Buying Low

Apparently, the proprietary colleges are in the midst of another of their periodic booms, swooping in and grabbing students just when the public sector is reeling from yet another round of budget cuts.

I've seen this movie.

As regular readers know, I used to work for a proprietary. You've heard of it.

I'd be both more and less worried than the IHE story suggests.

The worrisome part of the return of the proprietaries is that, unlike the public sector, their income rises and falls with enrollments. This means they're immune to the double-bind the public colleges routinely experience during recessions, when enrollments go up but funding goes down. This Fall my cc is experiencing the highest enrollments in its history, and applications for the Spring are even higher than that; at the exact same time, our operating funding is crashing. Say what you want about 'administrators' – I defy anybody to make that math work without pain. It's one thing to do more with less, and another to perform alchemy.

For the DeVry's and Phoenixes of the world, though, higher enrollments automatically equate to higher revenues. This means they can add capacity when it makes sense. In times like these, I envy them that.

That said, though, the relatively narrow focus of most proprietaries – pick one or two hot career fields, and put all your eggs in those few baskets – means that they're incredibly vulnerable to job-market shifts. The Admissions folk at the proprietaries, in my experience, are quite conversant in the job-placement stats (both percentages and average starting salaries) of recent grads. That's what they sell. "Sure, our tuition may be higher, but we'll get you a good job." When I was there, the Career Services Office was almost as powerful internally as the Admissions Office, and both were far more powerful than the faculty. The entire organization was built as a factory, producing employable graduates. And in good years, it did exactly that.

But as with any factory that churns out a narrow product line, the model only works when the product is in demand. And I don't see a heck of a lot of evidence that new grads in most fields are in very much demand. (Nursing is an obvious exception.)

It's one thing to pay premium tuition and put up with a certain brutality of culture when you think there's a pot of gold waiting at the end. It's quite another to do that when nobody's hiring anyway. If there's no obviously lucrative path to follow, why not study what you actually like?

Now, if someone were to put up a serious chunk of venture capital to establish an upscale, 'comprehensive' for-profit, combining the best innovations of the for-profits with the best traditions of traditional academe...

And wanted to hire someone with experience in both worlds, a commitment to students, and a record of sustained reflection on higher ed issues...

I'm just sayin'.

If someone were to do it right, there's an opening you could drive the proverbial truck through. The public colleges are caught in a cost spiral generated by a productivity trap; the existing proprietaries are generally either far too narrow, or (I'm thinking here of Founders College) hostage to some weird Ayn Rand-ian ideology. (The last time I checked, their economics degree didn't even include any math. What do you say to that?) But a for-profit that actually understood education...

Alternately, if President-elect Obama wants to solve multiple problems at once, he could direct some of the 'stimulus' to enrollment-based aid to higher ed. Come up with a per-student (or per-credit) 'bounty,' and pay colleges accordingly. That way, we could keep the progressivity of the public sector, while emulating the enrollments-lead-to-revenues model of the for-profits. Colleges could start employing faculty again, and all those underemployed people could upgrade their skills. Think of it as a variation on the GI bill, except that it doesn't penalize institutions with lower tuition levels.

My guess is that the DeVry's of the world are sort of the Studebakers and Nashes of this industry. The Toyotas and Hondas are waiting to be born, and I'd guess they won't have to wait much longer. It's axiomatic that the way for investors to make money is to buy low. It doesn't get much lower than this.

The planets are aligning for a really fundamental shift in how higher ed operates. If the publics don't lead the way, the for-profits just might.