Where Profit Is a Bad Word

When Mark Pelesh speaks to legislators on behalf of his for-profit education company, Corinthian Colleges, Inc., he is often surprised at how strongly they resist the concept underlying it. Many are “skeptical if not completely hostile to the idea that for-profit and education belong in the same sentence,” he said.

Speaking at a workshop for state legislators in Atlanta on July 15, Pelesh sounded frustrated. He can’t understand how so many influential people can fail to see that companies like his are fulfilling the mission of access that traditional schools claim to be following, but do not.

Pelesh is an executive vice president of Corinthian, a publicly traded company that has 106 campuses and 85,000 students. It reaches out to a racially diverse population of working adults, many of whom have low incomes. The completion rate for its programs is 60 to 70 per cent, and the placement rate for its graduates, in the fields they have prepared for, is 80 percent. Community colleges, he said, have completion rates of about 25 per cent.

Yet Corinthian’s role in helping these students improve their lives is ignored or disparaged by skeptics who treat for-profit schools as though they are diploma mills. For some reason, said Pelesh, even conservative legislators (who, one might assume, would favor profit-making companies) “take on very different attitudes when the subject of higher education comes up.” His explanation: Most legislators, like himself, attended a four-year college right out of high school and they have an “emotional tie to that background.”

Pelesh was one of three speakers at a workshop at the annual meeting of ALEC (the American Legislative Exchange Council). ALEC is a membership organization composed of conservative state legislators and private-sector businesses and nonprofits. It offers a podium for the private sector to inform legislators about issues of interest. In this session on for-profit education, moderated by Vicki Murray of the Pacific Research Institute, the speakers were executives from two for-profit education companies, Corinthian and Higher Ed Holdings, and free-market economist Richard Vedder.

Their aim was to reduce the hostility to for-profits—and win some friends.

Pelesh gave an overview of Corinthian, which is one of the largest for-profit colleges in the country (it also has campuses in Canada). Publicly traded since 1999, Corinthian provides mostly short-term (one-to-two-year) degrees in health care, trades, transportation, criminal justice, and business. Four per cent of its programs are bachelor’s degree programs.

The company identifies careers that are in demand, develops diploma programs in those fields, and helps place its students in jobs. Its schools (Everest Institute and Everest College are the best-known brand names) are accredited.

However, unlike traditional universities and colleges, their accreditation comes from national organizations such as the Accrediting Council for Independent Schools and Colleges (ACISC). Historically, ACISC accredited “commercial” or “career” schools rather than traditional four-year colleges and thus it doesn’t have the tony reputation held by regional accreditors such as the Southern Association of Colleges and Universities. Yet Pelesh pointed out that national accreditors like ACISC set minimum quantitative standards, which the regional accreditors do not, and they have advisory committees composed of employers, who are in a position to judge student outcomes.

Richard Vedder did not mince words during his speech. He lambasted traditional academia for stagnating while the for-profit sector flourishes. He accused nonprofit and state universities of being “highly inefficient” and “quasi-monopolists” and their leadership “affluent, arrogant, and elitist.”

In contrast, he said, for-profits are “robust, efficient, and growing rapidly.” In the mid-1990s, these schools represented about one per cent of the total higher education market. They have between seven and ten percent of the market now and he predicted that they will pass ten percent in 2010. Already, they are responsible for 20 per cent of all enrollment increases, he said. Their success stems from their “enormous incentives to provide services at the lowest possible cost for any given level of quality.”

Vedder is an economics professor at Ohio University and author of a book criticizing higher education’s excesses, Going Broke by Degree. He was the enfant terrible of the Spellings Commission, a governmental reform group, because of his outspoken market-oriented views, but he won respect through his arguments and sense of humor.

The third panelist, Randy Best, is a long-time entrepreneur who now heads Higher Ed Holdings (HEH). Although it is a profit-making company, HEH works primarily with traditional universities, including Lamar University and Arkansas State. Using online technology, the company provides low-cost delivery of university courses and expands the schools’ reach to “high-need, under-served markets.” (Both Lamar and Arkansas State have online programs in teacher education). In Best’s view, he is providing access to schools that would have turned down many of these students because they don’t have enough space—or else would never have received an application from them.

As Best sees it, many state universities have abandoned their mission of outreach in favor of becoming as exclusive as possible; they view their self-erected barriers to education as “virtues.” In addition, they have moved toward research (at the expense of teaching) and become “consumed with internal considerations.”

As evidence of the public universities’ “aloofness and lack of market responsiveness,” he noted that some schools are still trying to decide whether or not to provide distance learning. But this will not be an option for very long. He contends that in three to five years, nearly all universities will be “in every market,” competing with one another. Global demand for education is “almost unimaginable,” he said, and his company is there to help those universities meet the demand with low-cost education.

Even today, the public tends to think of higher education as traditional four-year schools filled with 18-to-22-year-old students right out of high school. It is easy to forget that the strongest growth is coming from for-profits, which appeal to working adults. But in Atlanta this month, a group of legislators got a glimpse of that sector and its seemingly unstoppable future.