Published on 2014/07/10

The Rise of the For-Profits: Assessing their True Impact (Part 1)

The Rise of the For-Profits: Assessing their True Impact (Part 1)
Despite the waves of criticism for-profit higher education institutions have come up against, these institutions were successful in disrupting the postsecondary industry and moving it out of its centuries-long stasis.
In the last few years, the proprietary higher education institutions — the for-profit schools — have been on the firing line.

They have been investigated by Congress for exploiting federal Title IV financial aid guidelines, pursuing profits at the expense of serving their students. According to the charges filed against the worst offenders, there were extreme cases where students came to represent little more than a conduit for cash; in some institutions, 90 percent of their budgets were found to have come from government sources (like financial aid), and withdrawal rates reached 90 percent as well.

At their peak, the for-profits had a combined enrollment of about 2.4 million. Schools were accused of losing track of their missions by enrolling students who were ill-prepared for navigating the world of postsecondary learning.

All of this negative press, and the resultant declines in their enrollment, has led us to forget that the for-profit schools grew so rapidly not just because of strong advertising and big bankrolls, but because they provided services students weren’t able to get anywhere else. In fact, they improved the higher education system in this regard.

In many ways, the entry of for-profit institutions into the world of higher ed mostly fits the definition of disruptive innovation coined by Clayton Christensen. After all, they were the new players who entered a market and changed it by expanding the very definition of the market through innovation and a new value proposition.

When DeVry University, the University of Phoenix, Kaplan University and others made their initial forays into the accredited degree-granting world, existing non-profit entities ignored and disparaged the new institutions, preferring and perhaps finding comfort in the stasis of the system as they had created it. These new arrivals showed up at a time when higher ed was stagnant and had been for some time. What other sector could have remained as essentially unchanged for decades as higher ed?

And what exactly did these for-profits do that improved higher ed? Several fundamental, transformational things. The for-profits, looking for profit, saw higher education as a market. As such, one could enter the market if one had something different to offer, something innovative, and the profit motive drove innovation.

A quick glance at higher ed as of a decade ago (and probably still today, in many corners) would have revealed any number of areas where innovation and improvement could be achieved: customer service, for instance. A prospective student might have thought something like this: “Sure, Big State University doesn’t charge much. But try finding someone who can explain all the requirements for registration to you. Do I stand on this line first to get that signature, or can I register online without approvals? Meanwhile, one call to the University of Phoenix Graduation Team can set you straight. Who cares if it costs more? Someone helped me through the process.”

This is the first of a two-part series on the lasting impact of the for-profit industry. To read the conclusion, please click here.

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Readers Comments

WA Anderson 2014/07/10 at 10:56 am

I’m interested to see what other “benefits” Singer will identify as having come from for-profit institutions. I’m, unfortunately, of the (overwhelming) majority that views these institutions as having done damage to the overall image of higher ed.

I’m not so sure the new customer service focus institutions have is due to for-profits; rather, it seems to be a response to demand that’s coming from students (“customers”) themselves because of what they’ve come to expect from all services they access.

    Lisa C 2014/07/11 at 10:19 am

    I also have trouble believing that for-profits, who are driven by profit, can produce any real benefits for students. Sure, they may drive innovations in the short term — new processes, new tools — but the profit motive will always prevent them from seeking out innovation that improves the student experience but not the bottom line, such as new pedagogy, new learning formats, etc.

      Michael 2014/07/11 at 11:37 am

      I may have to disagree with you regarding the profit motive being a negative to improving student experience. That seems to be a very general statement and does not reflect that many for-profits have great student support services. There is nice a report, while outdated now, titles For-Profit Higher Education and Community Colleges. In it says, “Student services are notoriously lacking at public colleges. Students complain that community colleges
      package information for administrative rather than student convenience” It goes onto say that community colleges could learn from more high quality for-profits on this matter.

Michael 2014/07/11 at 11:18 am

I really appreciate this thoughtful post. Sadly, many public and private nonprofits are too quick to judge and provide judgement as if they are immune to bad practices. Are there bad actors in for-profit education? Yes –of course. But please don’t be so naive to think that other sectors are above reproach.

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