Sunday, June 22, 2014

Corinthian and CCSF

As a veteran of both the for-profit and community college sectors, I’ve been struck by the different ways in which the higher ed world has viewed the struggles of Corinthian Colleges and the City College of San Francisco.  They’re facing existential crises at the same time, and they have nearly the same number of students; we have a natural experiment.  What can we learn from it?

At a really basic level -- poli sci 101 -- the distribution of those students matters.  Spread 72,000 students all over the country, as in the Corinthian model, and they aren’t massive enough in any one location to exert serious political strength.  Concentrate 77,000 in one city, as at CCSF, and you have a major political force on your hands.  Having a Congressional delegation in your corner helps.

There’s also a branding issue. “Corinthian” is an umbrella name for several different institutions; the “Corinthian” name itself doesn’t resonate with very many people. (Students attend, say, “Everest” or “Heald,” rather than “Corinthian.”)  CCSF is a single institution with a place-specific name; even people who have never heard of it will understand what it is as soon as they hear the name.  Ironically enough, the non-profit did a better job of branding.

But the potential lessons are deeper and more interesting than that.

For-profits charge more than the cost of production; the difference is profit.  Publics charge less than the cost of production, using subsidies and philanthropy to make up the difference.  

That means, all else being equal, that for-profits handle growth better and publics handle decline better.  Put differently, for-profits are more viciously cyclical; publics are comparatively stable.  During growth periods, for-profits find it relatively easy to add capacity, since growth more than pays for itself.  Publics often struggle to add capacity.  That was particularly true in California a few years ago, when many community colleges resorted to waiting lists.  I have never heard of a waiting list at a for-profit.  It may exist, but I’ve never heard of it.  Publics grow only to the size their external funding allows; for-profits grow as large as the market wants.

For-profits did brilliantly in the 90’s, and did well again for a while in the mid-aughts.  Enrollments went up, regulatory scrutiny was muted, profits were everywhere, and investors were happy.  

During periods of enrollment decline, though, the publics are in a better position.  Since some amount of their funding is separate from enrollments, they have an easier time maintaining basic operations when tuition revenue falls.  Publics are often criticized for having diffuse missions, but that’s a saving grace when one element of the picture starts to suffer.  For-profits live and die entirely by enrollment; if tuition revenue drops, there’s no cushion.  Everything is on the table.  The picture is worse when the for-profit is publicly traded, like Corinthian (and Phoenix, and DeVry, and…) rather than privately held.  Stockholders tend to have short-term concerns; they want quarter-by-quarter growth.  When that growth happens, private investment capital flows in generously.  When it doesn’t, the capital dries up, and pressure from upper management increases exponentially.  Desperate people do desperate things; when survival is at stake, sometimes ethics become optional.  But add increased regulatory scrutiny to a downward spiral, and the usual go-to moves are suddenly unavailable.  I wouldn’t be surprised to see Corinthian collapse entirely; its business model is not built to handle that kind of pincer movement.

In Corinthian’s case, much of its growth came through acquisition of places that previously had been privately held.  For a while, it was able to trade on the reputations for integrity that the previous brands had earned.  Its relentless focus on shareholders has come back to bite it.

CCSF has its own issues, but is in considerably better shape than Corinthian.  When the news broke last year that CCSF might close in a year, I fearlessly (and accurately) predicted that it would not.  I won’t make the same prediction about Corinthian.

For those of us at publics, the moral of the story should be that we should be careful about treating public colleges too much like for-profits.  To the extent that, say, subsidies constitute smaller shares of budgets and tuition constitutes larger shares, the institutional incentives start to look more like those of a for-profit.  As go incentives, so will go behavior.  Public colleges have diffuse missions, and that should be understood as a feature, rather than a bug.  They need diffuse and stable funding streams to serve those missions ethically.

I won’t mourn Corinthian, but I hope we don’t consign its abandoned students to oblivion.  In many ways, they’re the same groups that would otherwise attend community colleges.  And let’s not miss the teachable moment ourselves.