The Privatization of Higher Education

William Tierney, Educational Policy Institute Guest Commentator

It’s March 2011. California’s new governor calls a morning news conference to make a stunning announcement: The Apollo Group’s University of Phoenix will pay $2.3 billion to buy the California State University system.

“The previous administration left us with few alternatives,” explains Whitman, who won election on a campaign pledge to end California’s chronic imbalance between what it takes in and what it spends. “Selling state parks is fine,” she continues, “but that nets a few hundred-million dollars.  Transferring ownership of CSU to Phoenix will permanently save us billions.”

“And Phoenix says it will increase enrollments at a lower cost than CSU could ever have managed,” adds Whitman.

Far-fetched? Is Phoenix, the nation’s largest for-profit university, really a candidate to take over CSU, the nation’s largest four-year public university system? Consider:

Persistent budget deficits and the state’s recession have taken a heavy toll on Cal State University. The 23-campus system, which serves 450,000 students, has struggled to increase enrollment as its share of the general fund has steadily declined.

The most recent state budget brought into full relief the extent of CSU’s financial straits.  In July, its trustees voted to take no new admissions in spring 2010 – roughly 35,000 students -- and to raise fees by 20%, to $4,026 a year. The 47,000 faculty and staff will be asked to take two unpaid furlough days a month.

And the system’s money woes will likely continue. The state’s jobless rate reached 12.2% in August, a postwar record. While there are signs that California’s economy is slowly recovering from recession, many forecasters expect growth to be too tepid to produce enough jobs to cut into the state’s double-digit employment through 2011. Continued high employment means less tax revenues. The state’s Legislative Analyst’s Office projects budget deficits through 1212-1213.

CSU is primarily focused on giving students greater access to quality higher education, keeping them in school and sending them into the labor market with bachelor’s degrees – all at an affordable price. Its uncertain financial outlook undercuts this mission.

Meanwhile, California’s need for college-educated workers is outpacing its ability to produce them, and the gap is expected to widen, according to the Public Policy Institute of California.  If current trends continue, the state will experience a serious shortfall of college graduates by 2025 and will be unable to meet its labor needs even through the in-migration of college graduates.
Enter the University of Phoenix. It’s part of the fastest-growing sector in higher education.  In 1967, about 6.9 million students attended U.S. degree-granting institutions.  Less than 22,000 of them – 0.3% -- were enrolled in for-profit institutions like Phoenix. By 2007, the number of students enrolled across all institutions had nearly tripled, to more than 18.2 million. Those enrolled in for-profit universities and colleges had increased to nearly 1.2 million, or about 6.5% of the total.  When you factor in certificate programs as part of higher education, the market share of for-profit institutions is estimated to be 9% -- and growing.

Apollo, Phoenix’s corporate parent, has increased enrollment from about 100,000 to 400,000 since 2000.  Most of Phoenix’s current students are part-time working adult students; their graduation rates for this cohort are comparable or exceed that of their traditional counterparts.  Annual operating revenues grew from about $600 million to more than $3 billion over the last decade. As a for-profit business, Apollo pays corporate income taxes -- a total of about $1.7 billion since 1997 -- rather than receive tax subsidies like traditional public universities.

Phoenix is a logical possibility to run CSU for another reason. According to estimates by the National Center for Education Statistics of future college-goers, many of the new students probably cannot afford school full-time, and of consequence, will not have the need for a campus in a manner that full-time traditionally aged students’ desire.  They want to hold a job and/or raise a family as they learn. Many also opt for on-line learning, and the University of Phoenix is the largest purveyor of such learning.

Unlike the CSU system, Phoenix tracks and publicly reports on what students learn in their courses. It puts faculty applicants through an instructor “boot camp” to weed out weak teachers and to ensure that those who graduate are prepared to teach.  It keeps tab on teaching quality as well, and the contracts of weak teachers are not renewed. Contrary to expectations, Phoenix’s part-time faculty has proved to be every bit as qualified as full-time faculty in some academic areas.

Phoenix also has the ability to ramp up enrollment in one area and decrease it in another.  By definition, a for-profit institution goes where demand is. If more and more students want to go into business, then business courses will be added until the demand lessens.   For-profits also serve more at-risk students and minorities than most traditional four-year colleges and universities.

At a time when California’s finances are insufficient to support a growing higher-education system, Phoenix offers still another advantage. Based on a recent Sallie Mae study, a higher proportion of students at for-profit institutions rely on federal financial assistance than do students at public institutions.  With Phoenix’s acquisition of the CSU system, state legislators weary of years of budget meltdowns could look forward to a shift away from subsidizing CSU toward greater federal student subsidies.

Yes, the University of Phoenix has many drawbacks. It has little concern for academic freedom. Tenure is non-existent. Its ability to adapt courses to the latest findings in scholarship is frequently missing.  It lacks transparency and resists any meaningful regulatory oversight.  It is likely to increase student indebtedness.

But Phoenix is a proven generator of trained graduates ready to enter the workforce. At a time when the California economy needs educated workers and its higher-education system is less able to deliver them because of severe budget constraints, a University of Phoenix’s takeover of Cal State University may be more plausible than one might think.

WILLIAM TIERNEY, University Professor and Wilbur-Kieffer professor of higher education at the University of Southern California, is the author of numerous books, among them “New Players, Different Game: Understanding the Rise of For-Profit Colleges and Universities.”