For some for-profit institutions, 2016 has gotten off to a rocky start. Twelve states have called for a ban on the Accrediting Council for Independent Colleges and Schools, the largest accreditor of for-profit universities. Earlier, headlines maligned Trump University and the infamous University of Northern New Jersey.
Depsite this noise, more significant trends are shaping the future of for-profits. Compared to their non-profit and public counterparts, for-profit schools remain highly susceptible to cycles of growth, contraction, and competition. While we expect that some for-profit higher education institutions are anxious about where 2016 will fit into these cycles, our analysis suggests that two other forces may shape the next chapter for these schools.
Appeals Court Upholds Gainful Employment
On March 8, 2016, a panel of three judges, led by Supreme Court nominee Justice Merrick Garland, ruled on Association of Private Sector Colleges and Universities (APSCU) v. Duncan. The panel upheld a lower federal court ruling and allowed the implementation of the U.S. Department of Education’s (ED) gainful employment regulations. ED has estimated that close to 1,400 programs may not comply with these regulations, potentially affecting more than 840,000 students hoping to use Title IV funds to enroll at for-profit institutions. If true, this would represent more than a quarter of annual enrollment at for-profit schools.
As part of its effort to identify and penalize underperforming schools and programs, ED revised existing gainful employment regulations in 2014 to require that all for-profit schools and non-degree programs at all institutions demonstrate that their graduates could obtain “gainful employment in a recognized occupation.”
These revisions tied access to Title IV funds. Gainful employment programs could maintain Title IV eligibility if their graduates met “suitable” debt-to-earnings ratios based on the following guidelines:
- Passing grade: A graduate’s loan payments are less than 8% of their total earnings OR less than 20% of their discretionary income.
- Failing grade: A graduate’s loan payments are greater 12% of their total earnings AND exceed 30% of their discretionary income.
- Under review: A graduate’s loan payments fall between 8 and 12% of their total earnings OR between 20 and 30% of their discretionary income.
A program would be assigned a failing grade if it failed for two out of three consecutive years or had been under review for four consecutive years. Now, all institutions have the balance of 2016 to meet compliance requirements and establish reporting systems by January 1, 2017.
In APSCU’s view, these gainful employment regulations have unfairly singled out for-profit institutions. It’s worth noting that most established, successful for-profit schools, (e.g., Capella, Kaplan, Walden, Strayer, and DeVry) are no longer members of APSCU. In fact, they have generally accepted the reality of these new regulations and have had the foresight to acknowledge that their graduates will be better served with earnings that exceed debt. In contrast, APSCU sought to prove to the appeals court that the debt metrics guiding the gainful employment regulations were “arbitrary and capricious.”
It’s best to understand this ruling as a pendulum swing toward asserting legitimate oversight into how public monies are being utilized, rather than as an indiscriminate attack on for-profit schools. As the court argues, “it would be a perverse system that, by design, wasted taxpayer money in order to impose crippling, credit-destroying debt on lower-income students and graduates. Had Congress been uninterested in whether the loan-funded training would result in a job that paid enough to satisfy loan debt, it would have created a federal grant system instead of a federal loan system.”
This ruling and the implementation of the gainful employment regulations are likely to spawn a new cottage industry of record-keeping and data-collection services. Rather than reinvent themselves as non-profits or bet on a possible Supreme Court review, forward-thinking institutions should now focus on how they can produce graduates who could enter the workforce without being encumbered by crippling debt payments.
Reasserting Value for Increasingly Savvy Adult Learners
While APSCU v. Duncan reflects external forces affecting for-profit schools, many institutions are assessing how they can provide value to a growing yet increasingly discerning population of non-traditional learners. For established, name-brand, for-profit institutions like University of Phoenix, there’s enormous value in reasserting their relevance and ability to provide the kind of online and blended experiences learners will pay for and benefit from.
Against a backdrop of a revised corporate valuation, University of Phoenix has responded to this new climate with “We Rise,” a powerful and provocative promotional campaign. “We Rise” attempts to refute one of University of Phoenix’s more distressing and persistent criticisms, that it offers useless degrees to unqualified students. The themes highlighted in “We Rise” echo many of those in our own ongoing research into the consumer preferences of adult learners. In the 2013 and 2016 editions of Eduventures’ Adult Learner Survey, respondents indicated a strong perference for highly flexible and inexpensive blended learning opportunities. Adult learners calculate the ROI on their desired degree or certificate very carefully and benefit from more providers and better evidence of completion rates and student success.
These preferences are reflected in several of the “We Rise” messages. The lead video features a young woman singing “If I Only Had a Brain” with lyrics rewritten to acknowledge the reality that today’s non-traditional adult learners face:
So my kids don’t have to forage
Got two jobs to pay a mortgage
And I’ve also got a brain
Life’s short, talk is cheap
I’ll be working while you sleep
Still don’t think I’ve got a brain?
With “We Rise,” University of Phoenix makes an effective attempt to capitalize on its mythological name and to reassert the relevance and value of a leading for-profit universities to non-traditonal learners. The question remains whether for-profit enrollments will decline and other ineffective for-profit schools will close. As a whole, the sector could be well positioned for further innovation, impact, and accountability.
As part of an industry-wide legal and financial framework, the gainful employment regulations should foster a more competitive adult learner landscape, within which for-profit institutions will retool and precisely measure their impact in order to survive greater scrutiny from the government and consumers.
When we consider the entire for-profit education spectrum, we are confident that many more innovative, forward-looking schools will embrace these new realities and respond accordingly. This is an opportune moment for all for-profit school and other non-traditional institutions to keep their collective ears to the ground and deliver the kinds of degrees that have an enduring impact for their students and do not entail a lifetime of debt.