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run by Americans. It would be run by Chinese. We would
take the model to China and the Chinese would operate it.
The Chinese people in industry have been very favorably
disposed toward our model. But of course there is a vast
government bureaucracy, so it wouldn’t be practical at this
time. However, they believe that electronically delivered
education would be practical.
CI:There’s a lot of pessimism regarding the costs
involving online education.
: Our online program, with 6,000 full-time equivalent
students, is the largest online program in the country. We’ve
been doing it for ten years now.
CI: Is it makingmoney?
: Oh yes. There’s a very simple system: We decide the
(profit) margin that we want, and then we price the product to
provide the margin. If we can’t sell that product at that price,
we don’t produce it.
CI: Since you are a for-profit school, are teachers under
pressure to pass their students?
: I don’t think our faculty members are under pressure.
We operated tech schools at one time, we had six of them, and
it’s not the same population. Our average student has been
working seven or eight years. He or she’s got a family income
of $55,000 to $60,000, so there’s a great deal of difference
between that individual and a 17-year-old coming in and
trying to learn something about widgets.
We have a highly disciplined student population. They
expect a lot from the instructor. Instructors don’t get to
slide. Students are much more demanding. If a student fails,
probably the instructor doesn’t even have to fail him. That’s
because students are required to be members of study groups,
and a non-performing student in a study group is expelled by
the group. And they always drop out if they are expelled.
CI:That’s quite a jump—that students themselves
dismiss a fellow student.
: When a student is asked to leave a study group, any
other group will ask, “Why didn’t you keep this person?”
Because he didn’t do the work.
We’ve had a couple of court cases in which students say
you required me to be a member of a study group, so you
must provide me a study group. Our response is that it’s
plainly set forth in all of the documents—you’ll be a member
of a study group, and if you can’t hack it, well then, it’s your
Almost all of our students come from industry, and they’re
all working, and in almost every industry people work in
groups. If you work at Intel, if somebody’s dogging it, you’re
not going to put up with it, because your job is at risk.
CI: What portion of your students are funded by their
: Seventy percent of them receive all or a portion from
their employers. The total fully supported ranges close to half
of all the students.
CI: Is it true that no higher education systemhas ever
been profitable before?
: I think it’s summed up in the fact that our system is
designed as a production function, with specialized learning
outcomes, and those outcomes we believe are equivalent to, or
better than, the outcomes in traditional education. Then we
design a system the least costly way. We deliver the services
that achieve those outcomes.
CI: Some for-profit HMOs have damaged healthcare. Is
there any parallel to fear here?
: No. First, we have a comprehensive quality assurance
system in place. We deliver a service and we price it correctly.
They don’t have to come. So it’s not analogous to an HMO.
CI: You were a professor of humanities at San Jose, and
earned a Ph.D. fromCambridge in economic history. Don’t
you want to expand your academic offerings?
: We respond to the market. In California, let’s say, it’s
probably the case that state funded systems won’t be able
to provide the educational services
demanded by the population. So there
should be probably several hundred
thousand students a year who aren’t
able to gain admission. That’s why I
think our lower-division programs, as
general education programs, might be
very popular there.
Once the general education
requirement is met, students either
enter into one of our professional
programs or they transfer into a more
traditional college, if they want to be a
sociologist, a political scientist, study
English or something else.
CI: At this point, are you cutting
into enrollments of traditional institutions or serving a
: I think what we are serving is a newmarket, and
traditional institutions are coming into the market we
defined and serve. Practically every college and university
in California has what I call a copycat program based on the
University of Phoenix design. Imitation is the greatest form of
CI: How about your programs to train teachers?
: We have fairly significant programs in Arizona,
Colorado, NewMexico and Utah. In California, institutions
are trying to maintain their monopoly in teacher training. It’s
no different from the battles of the early 1980s, attempting to
protect the markets of established institutions.
CI: Do you expect these barriers to disappear?
: Economic analysis shows that the behavior of these
colleges and universities is identical to those of industry when
facing outside competition. As Adam Smith said, whenever
you have two businessmen together, you have the beginning
of monopoly. So they’re simply behaving in a very predictable
and rational way.
“Practically every
college and university
in California has what I
call a copy-cat program
based on the University
of Phoenix design.
Imitation is the greatest
form of flattery.”