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The University of Idaho announced last month that it will purchase the for-profit University of Phoenix for $550 million. It plans to turn Phoenix into a nonprofit corporation that would function as a separate legal entity. The move came after the University of Arkansas Board of Trustees came out against a proposal to buy Phoenix and marked the latest effort by a public university to acquire a for-profit institution. Do these mergers indicate the for-profit model is dying or, instead, that public institutions are becoming more like for-profit entities, either by copying their business methods or just through outright acquisition of for-profit institutions?
Public universities acquire for-profit institutions precisely because they hope to benefit from the enrollments and tuition revenues that were achieved by the persistent—and sometimes legally problematic—business practices of for-profit providers. It makes sense to question whether a public university acquiring a for-profit institution will continue to allow questionable business practices focused on revenue generation rather than prioritizing the best interests of the students and taxpayers who ultimately pay for state and federal financial aid.
For instance, after Purdue University bought the for-profit Kaplan University in 2017 and created Purdue University Global as a nonprofit institution, students were going to be required to sign enrollment agreements with an arbitration provision to prevent them from suing the new, nonprofit incarnation of Kaplan. Public universities do not typically use arbitration agreements. The practice was championed by for-profits and was only recently disallowed by the federal government for institutions participating in the direct loan program. The idea to require Purdue University Global students to sign arbitration agreements was rejected only after considerable pressure from multiple stakeholders.
Despite its new name and status as a public university, Purdue University Global also sought to adopt other practices more common in the business sector or in for-profit higher education. For instance, Purdue University Global initially sought to make faculty sign nondisclosure agreements. In another move that is relatively rare outside of for-profit higher education, Purdue University Global claimed ownership over faculty-generated intellectual property in the form of instructional materials used in the institution’s learning management system. Again, the institution only backtracked on these items after receiving substantial criticism.
Why For-Profits Reincorporate as Nonprofits
As for-profit colleges have faced financial headwinds from declining enrollments and increased governmental accountability, one tactic has been to try and convert into a nonprofit institution. However, like the deal with Purdue University Global or the pending one with Phoenix, doubts have arisen over whether such conversions truly reflect a change in mission or are more about trying to avoid state and federal regulations on for-profit institutions and gain the legal benefits of not-for-profit status. If the latter, then the reincorporated institutions may continue acting like for-profit entities when it comes to how they recruit and treat students.
At least one state, Maryland, has adopted legislation to guard against for-profit colleges that seek nonprofit status but continue to operate in a for-profit–like way. The law empowers the Maryland Higher Education Commission to investigate if a for-profit institution has changed its legal status to avoid regulations placed on for-profit higher education.
Why Public Universities Buy For-Profits
Across higher education sectors, institutions are searching for new revenue sources and new students amid an expected decline in the number of high school students who form the pool of potential college students. This decline is also accompanied by a noticeable dip in the percentage of high school graduates opting to attend college.
Along with these trends, public universities are grappling with uncertain and declining state appropriations. Even while some states have improved their funding for public higher education in recent years, including through the use of COVID-relief funds, there has been a sustained longer-term trend of lower funding from states for their public colleges and universities. As states withdrew discretionary funding from higher education, institutions became increasingly reliant on student tuition as a key revenue source. As enrollments grew, institutions traded state appropriations for student tuition dollars. With falling enrollments, public institutions are now facing both enrollment and budget challenges.
Are Public Institutions Still Public?
As in other states, public universities in Idaho are facing stiff enrollment challenges. The deal to buy Phoenix is one strategy to try and mitigate enrollment concerns and diversify revenue streams. However, as the University of Idaho and other public institutions try to navigate a daunting enrollment and financial environment, it is important to sustain and reclaim what it means to be a public institution.
The University of Idaho plans to create a hybrid of a public and a for-profit institution. The institution that is expected to emerge from the agreement with Phoenix will be legally recognized as a nonprofit corporation. It will operate under the ultimate control of the University of Idaho’s Board of Regents, which will appoint a separate Board of Trustees to oversee the nonprofit entity, but Phoenix leadership and employees will continue to run the institution.
Just as concerns are real over for-profits masquerading as nonprofits, having a public university openly functioning along the lines of a for-profit model and administered by former corporate officers should raise alarm. In many ways, the decision by the University of Idaho is emblematic of an overall and longer trend among public (and private, nonprofit) higher education institutions to embrace administrative and organizational models from the for-profit sector or from business. Such moves make sense, at least in the shorter term, in trying to weather the enrollment and financial challenges facing many public universities. But, in the long term, acting more and more like a business threatens to erode what it means to exist as a public higher education institution. American higher education came to lead the world because states formed universities to serve the public good. While public institutions have always had to generate income to pursue the public good, we fear that when public universities buy for-profit colleges, revenue generation becomes the main purpose—the raison d’être—for institutional operations. As in George Orwell’s Animal Farm, we fear the pigs will become the farmers.