Tuesday, September 06, 2016


Learning from ITT’s Failure

ITT has closed, which was the utterly predictable outcome of having been barred from accepting new students.  Even in its diminished recent state, that’s still big news in the higher ed world.

I hope we derive the right lessons from it.  I’ll offer a couple of thoughts, and hope that my wise and worldly readers can add depth.

First, it’s a mistake to refer to “for-profits” as a monolith.  To my mind, the key distinction is between those that are publicly traded and those that are privately held.  The publicly traded ones -- which included ITT and Corinthian, and still includes DeVry -- are forced by the gravitational pull of the stock market to tend to quarterly returns.  Higher education isn’t a quarterly business.  The market rewards growth, rather than steady profits; “cash cows” are milked, not prized.  It’s easy to maintain standards while growing if you’re in a hot field that you have largely to yourself, as many for-profits did in the late ‘90’s.  But when the field goes cold and/or competition increases, quality and quantity start to conflict.  With “impatient capital,” every institutional imperative will favor quantity over quality.  Over the long run, that doesn’t lead anywhere good.

(Hat-tip to Tressie McMillan Cottom, whose forthcoming book Lower Ed is likely to become the go-to resource on this question.  Her work pointed me to Charlie Eaton’s work that makes much the same point.)

Phoenix is the exception that proves the rule.  It hired the former president of the University of Michigan and announced that it was dropping Axia College and trying to attain academic respectability.  In order to do that, it had to pull out of the stock market entirely and go private.  It simply could not maintain peace with stockholders while engaging in sustained downsizing.  

Smaller, regional for-profits that are privately held -- that feature “patient capital” -- don’t have these issues.  They can tie themselves to local industry and produce trained employees.  That was actually how DeVry started.

Second, in evaluating the hard times on which publicly traded for-profits have fallen, it’s worthwhile to remember that they came from somewhere.  The students who attended them weren’t just helpless dupes.  I know because I had some of them in my classes.  At one time, these institutions filled a real need.  They ultimately overshot and overstayed that need, but the need was real.  Killing the institutions doesn’t make the need go away.

The need is for employment-focused post-secondary education in a format that’s legible and accessible to students.  That means online, evening, weekend, and accelerated formats; it means simple and direct curricular pathways (the for-profits were pioneers in “guided pathways,” though they didn’t call them that); it means career services that don’t presume a lot of inherited social capital; it means a clear identity in the marketplace.

Third, the serial failures of publicly traded for-profits, and the attendant taxpayer-funded bailouts of student loans, should give the lie to any facile assumption that the public sector is inherently less efficient.  Yes, we get tax exemptions and subsidies.  But you know what we don’t get?  Bailouts.  Any honest accounting of the costs of the respective sectors needs to include those.  

In fact, if we want to address the very real needs that for-profits exploited, the single best way to do it in the short term is to improve, significantly, the operating funding levels for community colleges.  If you want to compete, flood the zone.  (Over the long term, of course, no one institutional form is sacred; that’s why I’m a fan of projects like EQUIP.  But if you want a quick payoff at a large scale, working with what you already have is the way to go.)  

I won’t particularly miss ITT, though I feel bad for some good people who’ve lost their jobs.  I just hope that in a sector wide burst of schadenfreude we don’t miss the larger point.

Maybe I've mentioned this before, but Keiser University has evolved along the lines you describe. It was originally a private for-profit regionally accredited technical college that was privately held. A few years ago, while under regulatory scrutiny by the state, it was sold to a private non-profit holding company that runs a separate non-profit university.

My first thought was that the owner realized he might be able to pull out a steady income as an administrator (the holding company) rather than trying to turn a profit. Sort of doubly insulated from the ever-increasing profit expectations that drove the Epi-pen to $600 a pair.

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