College for Sale

Purchase of Touro's distance education division reflects trend of for-profits buying nonprofits -- with goal of expanding online offerings.
August 1, 2007

A private equity firm announced plans Tuesday to buy Touro University International, the distance education arm of Touro College, in a deal that would alter the purchased unit from nonprofit to for-profit status.

The purchase is one of several recent transactions in which businesses or investors seeking to expand online offerings have either bought traditional colleges or forged alliances with them. Analysts expect to see more such purchases.

"After the acquisition spree of for-profit purchases of the last few years, there are fewer choice for-profit entities left to purchase, and there is this whole other world of nonprofits out there," said Richard Garrett, a senior research analyst at Eduventures. A nonprofit college may want to sell a distance education unit for any number of reasons, he said -- for the money or because managing it has been difficult or because the identity doesn't mesh with the institution. The for-profit entity, meanwhile, "can buy brand equity and a certain scale" that couldn't be built from scratch, Garrett said.

Many experts agree with Garrett's take that there are going to be more such purchases. For accreditors and those who depend on accreditation, the trend can raise some challenging issues. When an institution is detached from its founding entity, does the newly independent institution merit the same reputation (and accreditation status) it had before? When an institution's mission expands significantly in the direction of distance education, should oversight change? And there is also a flip side to such questions: Do institutions that are purchased or sold deserve more scrutiny because of that fact than a traditional nonprofit college that makes substantial changes in its mission -- or that is running into trouble because it's not changing a mission that doesn't work anymore?

The purchases do not fit a single model -- although they all involve for-profit players and distance education, and nonprofit players that need cash. Sierra Nevada College, after going through a period when its future was far from assured, last year announced an alliance with Knowledge Universe Learning Group, Michael Milken's education company, in which funds are being provided to the college, which remains nonprofit, while plans are created to expand online graduate and professional education through Knowledge Universe and Cardean Leaning. In 2005, Bridgepoint Education, a for-profit higher education company, purchased Franciscan University of the Prairies, a small Roman Catholic College in Iowa, and transformed it into Ashford University, which still operates on the Iowa campus, but also has a growing distance education program.

Touro University International is being purchased by Summit Partners. The purchase price was not disclosed but a spokeswoman for Touro College said that it would "substantially" increase the college's endowment, which stood at $36 million last fall. Touro College, which was founded in New York, but expanded with campuses in several other states and countries, created the distance education operation in 1998. Touro University International is accredited by the Western Association of Schools and Colleges (independent of Touro College's accreditation), and college officials expect that accreditation to be unaffected by the change of ownership, once the switch is reviewed. The distance education operation has its own faculty and staff (all of whom have been told their jobs won't change, although there is no tenure system). The curriculum has also been planned separately.

Barbara Franklin, the Touro spokeswoman, said that the distance education unit has about 7,500 students, enrolled entirely online from all over the world. About 95 percent are Americans and about 80 percent are in the U.S. military. The university awards bachelor's, master's and doctoral degree in business and health sciences, bachelor's and master's degrees in technology, bachelor's in computer science, and master's and doctorates in education. A spokeswoman for Summit said that the firm would not comment on its intentions for the purchases until it clears various regulatory reviews. The new institution will be called TUI University.

Garrett, of Eduventures, said that Touro had been seeking a buyer for some time, and that he expected Summit to broaden the university's focus. While military students are a great niche, Garret said that there are other institutions vying for those same students, and a narrow focus would limit the institution's growth.

The Touro announcement stressed that the transition of ownership would have no impact on students -- but that is of course contingent on accreditation. Judith S. Eaton, president of the Council for Higher Education Accreditation, said that different regional accreditors handle change in ownership in different ways, but all have procedures that require a new review for the accreditation to transfer. She said that there are a number of issues that need to be examined related to the quality of education being offered, but that the key question is: "Can the mission be retained?"

Officials at the Western accrediting group, which will review the Touro change, were not available for comment. But Steven D. Crow, president of the Higher Learning Commission of the North Central Association of Colleges and Schools, explained how his association handled the ownership change at Ashford. North Central's approach is to do an initial review prior to the final purchase, so that accreditation can transfer at that time. The initial review is then followed by others, he said.

For the accreditation to transfer with the change in ownership, Crow said, the new owner must show a commitment to preserving the mission of the former institution. "We have never agreed to changes in mission as part of a sale," he said.

However, just as institutions that don't change ownership change their missions, so too that right extends to those that have new owners. And Crow said that the pattern is that six months after a change in ownership, "they almost always say, 'now we want to do X,'" with X representing a new mission. That's not necessarily bad, Crow said, but the accreditor must then review relevant qualities about the institution to perform its desired new mission.

In the cases of both Sierra Nevada and Ashford, the early signs are positive that former missions are being strengthened -- regardless of the interest in moving into distance education -- and that institutions that might have otherwise gone under are no longer on the critical list.

Larry Large, president at Sierra Nevada, said that the college didn't do recruiting for the next freshman class until the deal was solidified and so lost about half of its recruiting year. Still, with the additional resources and stability of the relationship with Knowledge Universe, Large said that Sierra Nevada is expecting between 115 and 125 new students in the fall, up from 76 a year ago. While plans for distance education offerings are being discussed, Large stressed that they were preliminary and would only happen after accreditors were consulted and provided appropriate approval.

Ashford has seen a huge expansion into distance education (for which only a fledgling program existed prior to the purchase), but has also seen growth in enrollment at the Iowa campus. At the time of purchase in 2005, Ashford had 320 students. In 2006, enrollment increased by 38 percent, to 422, and officials are expecting continued growth this fall, in part because of improvements in a dormitory, science facilities and the gym.

Despite such successes, some faculty members worry about the trend of for-profits using traditional colleges as launching pads for distance education. Wayne Ross, a professor of education at the University of British Columbia, has written has written about the impact of distance education and for-profit models on the rising use of adjunct faculty members and the lessening of faculty control of the curriculum. While he has not studied the recent purchases, he sees the trend as part of the "corporatization of higher education."

Because these programs are not typically run with traditional faculty governance, and because of the importance for-profit distance programs place on generating revenue, "I think that what this does ultimately is that it undermines the academic integrity of the institution."

Ross said he wasn't questioning the business logic behind some of the changes, but the idea that business logic should be applied as it has. He compared trends today with those explored by Raymond Callahan in his 1962 work Education and the Cult of Efficiency, which focused on the misapplication of business values in schools. "This all ends up changing the way we think about education," Ross said.

Others, however, argue that regional accredition offers protection that educational values are not being sacrificed. Garrett, of Eduventures, said, "regional accreditation is what's crucial. That's the clear watermark for the value of the purchase."


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