Wednesday, October 17, 2012

 

Phoenix or Canary?

The University of Phoenix, the largest for-profit higher education provider in the country, is closing over a hundred sites.  That’s over half of its physical locations.  Part of the move is driven by enrollment decline, and part by an increased emphasis on online course delivery.

Although many in traditional higher ed may feel a certain schadenfreude, I was actually saddened by the news.  This is hardly an unalloyed good.

Admittedly, part of my perspective comes from having worked in another for-profit, early in my career.  At a time when the "virtuous" non-profits offered only adjunct work, a local for-profit offered me a full time job with a living wage and health insurance.  And I wasn't the only one; I landed in a department with a cluster of young Ph.D.s who had never intended to land there.  For most of us, it functioned as a port in a storm.  Many have since moved on to other places -- mostly nonprofit -- but would not have had the opportunity if not for the first big break.

That isn't as idiosyncratic as it may sound. Just as for-profits accounted for most of the enrollment growth over the last decade, they also accounted for a disproportionate share of the employment growth over the last decade.  For all of their flaws -- and I'm not disputing those -- they hired good new people when nobody else did.  That matters.

I'd strongly counsel hiring committees at community colleges not to turn up their noses at applicants who've worked in for-profits.  Some terrific people landed there, just as some terrific people have landed in part-time or adjunct positions.  And much of the day-to-day work is less different than you might imagine.  Some Phoenix castoffs may be well worth taking seriously.

For a while, the for-profits grew like kudzu.  They had the considerable advantage of a business model in which enrollment growth more than paid for itself.  (Publics run at a loss, by design.)  Unlike their public counterparts, they didn’t have to reduce their offerings when demand increased.  And unlike private nonprofits, they weren’t wedded to, say, summer breaks.  They could scale up quickly, and they did.

But a model built on tuition alone is inherently unstable.  Small drops in income require significant cuts in spending.  As tired as those of us on the public side are of dealing with cuts, at least we have some sort of (admittedly shrinking) cushion in the operating budget to offset losses of tuition.  When states respect that cushion, and it’s large enough, it becomes possible to make (and live up to) longish term plans.  

The fatal flaw of the for-profits, in my mind, isn't that they're fundamentally different from traditional colleges; it's that they're fundamentally the same.   They use the same measures of student achievement, the same sequences of courses, and many of the same assumptions as everyone else.  Since they have many of the same cost drivers, and they lack the tax exemptions and public subsides of the nonprofits, they have to be clever to stay ahead.  That worked for a while, but a combination of a more hostile political climate and some gradual learning among the nonprofits has changed the equation.  Their lack of cushion means they experience shocks faster and harder than we do, but the shocks themselves aren’t really different.

I understand the impulse to chortle at Phoenix's misfortune.  But let's not assume that the same issues that have plagued it won't plague us.  I see the news less as confirmation that the critics of for-profits were right than as a warning sign that we could be next.  When Phoenix rose from the ashes, it signaled a new wave in higher education.  Now it may be the canary in the coal mine.  We ignore the signs at our peril.

Comments:
Very thought provoking.

Any public college that has the flexibility to raise tuition to make up for reduced funding from the state (I'm thinking of Penn State as well as my CC, where tuition covers the cost of an adjunct teaching a new section) can "profit" from increasing enrollment. However, there is a huge risk as well, if enrollment drops for any reason.

Does Penn State have a contingency plan if its enrollment drops a few years from now when the football sanctions really take effect?
 
I think that Dead Dad is right on, that the current difficulties being encountered by the for-profit educational institutions are a harbinger of hard times to come for community colleges and for non-profit schools in general. Here in Big City, a whole bunch of for-profit schools are suffering from declining enrollments, including at the Proprietary Art School where I teach.

Others have commented on the reasons for this enrollment decline. Some have pointed out that a degree from a proprietary school isn’t really worth all that much on the current job market, and a lot of recent graduates haven’t been able to find a full-time job in their field and are now living at home with their parents. Another problem may be the difficulty in getting a student loan—a lot of lenders are getting a lot more skittish, fearing that a lot of these loans may never be repaid, leading to a massive implosion in the entire student loan market that will be reminiscent of the housing mortgage bust of a few years back.

These problems are certain to affect non-profit schools as well, especially those which are not top-tier institutions. Certainly the top-tier R1 institutions such as Harvard, Yale, Princeton, Stanford, the University of Chicago, MIT and Caltech, along with the snootiest of the SLACS, will continue to do well, and they will always have far more numbers of applicants than they can possibly admit. Students will begin to realize that anything less than a degree from a top school such as Harvard or Radcliffe will be worth very little on the job market. The lower-ranked colleges and the second- and third-tier research schools will soon start to see declining enrollments and shrinking budgets, requiring layoffs of staff and faculty.

I suspect that the next economic hit will be a massive implosion of the entire higher ed industry. Students will start staying away in droves, schools will start going under, even adjunct gigs will become hard to find, and faculty members will end up out on the street.

 
I agree with DD, and ArtMathProf's pessimism is well founded.

Colleges could help themselves by getting out of the income redistribution business. But that might just be a short term fix, because the product is vastly overpriced compared to its value. Especially when the price of the highest value degrees from Harvard and Yale is essentially free to the middle class.
 
In the '70's, there was massive pushback against the US auto industry which refused to make smaller cars. Consumers bought large numbers of Japanese cars, and only then did the US companies alter their business plan. It would be possible to imagine that the consumers of education are nearing that level of readiness to push back, although there is the complicating factor that students who forego expensive college education are putting themselves at risk in comparison to their peers, unless employers come forward and accept the cheapter alternative of certifications and "placement" tests.
 
amazingly excellent posts

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