Everywhere one turns, the idea of disruptive innovation continues to spread, even as academics have cast doubt on the theory’s validity. Put on the agenda by scholars such as Clayton M. Christensen and Henry J. Eyring, the idea presumes that old institutions, including colleges and universities, will be hard-pressed to change fast enough to meet new external environments. Instead, new technologies and organizations will outcompete the old, even if -- and, in fact, because -- the new ones offer a subpar but cheaper product.
In time, the new institutions will cultivate demand for their products, improve quality and displace the older institutions -- which did not change fast enough. This happens in Silicon Valley, and it will soon happen to campuses across America, Christensen and Eyring warned in their 2011 book, The Innovative University: Changing the DNA of Higher Education From the Inside Out.
The rhetoric of disruptive innovation combines a theory of organizational change with a theory of time. Existing institutions find innovation difficult because their structures and norms are oriented around doing, and even improving, what they already do -- a phenomenon political scientists call path dependence. Agile new institutions can enter the market because there is demand for more suppliers and they are not beholden to the past.
But such claims have often been married to the presumption that new technologies have sped up the rate of social change, making existing institutions even more vulnerable. And it is this piece -- the narrative of speed -- that has led so many advocates of disruption to believe that we must act now or be left behind.
The narrative of speed is quickly spreading. For instance, the authors of what came to be known as the Spellings Report, issued in 2006 by a commission appointed by then U.S. Secretary of Education Margaret Spellings, concluded that higher education is a “mature enterprise.” “History is littered with examples of industries that, at their peril,” did not respond to a changing society, the report warned. New technology and global competition mandate a fundamental transformation of education institutions.
In the wake of the University of Virginia’s Board of Visitors’ decision to remove university president Teresa Sullivan in 2012, the board’s rector at the time, Helen Dragas, asserted that the institution was facing an “existential threat.” The times, Dragas claimed, call for a bold leader willing to impose “a much faster pace of change in administrative structure, in governance, in financial resource development and in resource prioritization and allocation” than was Sullivan. “The world,” Dragas proclaimed, “is simply moving too fast.”
Policy makers and university administrators who advocate disruptive innovation are right that all institutions -- and colleges and universities are no exception -- must account for changing external environments. And no institution is ever static. But their proclamations to adapt or die ignore the fact that human environments are the products of human agency. Society is a human construct, not a natural process. Institutions can shape as well as reflect the society and culture around them. True courage is trying, even in the face of hostility and skepticism, to defend what colleges and universities do. But giving in is easier.
In fact, despite all the talk of innovation, what is perhaps most surprising is how familiar and uninteresting recent models of disruptive innovation really are. Yes, they use computers. But the structures of institutions like Western Governors University, Southern New Hampshire University’s College for America and the ever-expanding Arizona State University online programs are really premised on ideas that date back to the industrial revolution. Managers control the organization. Labor is subdivided into discrete tasks (what WGU calls the disaggregated faculty model) and alienated from the products of their work. In turn, those products -- including curriculum and assessment-- are standardized and work routinized. This is quite old-fashioned.
In contrast, forward-looking companies try to emulate traditional colleges and universities by building large, idyllic campuses where people can interact and be creative. “There is something magical about sharing meals,” said former Google CFO Patrick Pichette a few years ago on why Google discourages telecommuting. “There is something magical about spending the time together, about noodling on ideas, about asking at the computer, ‘What do you think of this?’” That sounds a lot like the traditional college experience, but, in new-model universities, fundamental aspects of traditional ones -- such as personalized teaching, green lawns, academic freedom, shared governance, meaningful exposure to liberal arts education, and time and autonomy for reflection -- are deemed irrelevant.
Take the argument that Michael Crow, president of Arizona State University, made in his co-written 2015 book, Designing the New American University. Because expanding access to college degrees requires innovation, and because they wanted to move fast, ASU embraced technology to outsource teaching through, in Crow’s words, “partnerships to expand and improve the online learning experience, utilizing over 100 third-party tools and services.” Instructional designers work with faculty to design online courses that faculty members once taught. “Coaches,” teaching assistants and adjuncts teach online to students who might have had access to professors on campuses.
Paul LeBlanc, president of Southern New Hampshire University, celebrates the same reforms at his institution’s online College for America. In a 2013 statement to the U.S. Senate Committee on Health, Education, Labor and Pensions, LeBlanc told senators that “not having traditional instructional faculty is not proving to be a problem. We use academics to construct the learning and to do the assessments, but not in any traditional instructional role. Students, working with the aid of a dedicated SNHU coach (or adviser), access rich learning content, their own resources and each other, and it is proving very effective thus far.”
What makes such reforms so hard to resist is the presumption that the world is moving too fast to take stock. All hands must be on deck. The ship is sinking. Legislators are impatient. Faculty members are complacent. But is this true? Is the world changing so fast that all the things colleges and universities are supposed to do and have done have been rendered irrelevant? Are the forces of disruption really that powerful?
The Value of Continuity
To even start answering these questions, we must examine the assumption that all of society is changing too fast for reflection. How do we know that today is moving faster than yesterday? Are we not just importing a storyline that might be true for one sphere of our lives -- technology -- into other spheres where change is slower? Does a story that emanates from Silicon Valley belong or even explain change elsewhere? And is all human activity subject to the same accelerating forces as technological innovation? Can we speed everything up? Should we?
In his 2008 essay “Social Acceleration: Ethical and Political Consequences of a Desynchronized High-Speed Society,” sociologist Hartmut Rosa raises the concern that our world is experiencing desynchronized rates of change. He argues that while technological change may be happening very fast, other realms of our shared lives cannot equally be sped up. That includes, he notes, democratic politics. Bold leaders who believe that the world is changing fast have little patience for “the political system’s fundamental inability to accelerate.” But “democratic political decision making” is always slow, Rosa writes, because “processes of deliberation and aggregation in a pluralistic democratic society inevitably take time.”
The same is true for higher education. Some parts of our world may be changing fast, but it’s not clear that one can speed up the rate of change in higher education without significant damage. Yet the narrative of speed, imported from the world of technology into the world of education, serves powerful interests. When we believe we have no time to slow down because the world is changing too fast, we prevent ourselves from asking what kinds of institutions we need. We raise our hands in surrender to what appear to be inexorable forces but are really human aspirations. To those who believe that all spheres of society are changing as fast as technology, there is no time to wait for those not already on board. The only way to stay afloat is to allow visionaries at the top to act boldly. Other people should follow along or be left behind.
Innovators dismiss those who might want to slow down and think, or who worry about what might be lost. We must not sit around and watch faculty members “deliberate while shifts in policy, culture and technology flash by at warp speed,” ASU’s Crow proclaims. There is no time for shared governance.
What these visionaries ignore is that institutions and ideas do not become outdated just like Apple computers. Moreover, disruptive innovation is a language of change but not always a description of the reality of it. As Harvard University historian Jill Lepore has written, disruptive innovation is “not a law of nature. It’s an artifact of history, an idea, forged in time; it’s the manufacture of a moment of upsetting and edgy uncertainty. Transfixed by change, it’s blind to continuity.”
But we need continuity, too. Indeed, higher education institutions’ capacity to evolve slowly may be one of their chief virtues. Yes, today’s colleges and universities are vastly different than those of centuries past. But, as disruptive innovators condescendingly remind us, much remains the same. It is this ability of institutions to create spaces insulated from fast change that enables them to maintain forms of knowing that might otherwise disappear, to invest in scholarship that takes decades to pay off, and to educate students with ideas and perspectives that are not always prevalent in public discourse.
If we truly had courage, we would not give in so fast. Colleges and universities today are changing too quickly, not too slowly. Tradition has not been strong enough to withstand external pressure.
In such a context, true courage requires saying that enough is enough. It requires defending the college or university as an academic institution. It requires making clear that some things are worth saving and even savoring -- that continuity has benefits. It requires attributing long-term trends, such as the erosion of tenure or the decline of the liberal arts and public funding, to human beings rather than to disruptive technologies.
If we had courage, we would celebrate the fact that academic life moves slowly. Research takes time. Teaching does, too. To educate a human being requires her or him to step outside of the busyness of daily life. Developing new skills and knowledge takes years. It is even harder to inculcate in students such intellectual virtues as curiosity.
Education is a slow but necessary effort to transform people. It cannot be rushed, at least if we take it seriously. As I wrote in a previous essay, “time is formative.” It harms universities’ research and teaching mission to give in to the narrative of speed, as Maggie Berg, a professor of English at Queen’s University, and Barbara K. Seeber, a professor of English at Brock University, both in Canada, also conclude in their recent book The Slow Professor.
If we had courage, we would acknowledge that education cannot be done by machines or be done too fast. We would argue, as do Daniel F. Chambliss and Christopher G. Takacs in How College Works, that true learning depends on the cultivation of personal relationships. We would conclude, based on the evidence Richard Arum and Josipa Roksa assemble in Academically Adrift, that the best way to improve student success is to put students on campuses that set high expectations and emphasize the liberal arts and sciences. Maybe we would invoke the work of cognitive scientist Daniel T. Willingham or biologist James E. Zull, who have explored why real learning is tough and takes trust and time. Perhaps we would even stand up for the humanistic and civic goals of liberal education.
In short, we would argue that all students deserve access to real campuses and professors. We would urge legislators to help all students, of any age or background, afford the time it takes to get a college education. We would note that this is particularly true for disadvantaged and first-generation students, who do not benefit from the kinds of reforms disruptors advocate, at least if we want to offer access to a meaningful education and not just to degrees.
Instead of making the case for what works, disruptors have lost faith that their colleges and universities can resist external forces of change. They thus seek to tear down the walls between the institution and the world, forgetting that those walls are not just problems but also solutions. By creating spaces for intellectual refuge and reflection, colleges and universities provide something rare and necessary for our society. Disruptors often portray themselves as heroic agents of change. In reality, they are giving in by giving up. To run from forces that seem too large to counter is human, but it should not be confused for fortitude nor moral courage.
These are hard times, no doubt, for higher education. Colleges and universities face many pressures. It will take a lot of strength to meet new needs and new environments without sacrificing the academy’s core principles and practices.
It will take some resistance, too. We must be sympathetic with administrators who are fearful of the future and feel powerless to change it. They, more than faculty members, must respond to legislators’ demands to offer more degrees cheaper and faster.
But those of us who -- as citizens, legislators, administrators, faculty members and students -- want to pass down the opportunities we have had to future students and professors, and who aspire to increase access to it for first-generation students, must have the courage of our convictions. We must remember what colleges and universities are for and ensure that those purposes are sustained, even as our institutions continue to evolve. In short, we must respond deliberatively, not out of fear that the world is moving too fast for thought.
Johann N. Neem, a senior fellow at the University of Virginia’s Institute for Advanced Studies in Culture, is a professor of history at Western Washington University. He is the author of “Experience Matters: Why Competency-Based Education Will Not Replace Seat Time.” His new book, Democracy’s Schools: The Rise of Public Education in America, will be published later this year by the Johns Hopkins University Press.
The most recent Inside Higher Ed survey of college and university presidents illustrates a disconnect between what presidents believe is occurring at their institutions and what is actually happening just below the surface among our student populations. Despite presidents’ impressions of the day-to-day experiences, all is not rosy, and student affairs administrators can provide presidents with a reality check when it comes to the good and the not-so-good circumstances and events that are transpiring.
Some of the issues that concern presidents most -- and those that we who work in student affairs believe should, in fact, concern presidents the most -- are often related to student behaviors and experiences outside of the classroom. Those are the areas of knowledge and responsibility housed in student affairs offices, and we can assist with the topics most associated with our field -- including equity and diversity initiatives, promoting anti-bias on campus, student engagement, and issues tied to student success, recruitment and retention.
The key to mining our expertise, however, is to have a realistic understanding of our areas of responsibility, and a plan for best accessing our expertise and our close connections throughout the institution. This allows presidents to make the strongest and best-informed decisions possible for their campus communities.
For example, the Inside Higher Ed survey found that “the vast majority of presidents describe the state of race relations at their college as either excellent (20 percent) or good (63 percent). More than three-fifths of presidents describe race relations at American colleges in general as fair.”
I’ve used the analogous data points from last year’s presidential survey when speaking to members of NASPA, the leading association for student affairs professionals, over the past year -- data that, the survey notes, are relatively unchanged from last year to this year. Not surprisingly, I’ve received a mix of gasps and chuckles, with many student affairs professionals hoping their presidents can realistically assess the status of race relations on their own campuses. NASPA’s survey of senior student affairs officers has consistently shown that diversity and race relations are among the top issues and concerns. It would be fascinating to see how students -- especially students from diverse backgrounds -- would rate their institutions, but I can safely bet that the “vast majority” would not rate them as “excellent” or “good.”
It is important to note that a lack of protest on a campus does not mean students and other community members are satisfied about race relations there. We shouldn’t be lulled into a false sense of security that we are meeting students’ needs solely because we haven’t faced protests. The absence of activism may simply mean those students aren’t activated yet. Student affairs administrators can help their presidents proactively engage with all students so that they have an accurate picture of the true state of the student body and its general satisfaction with the current campus climate.
The ways in which student affairs professionals can contribute counsel to a president are not limited to race relations or underlying diversity unrest. The survey shows that presidents are also worried about attracting and retaining all students, including underrepresented ones, and making dollars from tuition and state appropriations stretch farther than ever before. With only 52 percent of presidents “confident about their institution’s financial health over the next 10 years,” higher education will likely face additional cuts in the future.
If presidents are considering reducing support for student affairs functions, they do so at the potential peril of their retention efforts and to the detriment of their student satisfaction and graduation rates. When cutting costs, presidents should prioritize efficiencies and preserve the core opportunities and experiences associated with a college degree. They should turn to data to determine which experiences are contributing to students’ success and refrain from wholesale elimination of the programs and services that keep students moving toward graduation. Presidents should make changes to increase impact and maintain personal contact and engagement, which are key parts of the institutional experience.
A Gallup survey found that students were 1.6 times more likely to strongly agree their education was worth the cost if they were “extremely active in extracurricular activities and organizations,” 1.9 times more likely if they had a mentor who encouraged them to pursue their “goals and dreams” and 1.4 times more likely if they had a “leadership position in a club or organization such as student government, a fraternity or sorority, or an athletic team.” Student affairs professionals can make a difference in keeping our students on the path toward graduation and satisfied with their investment.
This weekend, the American Council on Education and NASPA kick off their respective annual meetings. With a preponderance of attendees of the ACE meeting holding the title of president or chancellor, I encourage them to think through how they can better tap the expertise housed in student affairs and make use of the experiences of their senior student affairs officer. The survey results from Inside Higher Ed aren’t surprising, but they tell me that student affairs officers need a seat at the table to provide perspective and advice as presidents tackle myriad difficult topics on behalf of today’s students.
Kevin Kruger is president of NASPA: Student Affairs Administrators in Higher Education.
Tuition rose faster than state appropriations fell, and federal aid helped make that possible, study asserts. does headline overstate? should we add "(Alone)" or something, so we're not making it seem like Cato is saying state disinvestment plays no role? dl***Good point. Added "Alone." -RS
Re: Current Status of the Committee to Make Us Special
First, I’d like to thank you for the opportunity to chair this ad hoc committee. While I’m fairly certain my appointment was the result of my admittedly vociferous criticisms of just about every suggestion Old Oak’s senior administrators have made to improve our recruitment and retention of students, that doesn’t mean I didn’t take up the charge with the enthusiasm that such an opportunity truly deserves. The course release and travel stipend helped, too.
I’m sorry to say, though, that after nine months of weekly meetings and a great deal of research, the Committee to Make Us Special has come up mostly dry. This is not to say there were not ideas. In fact, at last count there were over 2,300 ideas shared by faculty, students, staff, alumni and anyone else who could find their way to our webpage.
We created four categories into which we sorted these ideas:
We Like This but Could Never Afford It.
We Like This, but It’s Been Done, Which Sort of Defeats the Purpose of Making Us Special.
This Will Likely Undermine All That Our Founders Imagined for Us.
Nice Idea but It Will Not Bring Us a Single Student.
Some ideas were category crossovers. For example, the lazy river in the shape of our initials was both a category 1 and category 2. It was also its own category: Ideas That Cannot Actually Be Implemented. We realized our particular moniker’s initials would create a very lazy river, one without the necessary water outflow. On the upside, it might have looked intriguing in a satellite photo -- something, perhaps, as Professor Whelan from the religion department pointed out, similar to a concrete crop circle, or, as Professor Martin from biology pointed out, a wastewater treatment plant (definitely not special).
One suggested category, Ideas Richard Russo Would Likely Satirize, ended up being too large a single category and so we deconstructed it into the above four (a process we acknowledge would undoubtedly be something Russo Would Likely Satirize -- one of our many meta moments).
We considered 22 possible new majors. We began with some of what we’ve come to realize are the usual suspects in such an undertaking. Nursing. Physical therapy. International business. Social justice. Video game design. Recognizing that we are behind the curve on them (a number of our peers and aspirants have already announced these particular programs), we began to think more creatively, combining the best features of some into interdisciplinary majors. Thus, global physical therapy, taught mostly online and focusing on injuries commonly sustained by those on mission trips to developing nations, was popular with the committee.
We did review a number of suggestions for new athletic programs that we might want to add -- water polo, fencing, water fencing (that’s still an emerging sport), trapeze. I must say I was astonished to discover how rapidly the circus arts in general are growing, and the irony of adding those to our campus was not, I assure you, lost on anyone. Twelve different sports with the terms “extreme” or “ninja” in the name were quickly set aside. In the end, the cost of facilities and equipment and the very hefty increase to our liability insurance premium made almost all of them unlikely. I say “almost all” because I’m happy to inform you that our bocce club will become a varsity sport next year. Professor Rubino and the rest of the Italian studies department are thrilled, as you might imagine. This idea may, however, belong in category 4.
Our Subcommittee on Enrollment Strategies (we thought about calling it “Extreme Enrollment Strategies,” but again, set that aside) examined some possibilities as well. One that you had suggested, bringing in our largest first-year class ever, was carefully vetted by our Sub-Subcommittee on Making at Least the Incoming Class Feel Special. Their determination was that this was a shortsighted approach. Our discount and acceptance rates would skyrocket, thus lowering our ranking in U.S. News & World Report, which would, in turn, make future recruitment efforts more difficult. Also, our housing staff would resign en masse. (I realize you think they’re all easily replaceable with cheaper, younger new professionals, but we saw what happened the last time we tried such a thing, and I don’t think the students without housing assignments for three weeks who lived in [yes -- admittedly very nice] tents will ever truly trust their alma mater again. Experience is worth something, is it not?)
In addition, four of our peer institutions announced last year the arrival of their largest first-year classes ever, and apparently at least three will do so again this year. Our demographics consultant made it clear this is not a bottomless well we’re peering down, so to speak. Although we could double our enrollment by attracting and admitting students who cannot pay anything, will need remedial assistance in every subject and don’t actually want to come to Old Oak, it seems this might not solve our long-term need for steady enrollment and revenue growth. In fact, after much number crunching, we believe it would ultimately sink us permanently. I realize that limiting enrollment growth will be a source of great disappointment to our president, who we know loves to announce such things at board meetings, but perhaps you could remind him that his retirement is within sight and his deferred compensation is within reach. That often seems to calm him.
Of course, I recall that one of your charges to our committee was to “investigate the role of the liberal arts for the future of Old Oak, indeed, for all of higher education.” Tall order, that. We did, however, do our best, creating yet another group: the Subcommittee to Read Everything That’s Been Written About the Liberal Arts in the Past Three Years.
Contrary to what you might have heard, those committee members did still find time to teach their classes and tend to their administrative duties, though not particularly well. Their work resulted in a book-length report (yes, they acknowledge the irony of adding to the pile of reports, books, films and tweets on this topic), which then led us to put the issue to a vote of the full committee. The results are instructive:
Votes in favor of recommitting to the liberal arts nature of Old Oak: 12
Votes in favor of abandoning the liberal arts completely: 12
Honestly, I have not witnessed such a deeply felt deadlock since the great hyena vs. dingo mascot controversy of ’97. As you know, the scars from that battle remain. Literally, in some unfortunate cases.
The alumni office representatives on our committee did take seriously your suggestion that we engage our alums in this process. We learned the following about our alums:
They would be willing to help us recruit, if they were not feeling so overwhelmed by their monthly loan payments.
They would be willing to provide internship sites for current students, if they were not feeling so overwhelmed by their monthly loan payments.
They would be willing to come to campus for career-related events, if they were not feeling so overwhelmed by their monthly loan payments.
It’s worth noting that the one alumni-generated idea the committee felt was worth moving forward for review was the suggestion that we devote a portion of our endowment to alumni debt relief. That would indeed Make Us Special. It would also, our budget director determined, Make Us Broke.
As we conclude the work of our committee, recognizing that we have not succeeded at our appointed task, we feel a deep sense of melancholy, which I suspect you share. I’ve looked for harbingers of better times ahead, but as I suspect many of my counterparts on other campuses are also realizing, there are few. They are there, though, if one squints a bit and ignores demographics, economics and Malcolm Gladwell.
Perhaps you’ve seen the recent excellent movie The Martian? An astronaut named Watney is on a Mars mission, gets injured in a storm, is presumed dead and is left behind by his crew mates. Of course, he’s not dead. (That version of the movie would probably not have gotten green-lighted, although given our cultural fascination with zombies, who really knows?) Watney, fortunately, is a botanist, and so manages to stay alive for months, eating potatoes that he has miraculously grown in Mars soil fertilized by the human waste left behind by the crew. He is also good with a wrench and duct tape. Upon learning that Watney is alive, his crew mates ignore orders from NASA and turn around to get him. (Trust me -- this is all explained in appropriate scientific detail in the movie.) They are successful, bringing Watney back to Earth, where he fulfills his lifelong dream of becoming a professor (a plot twist less believable than the rescue, if you ask me).
I share this brief synopsis in order to end this memo on as positive a note as I can muster (and since there are 47 separate supporting documents attached, I don’t want to take up more of your time). As I ponder the work of our diligent committee, I can’t help but think of Watney, alone and frightened, yet determined to survive against ridiculous odds. What kept him alive till he was rescued was a clear-eyed view of just how dire his circumstances truly were, an ingenious use of shit and, ultimately, the hope of rescue by an intrepid band of space-traveling crew mates. If there is such a band out there, perhaps they will come our way. We are running low on potatoes.
Lee Burdette Williams is a writer and educator living in Burlington, Vt.
The University of Wisconsin System filed a lawsuit Wednesday against its Oshkosh campus’s former chancellor and chief business officer, charging that they oversaw illegal financial transfers and university guarantees supporting five foundation-backed real estate projects.
The suit alleges that former UW Oshkosh Chancellor Richard Wells and former campus Chief Business Officer Thomas Sonnleitner improperly transferred a total of $11.3 million from UW Oshkosh to the UW Oshkosh Foundation, largely for the real estate projects. They also executed what the university system called illegal guarantees pledging UW Oshkosh support for bank loans made to the foundation -- assuring banks that the campus would make debt payments for the foundation in the event the foundation could not meet its financial obligations. But the Wisconsin state constitution and university system policies don’t allow public entities to support a private organization like the foundation.
Foundation projects supported by the transfers and guarantees were an alumni welcome and conference center, two biodigesters, a sports complex, and hotel renovations in downtown Oshkosh. Some of the money has been repaid, but roughly $4.5 million is still outstanding, according to the Wisconsin State Journal.
Wells (at left) served as UW Oshkosh chancellor from 2000 to 2014, at which point he retired. He supervised Sonnleitner, who was at the university from 2000 to 2016. Sonnleitner stepped down as chief budget officer and vice chancellor in March, then retired at the end of May after being placed on administrative leave.
The university system is seeking reimbursement for investigation costs, plus damages. The suit comes after UW Oshkosh Foundation President Art Rathjen in April informed UW Oshkosh’s current chancellor, Andrew Leavitt, that the foundation might need assistance with debt payments on the alumni welcome center. That prompted a series of investigations.
Leavitt fired Rathjen Tuesday. He also placed an unnamed foundation accountant on administrative leave.
In a statement Wednesday, Leavitt said Wells and Sonnleitner “broke a sacred trust” and described their actions as “isolated behavior.” The University of Wisconsin System said it and its Oshkosh campus cannot be held responsible for the foundation’s expenses or debt service, because the campus could not legally guarantee foundation bank loans.
In this year’s presidential election, Trump University brought for-profit colleges into focus, but it should hardly be considered representative of the promise that lies within postsecondary education. To the contrary, for-profit institutions can, in fact, play a valuable role in furthering knowledge and career prospects for a large group of nontraditional students, including military veterans, working adults, single parents and unemployed workers.
The ability of such institutions to effectively deliver on that promise may experience a boost in the coming year under the incoming presidential administration. The stock prices of companies running for-profit colleges rose significantly after the election of Donald Trump. The president-elect is expected to roll back regulations that have negatively impacted hundreds of struggling for-profit schools over the past four years, many of which have been wrestling with falling enrollments and unprofitable operations.
But even though for-profit colleges may be poised to benefit from deregulation under the Trump administration, the potential reduction of regulations governing the sector should not be viewed as a signal that for-profit school operators should pursue taking a passive, business-as-usual approach to managing their operations.
If the goal is to generate better student outcomes and long-term success, as well as attract new financial investment, leaders of struggling postsecondary colleges must be willing to embrace change and move forward with a sensible rethinking of their business models and a restructuring of both their institutional assets and curricula.
Changing demographics are a key challenge for for-profit colleges. The number of eligible enrollments peaked in 2010, and the pool of 18-year-old high school graduates that would typically pursue postsecondary education isn’t expected to rebound until 2021. Enrollments at for-profit colleges have already declined markedly since 2010 as a result of student concerns about job placement and the return on investment of a college degree. In addition, economic challenges mean that students and parents have less discretionary income and ability to pay.
For example, Congress shortened Pell Grant terms from eight years to six years, reduced overall funding for direct-loan programs like Parent Plus, and renewed support for Perkins Loans for just two years. Competition has also heightened. Online offerings from nonprofit colleges have been luring students away from campus-based for-profits. What’s more, for-profit educators have also had to contend with the exit of traditional lenders from the sector. Nontraditional lenders, such as private debt providers, are starting to emerge to fill the gap in financing, but it comes at a price: a higher cost of capital.
However, what has really been putting a choke hold on revenue and cash-flow generation for many for-profit schools -- which typically derive upward of 86 percent of their funding from federal dollars -- has been stiffer government regulation, such as the Obama administration’s gainful-employment regulation that took effect in July 2015. That rule stipulated that for-profit colleges must ensure a student’s annual debt payment does not exceed 20 percent of his or her discretionary earnings or 8 percent of his or her total earnings. Programs that do not meet the gainful-employment thresholds will need to either be discontinued or shortened, which reduces revenue. The stakes got higher in March, when the U.S. Court of Appeals rejected a challenge to the rule brought by the Association of Private Sector Colleges and Universities (which is now called Career Education Colleges and Universities). Industry operators are hopeful that relief comes from the new Trump administration, but no specific changes have been discussed or announced.
In addition, some for-profit institutions shut down due to the U.S. Department of Education declaring them ineligible for Title IV programs, terminating their students’ ability to receive financial aid. In February, for example, the department announced that it denied eligibility to 23 campuses of Marinello Schools of Beauty, leading to the subsequent closing of all 56 of the California-based institution’s schools in five states.
Given all that, it shouldn’t be surprising that the prognosis hasn’t been good for for-profit colleges. Data from the U.S. Department of Education, which analyzed the financial health of 160 private colleges, indicated that 66 for-profit institutions failed the government agency’s financial responsibility test. (The test combines three ratios from an education institution’s audited financial statements: a primary reserve ratio, an equity ratio and a net income ratio.)
A Ray of Light
All that said, owners of for-profit enterprises may have reason for hope after the new presidential administration takes over in January. But perhaps an even greater cause for optimism is the recently approved $1.14 billion sale of Apollo Education Group, which owns the University of Phoenix, to a group of three private equity firms. As former Deputy Secretary of Education Tony Miller, an investor in the deal, said at the time, “We are excited by the opportunity to build on the transformational work being done by the company. For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance. This doesn’t need to be the case.”
The statement is telling, but more important, it should signal a call to action to owners of for-profit enterprises. When an institution representing one of the largest operators of for-profit institutions has been able to generate interest from a group of institutional investors at a time when regulation has undercut the industry, it illustrates how restructuring can attract new investment.
Indeed, the good news is that for-profit-college administrators can undertake a number of restructuring alternatives, without resorting to filing for bankruptcy, to improve their business operations, maintain accreditation, strengthen financial resources, improve use of campus resources and bolster enrollment. Traditional Chapter 11 reorganization isn’t a viable solution for postsecondary colleges that depend on Title IV funding. But owners and administrators at these institutions can be -- and must be -- willing to be accountable, as well as more open to restructuring, if the goal is not just to survive but also to thrive.
Making the Most of Fixed Assets
The way forward for challenged institutions may not be easy, but they can take a number of practical steps. For starters, for-profit operators can scrutinize and reduce capital expenditures as well as costs for duplicate or unnecessary staff involved in campus administration.
For example, one of the biggest challenges for troubled for-profit colleges is how to use campuses efficiently and manage costs connected to long-term property portfolios. Owners of for-profit institutions should close or put up for sale any facilities that aren’t being used and hire a qualified third-party selling agent to manage the process.
As part of that, leaders of for-profits should recognize the impact of liquidity on campus asset sales. If an institution has limited liquidity, it is not going to command top dollar for the sale of its assets. Therefore, it’s crucial for administrators to improve their college’s liquidity before initiating a formal sales process by improving the efficiency of their Title IV funding operations to receive timely disbursements from the Department of Education.
Long-term leases should also be renegotiated with landlords, with the focus being to secure rent concessions. At campus locations with short lease periods or that are facing imminent shutdown, administrators should not be reluctant to move courses to other facilities off-site. They should also consider holding the same courses online to reduce costs and retain students. Beyond leases, for-profit institutions would be wise to review and renegotiate all types of contracts with major vendors for food service, conference center operations, the bookstore and other services.
When assessing institutional resources, owners of for-profits should also evaluate management and teaching staff. If a number of administrators or instructors are determined to be underutilized, or campuses are expected to close, it’s important to be able to make the hard but necessary decisions to reduce the size of the staff. Most for-profit institutions do not typically cancel programs and reduce faculty members unless they lose eligibility for the program. Or, for example, they might hire more counselors and advisers, when instead they should be more effectively training the employees that they do have to perform better and to foster a culture that encourages students not only to enroll in the institution but also to persist and graduate.
Indeed, in some instances, for-profits should not have expanded but rather should have focused on increasing retention by emphasizing student placements and outcomes, the creating of a high-quality culture, and lowering tuition costs. Strayer University, for example, reduced its expenses significantly and cut its tuition costs by 20 percent by more closely managing its operations.
The fact is that the most effective way for-profit institutions can improve their profitability is to enhance retention among their students. Thus, instead of hiring more instructors and staff, a better use of resources might be investment in data and analytics that can provide thoughtful intelligence about when a student needs help so that the institution can effectively intervene and provide the support that student needs.
One of the other most important steps for-profit educators can take to improve student outcomes is to innovate their curricula, particularly programs that are relevant to students’ job placement after they graduate. Course offerings should reflect current trends in education delivery and include high-quality online courses that can strengthen retention and lower campus costs.
In addition, for-profit educators would do well to consider the role local businesses can play in developing new course material. That approach offers a win-win for businesses and pupils alike. Many students are interested in securing employment opportunities in their local community upon graduation, while companies are often eager to use low-cost interns to assist with business projects, as well as scout for future employees. In some instances, some interns are qualified to become full-time employees. Teaming up with corporate partners to develop curriculum also leads to diversification of revenue streams.
For-profit institutions can also augment their traditional sources of revenue by offering contracted education and training services to corporations. For instance, Strayer University has reportedly teamed up with Fiat Chrysler to provide education programs for its work force, including employees of the company’s auto dealerships. By engaging in such contracted services, for-profits can help train and educate new student groups and also use any additional revenues to invest in new programs and support services for their students.
One thing is certain: unless for-profit educators engage in more hands-on restructuring of their institutions, they won’t be able to serve the large number of nontraditional learners that turn to them to advance their careers. The demise of more for-profit colleges would not be a good outcome for millions of students -- or for America’s future job growth in years to come.
Joseph R. D’Angelo is a partner at the investment banking and advisory firm Carl Marks Advisors. He has extensive experience in the education sector, particularly in working with underperforming businesses and advising on restructuring matters.
The outlook for nonprofit U.S. higher education continues to be stable heading into 2017, but issues lurk that could drag on the sector in the future, Moody’s Investors Service said Tuesday.
Expected revenue growth, strong demand and steady enrollment levels support the stable outlook for next year, an outlook that carries over from 2016, according to a new report from the ratings agency. Potential issues for the sector include rising costs and uncertainty about federal policy.
The outlook indicates Moody’s expected business conditions for the higher education sector in the next year to 18 months. Operating cash flow margins are projected in the 10 percent to 12 percent range for most public universities. Margins are projected between 12 percent and 14 percent for private universities.
Moody’s expects aggregate revenue growth for public and private universities to hold above 3 percent and credited higher education for its diverse funding streams. Tuition revenue is expected to increase modestly amid a focus on affordability, state appropriations are projected to rise incrementally, academic medical centers are expected to perform well and research funding appears stable.
Aggregate state funding is expected to grow 3 percent to 4 percent for the current fiscal year before slowing to between 1.5 percent and 2.5 percent growth in fiscal year 2018. But funding levels will vary substantially from state to state. States heavily reliant on the energy sector, like Louisiana and West Virginia, face high pressures on the amount they allocate to higher education. So do states with high pension liabilities, like Illinois, and those where policy decisions have eroded revenue growth, like Kansas.
Total enrollment growth is predicted to be modest, averaging 1.5 percent for the 2017 and 2018 fiscal years. A slow improvement in retention rates will help stabilize enrollment, Moody’s predicted, noting that retention rates rose by two percentage points for classes entering between 2009 and 2014 as institutions invested in retention efforts like more intensive counseling.
The higher education sector is highly exposed to investment markets’ performance. Moody’s noted two consecutive years of poor investment performance, ranking a potential third year of weak market performance as among the sector’s greatest downside risks. Another major downside risk was the potential for changes to federal policy or funding levels in either the higher education or health care space.
Those risks join pressures like rising pension liabilities and labor costs. Borrowing costs are also likely to be moderately higher going forward.
Colleges and universities with strong brands or value propositions to offer students will fare best, Moody’s said. Smaller institutions and regional institutions are expected to encounter more difficulty.