For- Profi t Universities: Opportunities, Issues, and PromisesBackgroundFor- profi t colleges and universities, compared to their public institutional coun-terparts, are governed and operated by private corporations. Enrollment in for- profi t institutions over the past 20 years has increased 225%, taking in ap-proximately 12% of all postsecondary students 2.4 million as of the 2010- 2011 academic year. Estimates for 2013 indicate that the top 50 for- profi t colleges and universities headcount totals over 1,260,000. Because public community col-leges, or many private universities, cannot meet this level of demand from pri-marily working adults, part- time students, and working parents with students, for- profi t institutions provide an option for those who would otherwise not be able to receive a college education.Competitive advantages of for- profi t institutions include "fl exible scheduling with year- round enrollment, online options, small class sizes and con ve nient lo-cations." These characteristics attract a large and growing student population entering the education market. It seems the entrepreneurial wave of for- profi ts has and continues to serve a niche that traditional universities and institutions of higher learning have not served, and perhaps cannot serve, at least to date.Trouble in ParadiseFor- profi t higher education universities and colleges have entered the eye of the storm on Capitol Hill over the last few years with regard to questionable recruit-ing practices and use of taxpayer funds that have not resulted in gainful employ-ment and promised results for many students. Although for- profi t universities have garnered the favor of Wall Street investors and have formed a powerful lobbying group to promote for- profi t interests, questions continue to surface as the boundaries between traditional academia and the business of higher edu-cation blur.Congressional InvestigationThe 2012 report of a two- year investigation into for- profi t colleges by the U.S. Senate's Health, Education, Labor, and Pensions Committee, comprised pri-marily of Demo cratic Party legislators, revealed staggering statistics that have resulted in intense scrutiny by the federal government, creating a call to action for regulation to monitor for- profi t institutions. According to other recent investi-gations, currently "more than $30 billion in taxpayer funds fl ow to the [for- profi t] schools each year" and "about 60% of for- profi t colleges receive over 70% of their revenue from U.S. government programs." These statistics, combined with some for- profi t student testimonies about the "dishonest" and "fraudulent" prac-tices of their educational institutions, have resulted in lawsuits. One such lawsuit reached settlement on July 26, 2013, after a "for- profi t college in Richmond, Va., agreed to pay $5 million in a class- action settlement fi led by eight former stu-dents, who argued that the training/education they received was a sham."Senator Tom Harkin of Iowa led the investigation into for- profi t schools and stated that "in this report, you will fi nd overwhelming documentation of exorbi-tant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profi t, and regulatory evasion and manipulation." He added that "These practices are not the exceptionthey are the norm. They are systemic throughout the industry, with very few individual exceptions."The storm has continued to build since 2010 as the pressures for legislation increased, driven by senate investigations, increasing litigation, and courts set-ting pre ce dents. For- profi t education probes began in 2010 when press reports started to "raise questions about the quality of proprietary institutions." "These questions stem from the rapid growth of this industry over the last few years, reported aggressive recruitment of students by such institutions, increased vari-ety in the delivery methods used to provide education to students, and the value of the education provided by such institutions."College, Inc., PBS, and For- Profi t UniversitiesA Public Broadcasting Ser vice (PBS) documentary fi lmed in 2010 named Col-lege, Inc. profi led the for- profi t college industry, its historical roots, certain busi-ness practices, investors' interests, and issues surrounding the industry. The fi lm examined the application of "private sector principles" to the education industry. The documentary's profi le of Michael K. Clifford, a pioneer for- profi t education investor and deal- maker, provided a lens to view for- profi t education as an op-portunity for investors to both realize a fi nancial return on their investment, while also achieving so- called philanthropic goals; that is, helping failing U.S. universi-ties and colleges keep their doors open for students. (One of his specialties is buying faltering private U.S. colleges).Bringing a combination of what Clifford calls the "Three M's: Money, Man-agement, and Marketing," investors have been able to turn around some of the failing institutions and leverage signifi cant value- adds, such as accreditations, while helping the universities bring in huge profi ts using an improved profi t busi-ness model. Although there are concerns about the for- profi ts' "business model," the PBS documentary points out that " 'Nonprofi t' colleges which pay their leaders executive salaries while operating multi- billion dollar sports fran-chises have long since ceded the moral high ground when it comes to chasing the bottom line."Pressures on the For- Profi t SectorThese external probes have jolted some in the for- profi t educational sector as facts from the investigation and large monetary settlements are highlighted by the media. For- profi t supporters, however, continue to focus on the impetus of creating these needed institutions, asserting that they "provide very necessary ser vices for rural people and for people learning certain trades" and primarily "help accommodate the mushrooming demand for higher education." Po liti cal supporters, many of whom are Republicans, continue to point out the advan-tages of for- profi t education out of concern about the regulatory legislative framework proposed by the Obama administration that emphasizes the "need to look for ways to improve the bad players, but not cast a wide net over the industry."Key IssuesThe for- profi t higher education sector's growth and controversy over its busi-ness model and practices have triggered reaction and questioning at the state and federal government levels. Some of the primary issues include: the quality of education of these institutions; the amount of money in scholarships and loans they receive from the federal and state governments; the recruiting tactics they use to attract students; and the failure of their graduates in fi nding jobs.The National Conference of State Legislatures noted that "Critics of for- profi t institutions argue that many schools and programs leave students with large amounts of debt, few employable skills, and at a greater risk of not completing a degree at all. This is of greater concern because of the heavy federal subsidies that for- profi t institutions receive. . . . Lawmakers have begun to look for ways to better hold these schools accountable for graduating students that can fi nd gainful employment, not be overburdened with large debt they are unable to pay back, and in this way ensure taxpayers are getting a good return on their invest-ment." A key concern regarding for- profi ts' business practices stems from the previously quoted statistics that said "more than $30 billion in taxpayer funds fl ow to the schools each year" and "about 60% of for- profi t colleges receive more than 70% of their revenue from U.S. government programs." The industry seems fundamentally subsidized by public taxpayers who are the source of the money for these loans. As a consequence, a ner vous climate of uneasiness has developed that refl ects the same concerns that preceded the recent U.S. sub-prime lending and housing crisis.A June 24, 2010, New York Times article titled "Battle Lines Drawn Over For- Profi t Colleges" pointed out that "one source of contention was the planned appearance at the hearings of Steven Eisman, a hedge fund manager known for having predicted the housing market crash. He has recently compared the for- profi t college sector to the subprime mortgage banking industry arguing that both grew rapidly based on lending to low- income people with little ability to repay the loans." For- profi t schools make up nearly half of all student defaults. For- profi t schools claim to give students who have been turned away from other in-stitutions the opportunity of a higher education, but the reality is that the wider net they have cast primarily includes lower- income individuals who do not have the propensity to be able to pay back these loans, therefore creating an effective "house of cards" and a predicted "student loan bubble." Statistics from the U.S. Department of Education also showed that for the Fiscal Year (FY) 2011 two- year and offi cial FY 2010 three- year period, "For- profi t institutions continue to have the highest average two- and three- year cohort de-fault rates at 13.6 percent and 21.8 percent, respectively. Public institutions fol-lowed at 9.6 percent for the two- year rate and 13 percent for the three- year rate. Private non- profi t institutions had the lowest rates at 5.2 percent for the two- year rate and 8.2 percent for the three- year rate." In addition, "the average tuition at for- profi t colleges is $14,000 a year, compared with $2,500 at community col-lege and $7,000 in- state tuition at a public four- year college, the report found. . . . Students take out larger loans and default more often." Given the current eco-nomic conditions, "with costs soaring, incomes stagnating and little help from government; it was not surprising that total student debt, around $1 trillion, sur-passed total credit- card debt last year." The fi ndings of the for- profi t universities investigations are pressuring states to increase monitoring of those institutions. State legislatures in Connecticut, California, Michigan, Delaware, and Mary land have already implemented criteria related to such monitoring.Concluding CommentsIt is in the interests of states and the federal government to effectively but fairly regulate for- and not- for- profi t higher education institutions for all stakeholders. With regard to this case, it is also in the interests of for- profi t universities and colleges to legally and ethically attract and recruit students, as well as charge rates similar to comparable competitors, and to produce graduating students who can fi nd gainful employment given their education, skills, and abilities. The role of both the federal and state legislatures is to provide "safeguards and transparency for students, hold schools accountable for providing meaningful degrees, and evaluate allocation of state student aid."How and in what ways for- profi ts will fi t into the mix of a changing education landscape in the United States and internationally remains to be seen especially given the rise of massive online open curriculum (MOOC) initiatives, rising stu-dent debt at all higher educational institutions, and the need for different types of jobs and skills in this century

1. CaseStudy12:For-ProfitUniversities:Opportunities,Issues,andPromises a. Researchfor-profituniversitiesinthenewsandreferenceatleastone

article published in the last 6 months in your case study analysis that

addresses the role of for-profit universities.

1. Identifysomeofthemajorstakeholdersandissuescitedinthecasestudy
2. and in your research findings.
3. Based on your knowledge of for-profit universities, provide an analysis of
4. the role of these universities in higher education with respect to corporate responsibility.