requirement of a more informed discussion about what the For-Profits do and how they can play a part in the Higher Education sector.

 
In order to achieve an understanding, therefore, this essay would explore the differences between the Public, Not-For-Profit and For-Profit models, as only the understanding of such difference can help construct a picture of the For-Profit operations and critically explore how it can fulfil its public role. A review of literature, and further exploration based on author’s own experience, highlight three major themes, across which such differences can be studied:

Perception of Risk: For a For-Profit institution, the biggest risk is indeed the lack of demand, and therefore revenue and profits; for a public institution, a large number of which operate with some form of taxpayer guarantee, the risk is of failing to meet the requirements of public scrutiny. For Not-For-Profits, which has a greater exposure to public scrutiny but lower exposure to the pressures of growth compared to For-Profits, the risk perceptions are more akin to public institutions. These differing perceptions of risk define the organizational ethos and dictate operational priorities: The For-Profits are usually as obsessed with marketing and recruitment, and continuous growth, as the public institutions and Not-For-Profits will be with capacities, process flows, and record keeping. A For-Profit institution, which would see close correlation between profitability and just-in-time capacity creation, would usually struggle with a Quality Assurance System primarily based on capacity building.

What Teachers Do: There is also a fundamental difference between these different kinds of institutions in how they perceive teaching activities. The traditional Not-for-Profit institutions evolved out of teaching communities (or individual teachers), and most of the conversations around universities, notwithstanding the current bureaucratic avatar of a public university, are about academic freedom and community. However, For-Profits are industrial form of organizations where the teachers are, among others, tools of production. The usual just-in-time thinking would usually mean pre-dominance of non-tenured teachers on hourly contract, with attendant limitations on creativity and commitment. Treating teachers as resources, For-Profits operate to extract the teaching time as efficiently as possible, but so far, this meant botched application of scientific management techniques (because teaching is very unlike factory work, and more like performance art) into organizing teaching.

Despite the limitations of this teaching model, the For Profit advocates cite the growing cost and consequent unsuitability of the current model of teaching employed in the public institutions. In what should be treated as a paradox, many For-Profit institutions in Britain employ teachers moonlighting from the public universities: Often, this is what the For-Profit institutions will highlight to impress the Quality Assurance Agency and other regulators. However, this practice implies an indirect public subsidy to the For-Profit model, a fact the regulators have so far overlooked. The role of teachers in the For-Profit institutions therefore present a potent area of inquiry, with significant implications for public policy and student experience.

Educational Objectives: For-Profits often operate with the assumption that creation and delivery of knowledge can be separated, something completely antithetical to the founding faith of modern Higher Education. The allure of no-frills teaching, something that the institutions proudly proclaim and policy-makers directly or indirectly endorse, is strong, but this essentially changes the role of knowledge in Higher Education.

More paradoxically, the fact that teaching and knowledge creation can be separated is indeed at odds with the current business thinking, which indeed views knowledge as a commodity, but something that still must be produced and competed with: So, it is the production, preservation and dissemination of everyday knowledge, and turning every employee into a knowledge worker, is seen as the only way to survive and thrive in the current business climate. The schools therefore want to focus on teaching and deliver a fixed body of knowledge, whereas businesses believe that it is continuous production of knowledge that keeps them competitive.

The For-Profits claim to be employer-friendly and represent a more career-focused education. The regulators, operating within market paradigm, would usually see this as a strength of the For-Profits. However, this paradox of knowledge lies at the heart of For-Profit education. Many For-Profit institutions offer, in the words of a major Indian For-Profit institution,  'attitudes only' education, turning the whole student life into a consumer experience.

As the above observations suggest, there are important contradictions at the heart of the claims of the For-Profit institutions in terms of expanding educational capacity, being teaching centric and offering better instruction and equipping graduates better for a career. In the following paragraphs, this essay will explore the For-Profit Higher Education institutions along these three axes, and look in greater depth the evolution of the UK For-Profit institutions in each of these areas. Finally, and speculatively, a projection will be attempted to chart the course of future development of the sector. 

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This is an essay in progress, purported to be part of a longer work on For-Profits. I am posting this online to generate conversation and any feedback will be welcome.