Customer protection: Regulating private, for-profit higher education

Although private non-profit colleges and universities have a long and distinguished history throughout the world, what has come to be known as ‘for-profit higher education’ is a relative newcomer.

Private non-profit institutions, such as Stanford University in the US or Universidad Santa Maria la Antigua in Panama, are examples of established universities with significant reputations. Their focus and intent have been relatively clear. They are largely mission focused, or cater to a specific, traditionally aged university clientele such as members of a particular religion.

But the private for-profit prototype has existed for quite some time.

Small, technical training institutions came into existence in the 19th century, as a way to give individuals a vocation. Barbers, plumbers, secretaries and a host of other trades are engaged in the sorts of professions taught at relatively small post-secondary institutions.

The owners of these institutions generally did not think of themselves as competitors of either public or private tertiary institutions. Instead, these schools taught a trade to working-class students and turned a modest profit.

Over time, the institutions became a bit more formalised. Trades became professions, and in order to be licensed by the state the student may have needed to pass an exam or amass a specific number of credits.

The state may have required that all of the students who were to be licensed also needed a high school degree or its equivalent. The result was that the small for-profit institution may have added courses that enabled students to gain high school equivalency.

Nevertheless, until the 1970s, for-profit colleges and universities were a minuscule part of the tertiary education universe. In 1967, for example, roughly seven million students attended degree-granting institutions in the United States; fewer than 22,000 of these students, or less than a third of 1%, attended for-profit institutions.

Reasons for the growth of for-profits

By 2012, however, for-profit institutions in the US had become 12% of the market. The same sort of growth has happened elsewhere in the world. Malaysia, for example, has seen dramatic growth in the for-profit sector, as have other countries such as Turkey and Singapore.

Three factors account for this growth.

First, educational entrepreneurs have seen an opening. John Sperling founded the University of Phoenix in 1976; Phoenix is now America’s second largest post-secondary institution, with more than 400,000 students.

Phoenix and other institutions began to experiment with the meaning and purpose of higher education in a number of ways.

Part-time working adults have been viewed as a potentially huge customer base. These students do not need a campus and the related accoutrements – student centres, fancy eateries and so on. Rather than a potpourri of courses whose utility for future work is not apparent, students select courses from a finite number that are offered at convenient times and locations.

The focus is on efficiency. Faculty work is also very different. Tenure, shared governance and academic freedom are largely absent.

Whereas in traditional institutions the professor develops the syllabus – so that the same course might have different foci, objectives and goals depending on the instructor – at for-profits, syllabi are standardised. Pedagogy from class to class is more similar than different.

Entrepreneurs have seen an opening in a ‘market’ and they have taken it; and in doing so, they have redefined who the customer is and what the customer wants.

A second reason for the growth is related to advances in technology. Online learning is not yet optimal or pervasive, but we frequently forget how fast technology has been adopted across the world. The web, the internet, YouTube and Facebook were unknown quantities a little over a generation ago.

Continued advances in technology have enabled courses to be reconfigured, in ways that were unthinkable when the University of Phoenix started. For-profit institutions have been early adopters of new technologies, and in so doing they have created new markets for themselves.

Finally, tertiary education is a growth industry. As importantly, the public sector cannot accommodate the vast post-secondary needs of the citizenry.

Across the world the assumption is that more education is the way to economic growth. Public universities, traditionally configured, are unable to meet the capacity demands and the needs of traditionally aged students and working adults, without significant additions to their revenue streams.


However, the explosion of growth in the for-profit sector has created related challenges.

In particular, for-profits have been charged with unethical admissions practices, burdening students with an unacceptable level of debt, and not preparing students with the skills necessary for their wanted jobs.

Because many students are the first in their family to attend a tertiary institution, they may not understand the costs of attending a for-profit institution or the consequences of the loans obtained to pay for their training. Admissions counsellors also may coerce potential customers with false advertising or promises of jobs that do not exist.

These issues are confusing because frequently students who attend for-profit institutions are also students who are most at risk of not completing their coursework. A country will want more students entering the post-secondary system, and those students are likely to come from populations with historically low participation and completion rates.

Yet, those same students may not complete their studies at a level equivalent to traditional college-going populations, which means they will encumber loans on which they may default. Thus, how to determine acceptable levels of attrition, debt burden and salaries upon completion are issues that are highly charged among critics and supporters of for-profits.

The role of the government is to ensure that the citizenry is protected from fraudulent services. Just as the government watches over the health and food safety of its citizens, it must also put in place regulations to ensure that private companies perform in a manner that protects the customer.

The simple suggestion is that ‘buyer beware’ is an unacceptable public policy with regard to education. Education is a public good that not only benefits the individual but also the nation.

Thus, a view to the future suggests that states will develop strategies to ensure that for-profit colleges and universities deliver high quality services, which not only benefit the customer but also aid the state in its quest for increased educational attainment for its citizenry.

* William G Tierney is professor and director of the Center for Higher Education Policy Analysis, Rossier School of Education at the University of Southern California, Los Angeles. This is an edited version of his article, “The Role of Regulating Private For-profit Higher Education”, in International Higher Education Number 69, Fall 2012.