Marketplace Scratch Pad

For-profit universities revisited

Scott Jagow Dec 8, 2009

Thought you might like an update on one our recent hot topics. The government looks to be cracking down on incentive pay for recruiters at these schools. And a former big-name CEO is about to launch a new for-profit school in his name.

Last month, Marketplace and Pro Publica reported on allegations of shady recruitment practices at the University of Phoenix. My posts about it are here and here. The series generated quite a bit of discussion about the value of for-profit education and a business model that leads to a disproportionate number of student loan defaults.

The Department of Education is considering new rules that include a proposal to eliminate the 12 “safe harbors” in incentive compensation for school employees who sign up new students. From the Chronicle of Higher Education:

Consumer advocates and admissions officers from traditional colleges have urged the department to do away with the safe harbors, arguing that the exemptions, which allow colleges to pay enrollment-based commissions under certain circumstances, encourage recruiters to sign up unqualified students.

Officials of for-profit colleges and lobbyists favor keeping the safe harbors, saying they provide much-needed clarity on whether specific types of payments are in compliance with the law.

Clearly, the government wants to get a handle on the for-profit sector ASAP. Looks like it’s only going to get bigger. Next month, the Jack Welch Management Institute opens at Chancellor University in Cleveland. Its format is an online “executive MBA for mid-career businesspeople.” The program will cost about $22,000 compared to the $150,000 students might pay for an executive MBA from a private university. Here’s what Welch, the former GE CEO, told Fast Company:

“I think it’s an incredibly exciting market, a great business opportunity worth a lot of money, and an opportunity to do something good for society. People who have negative comments about online schools are being old-fashioned.”

Fast Company also talked to the guy who heads up the private equity firm invested in Chancellor, Michael Clifford. I thought Clifford’s comments were interesting too:

…Bill Bright, founder of Campus Crusade for Christ, gave him a life-changing piece of advice: “He knew I loved business and did a lot of charity work,” says Clifford. “He told me education is the one business where you can help people live better lives and make a lot of money for your investors…”

“I don’t even use the term ‘for-profit’ anymore,” Clifford says. “I say schools are ‘market-driven’ or ‘publicly funded.’ Everyone has to put their guns away and focus on providing the best experience for the student. Market-driven can learn a lot from traditionals, and the traditionals have a tremendous amount to learn from market-driven best practices.”

He may be right about that, but the Department of Education is wise to increase its scrutiny. Giving more people access to education is a laudable goal, but when the bottom line is making money, we all know what can happen.

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