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Table of Contents
For-Profit Education
Will it force traditional colleges
off their pedestals?
Fall 1998
The rapid expansion of the University of Phoenix and other for-profit higher education
institutions draws mostly positive comments from educators who have observed this
phenomenon. They point out that Phoenix and others enroll many adults who have been
overlooked or ignored by traditional colleges and universities.
Several people interviewed for this article also welcomed the competitive push
from the for-profits, because they believe that non-profit colleges and universities
are able to deliver more coursework more efficiently, especially off campus, with
the help of new technology.
Some worry about possible consequences later, if for-profit institutions funded
by large corporations begin to design courses that monopolize online education.
The rising stock price of Apollo, the University of Phoenix' parent corporation,
reflects growing conviction on Wall Street that there is huge investment potential
in for-profit higher education. Apollo became a public corporation in 1994. Between
1995 and 1998 Apollo's stock rose in value from near zero to more than $43 per share,
before sinking back amidst the recent general stock market sell-off.
Financiers claim that $1.7 billion has been raised on Wall Street since 1996 to
finance new competitive ventures, Ted Marchese, vice president of the American Association
for Higher Education, wrote in the association's bulletin recently. Morgan Stanley
Dean Witter calls the field in which Phoenix thrives an "addressable market
opportunity at the dawn of a new paradigm." That's because Wall Street views
the present $300 billion a year higher education "industry" as crippled
by inefficient, over-priced and over-employed low-tech management.
Tuition at public universities rose 195 percent in the past two decades, compared
with a 63 percent increase in the consumer price index, Ohio University economist
Richard Vedder wrote recently in the Wall Street Journal. A typical faculty member
is paid about $100 an hour for the time he spends actually teaching, Vedder found.
He contends that the proportion of non-teaching staff has grown considerably since
the 1970s.
"A big fear among U.S. university leaders and postsecondary start-ups alike
is that, just as happened in banking and health care, major international combines
will emerge to quash today's smaller-time competitors," according to Marchese.
"We shall see."
He points out that Phoenix is "just the most aggressive manifestation of
a larger, branch-office trend that's at least a decade old." His numerous examples
include Chicago's DeVry Institute of Technology, with 48,000 students on 15 campuses;
Webster University in St. Louis with 15,000 students at 64 locations; and the new
Western Governors University, which envisions enrolling 95,000 students over the
internet.
"The University of Phoenix has done all of us a favor," said Charles
Reed, chancellor of the nation's largest public four-year system, the California
State University. "Competition makes you look at yourself, makes you decide
how you're going to get better." The 23 Cal State campuses must find a way to
offer more access to degree work, by repackaging courses, offering them at nights,
off-campus, in shorter time blocs and organized so "people can see a beginning,
middle and end," Reed said.
And there isn't much time for America's 3,600 campuses to change, warns Arthur
Levine, president of Teachers College at Columbia University. "The ghost of
Christmas future" confronts non-profit higher education, by way of low productivity,
high prices, poor management and poor use of technology," Levine said in an
interview.
"Higher education still doesn't hear warning bells...only 17 percent of college
students now live full-time on campuses and range in age between 18 and 22,"
Levine added. "Adults don't want to pay for what they aren't using. They don't
want football, psychology counseling, religious services on Sunday."
According to Levine, Phoenix represents the "upper end" of future for-profit
higher education, and he warns that not-for-profit campuses will "fall off their
pedestals" if they don't change and provide more quality, service, convenience
and low cost. Their present "neo-monopoly" on coursework could prove to
be equally fragile, he said.
Lamentations won't do any good, either, said Robert Zemsky, director of the Institute
for Research on Higher Education at the University of Pennsylvania. The real danger
may emerge as for-profit institutions earn high returns by attracting the most affluent
students. Zemsky dismisses the criticism that for-profit institutions eliminate the
liberal arts and zero in on industry-smart subjects.
The decision 35 to 40 years ago to provide higher education on a mass basis created
huge "capacity systems" which had no place for any humanistic flowering,
said Zemsky. "All this talk - 'we're going to lose something touchy-feely'-I'd
like to know how much touchy-feely 500 students in an undergraduate class enjoy.
There's stronger interaction and intimacy on the internet."
For-profit schools attract working students who have neither time nor desire to
enroll at traditional campuses, said Clara Lovett, president of Northern Arizona
University. NAU is frequently cited for showing how a non-profit university can extend
its offerings off campus. Lovett says it was among the first to develop sophisticated
audio and two-way video, reaching many students in sparsely populated areas.
Northern Arizona University also offers eight-week courses in urban areas to full-time
employees, on weekends and during evening hours, using local school buildings. Most
of Lovett's full-time faculty are willing to be flexible with working hours.
Still, 70 percent of NAU students enroll and attend traditional classes at the
main campus in Flagstaff.
"Students go to traditional campuses for a whole lot of reasons, only one
of which, unfortunately, is learning," said D. Bruce Johnstone, former chancellor
of the State University of New York, and now university professor of higher and comparative
education at SUNY Buffalo.
Traditional campuses provide "life styles, networking, socializing,"
Johnstone said. Their undergraduate and graduate schools provide degrees that carry
prestige unmatched by for-profit systems. He foresees Phoenix taking away some students
from classical, traditional, comprehensive campuses but predicts this will have only
minor impact on "the way we do business."
Thus technology and its use by Phoenix and others may not really make so much
difference, Johnstone and others speculate.
Clark Kerr foresees new technology as more of an "add-on" than a "replacement."
That's the way it's always been, said Kerr, former president of the University of
California and chairman of the Carnegie Commission on Higher Education. For the past
three decades, Kerr has written extensively about higher education issues.
"Originally, teaching was oral, and then came books as an add-on," he
observed. "I don't really think we'll go away from either." Videos and
computers can replace lecturers but not the need for contact among students, Kerr
contends. Trained discussion leaders will be needed to help students learn to express
themselves by talking and writing, thus developing their judgment.
He cited the University for the Highlands (U-High) in Scotland, which has nine
centers in small towns where videos and computers replace lecturers, but where books
and discussion leaders remain in place.
Kerr doubts the University of Phoenix and similar institutions ever will replace
small liberal arts colleges or large research universities, such as UC Berkeley,
where he once served as chancellor. "Upper division and graduate students' work
takes place in small subject matter areas that won't be worth putting into new electronic
courses," he said.
But Kerr admits to concern about trends toward "big electronic programs having
only one point of view." He hopes that the current state of competing views
about higher education won't be replaced by "one big corporation becoming dominant
and (transforming present learning) into indoctrination."
That fear was echoed by Robert Caret, president of San Jose State University,
a member of Reed's California State University system. "The danger is that if
society finds a model cost-effective, it could force us all to get into that model
and endanger the highest-praised system of higher education that ever existed,"
Caret said. "We have lots of models, from community colleges to the small liberal
arts colleges, where everyone graduates in four years, to the big metropolitan campuses
like mine. It comes down to all of us trying to serve different needs. Together,
we all provide strength."
- Carl Irving
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