Big Changes for For-Profits

This is Future youe with Jeff Salingo and Michael Horn.

Hello, everyone. I'm Michael Horne, the Chief strategy Officer at the Entangled Group in Education Technology Studio. And I'm also the co founder and distinguished fellow at the Clayton Christensen Institute for Disruptive Innovation, author of several books on the future of education, and excited for this episode of Future youe.

And I'm Jeff Salingo, author of several books on higher education and a contributor at the Washington Post in the Atlantic. And I'm also a special advisor at Arizona State University, where I lead the Academy for Innovative Higher Education Leadership. And that's where we're recording from today at ASU's new Washington D.C. center. And thanks to ASU and also entangled, where I'm a senior strategist for supporting this podcast. So I'm really excited for this episode, Michael of Future U. Because we're going to be joined by one of my first editors in higher education, Doug Lederman, who is an editor and one of the founders of Inside Higher Ed. I worked with Doug at the Chronicle a very long time ago now, 20 plus years ago, and Doug was my first editor there. Edited the government and politics coverage of the Chronicle, basically covering the federal government and state governments. And really excited to have him on today. He's going to be talking about a lot of federal issues, mostly around accreditation, quality assurance, and a lot of the changes we're starting to see in the marketplace around online program managers and also the changes from for profit to nonprofit. So a lot of things to cover, things to come.

We're putting a lot on him.

Yeah, we are putting a lot on him. But one of the great things about Doug is that he has, he essentially covered almost every issue in higher education imaginable and including, since we're in the middle of March Madness here, college basketball. So I'm hoping that we're gonna have enough time with him to maybe even get his picks. Ah, there we go for the national championship chip this year. So anyway, so really excited to have him on.

Yeah, no, I think it's going to be a really fun issue and it's interesting if we. I'm excited just to get his take on what For Profits are doing. Quite frankly, Jeff, we see for profit universities that have been in the news a lot starting In, I guess, 2011, thereabouts, coming under the gainful employment clause with the Obama administration really cracking down on them. They had grown at that point to about 10% of all higher ed enrollments. They're down now to about 5%. So they've been halved since that, that move have been taken off. You have the Trump administration come in and you see a relaxing or at least an open to rethinking the gainful employment borrower, borrower to defense repayment regulations and so forth. And a lot of people say, oh my goodness, for profit is going to explode again.

And we've actually seen the opposite.

Yeah, we're not seeing that at all. Right. We're seeing Kaplan University sell to Purdue. We're seeing Grand Canyon, Grand Canyon convert to nonprofit. We're seeing Ashford owned by bridgepoint convert to nonprofit. So. And I think we're going to see a lot more of this activity.

So why do you think we're seeing that when we do have an administration that seems much more sympathetic to the for profit, to the for profit industry? Why you think we would be going in the opposite direction where you would actually see new, new for profits popping up, or at least the for profits we already have really focusing much more in their, in their, in their marketplaces. Yeah.

Stepping on the gas.

Right.

So I think my take is that they say, look, we have a window right now, but it's a window. There's going to be a Democratic administration again in power and they're going to put stuff back in. And, you know, yes, we could potentially reauthorize Higher Education act to stop the distinction between for profits and nonprofits, but they'll still probably find a way to crack back down. Why take that risk when we can move them to nonprofit institutions? Much better focus on our students, because we don't have to deal with all these regulatory headaches that are coming from Washington and eliminate the distinction with a category of, you know, what's really happening in these for profits is they're converting to online program managers. And so they're still in the business.

So I guess that's a question for you, Michael. Is this necessarily a better pathway for them? So if they were struggling in some cases, as for profits, why going nonprofit status necessarily makes them, makes them better. And they're all not following the same playbook. Right. Kaplan following a different playbook. Then, for example, Grand Canyon. Can you talk a little bit about why is this better?

Yeah, for sure. So I think the distinction is that. So Kaplan will still be servicing what used to be Kaplan University, now owned by Purdue, that the name is Purdue Global. Right. And so they'll be servicing them in what's effectively an online program manager contract where they're going to basically get covered for all the expenses that they put out for the Purdue online program and then get a share of a profit in essence of what Purdue brings in over and above costs that will essentially work out to about 62% or so of revenue is roughly my read. And so from Kaplan's perspective, you're no longer dealing with any of the regulatory headaches of offering a for profit institution that is governed by gainful employment can start to have lots of regulations that constrain your ability to serve and work with students and so forth. A lot of the headaches over veteran affairs dollars in 9010 and all and what percentage of financial aid from government sources, a lot of those will go away and Kaplan can just focus on being the best online program manager they can be and helping to grow Purdue. Grand Canyon is actually interesting. It's the same thing right it just now Grand Canyon, the university will be a non profit and there will be a for profit company. I'm not sure what they're doing from a naming convention perspective, but that will be service servicing this nonprofit institution in the same dynamic where they're basically, I think it's almost identical contract to the Kaplan Purdue one where they basically will be covered for cost and getting some percentage of the upside.

So help explain to me because I have a friend who's a Purdue alum who asked me every time I see him, he asked me about this Kaplan deal, why what is in it wasn't what is in it for Purdue.

So I think Mitch Daniels, who's the president, the president of Purdue, who we

have to have on this, we have to have on some podcast.

Yes, he was the governor of Indiana before we should say that. And he's has some Washington service in

his blood as well.

OMB Mitch comes in there and he looks at Arizona State and he looks at some of these other institutions in state universities and he says holy cow, they're really good at serving large swaths of their state population as a public institution. We should be doing more as well. Why aren't we doing much in online? And he said well we can build the capability ourselves, but how long is that going to take? We're starting from way behind the eight ball, so to speak. Or holy cow, chaplain wants to sell to me. I can just acquire those assets, get online really quickly. And by the way, we've talked in the past Jeff, about staffing up innovation offices and bringing a culture of innovation in the university. All of a sudden now I can start to infuse innovation in all of my programs. So I want to grow engineering from a thousand students online to, you know, 10 times that I can do that. Right. And so bring in an innovative dean from Princeton who's taught one of the most popular classes on Coursera to try to grow that. And so I think from Purdue's perspective as a public land grant institution, they say we want to be serving a wider swath of the university, excuse me, of the population. Online is an important way to do that. This is our key to doing that and fulfill our broader mission more broadly defined.

But they are one of the more elite or selective institutions kind of going in this direction. We've seen other selective institutions go in small ways, usually with graduate degrees through online program providers like 2U and others. But we haven't seen them a Purdue like institution go in a way like this before. Is this now are we going to see more of that among kind of these selective name brand institutions?

I think it makes it more mainstream. My gut tells me. I mean we're obviously forecasting here, but my gut tells me that you'll see a few others do this. But I don't think it'll be every single flagship institution jumps in, jumps into the online game at scale the way Purdue has. I think you'll see a handful of presidents that say we want to be as big or have as big an impact as a Michael Crowe or Mitch Daniels and some of that activity. But I don't think it'll be every single state and every single place and I'm not sure it makes sense at every single state either given demographics or other institutions in the state and so forth. Purdue had another interesting dynamic which was that Western Governors University, online competency based university that serves roughly 100,000 students, is operating in Indiana's WGU Indiana.

And wasn't it Mitch Daniels as governor who brought them in?

Yeah, right. So to better train the vocational. So I think he sees a certain picture of I want a much more textured set of universities and programs serving my adult population. Something we've talked about with Goldie Blumenstick on earlier episode of Future you and so says we want to create a more textured ecosystem that is competing with each other to do this.

So Michael, so we have all these new players kind of entering this space in higher education and it always comes back to one word that I hear often from both people inside higher ed and outside higher ed, and that is quality. Right. Who is in charge of maintaining quality of all these programs? We know we have this accreditation system in higher education, this regional accreditation system and the regional creditors, I should mention, approved these deals that we mentioned earlier some people thought maybe they would have asked more questions and they didn't. And this is what people are really kind of upset about is that the accreditors, they think, are a little bit asleep at the switch here when it comes to quality assurance. As we look ahead now to quality assurance in higher ed, are these regional creditors going to continue to be kind of the chief arbiters of quality, or do you think we're going to start to see some changes in this area?

I'm not sure. It's hard to strip them out of the system. But I do think you're seeing a moment where everyone in Washington agrees on nothing except that they don't like accreditors. And so I don't know what that means because I'm not sure they agree on what the solution is going forward. But obviously, you know, entangled has been one of the groups standing up in Education Quality Assurance Standards Board to create common ways to represent student outcomes that allow missed institutions to claim outcomes particular to their mission. So we're not forcing a liberal arts college to claim a vocational auditing.

These in different ways.

Exactly. Creating a third party auditor system, basically saying, hey, accreditors are really good at helping you improve self improvement, bring committees to bear to help do that. But they were never built with an idea around student outcomes in mind. And so to ask them to be this gatekeeper function as we have for over 50 years is a tough road to hoe. And so I think a lot of people are looking at what are other options? Could we have accreditors compete against each other? Senator Lamar Alexander has proposed that should we have a modern states, a new accreditor come in that approves organizations, could you even have a third way where an institution that says I want to be innovative can come into the system in exchange for significant risk sharing with the federal government for future tuition? You're going to hear a bevy of proposals. I'm not sure there's a clear way forward. But you know what, Jeff? That's why I'm excited. We have a reporter coming in here, Doug, who can actually tell us what's realistic in the years ahead.

Yeah, and we'll be asking him about accreditation. You know, there's always this line that Ben Nelson, founder Minerva, always says. Right. He says it's really hard to get accreditation, but once you have it, it's really difficult to lose it. So looking forward to having Doug come up with us right after the break.

Welcome back to future. I'm Michael Horn and joined of course, with Jeff zalingo, We're both colleagues at Entangled Solutions, which is helping sponsor this podcast and broadcasting you today from the studio at Arizona State University in Washington, D.C. and really excited about the guest coming up, Jeff, who is going to set us straight on the conversation that we just had around for profits, innovation, accreditation and so forth.

Yes, I'm really excited. I'm Jeff Salingo, really excited to have Doug Lederman with us today. As I mentioned earlier, he was my first editor when I came to D.C. to cover higher education and always say taught me everything I know about higher education. He's now at Inside Higher Ed, one of the founders at Inside Higher Ed. And we're really happy to have you here, Doug.

Great to be here. Great to be back with both of

you in a while.

Michael yes, indeed.

So, Doug, a question we ask almost everybody that comes on the podcast. So tell us how you got started in this thing we call higher education.

Yeah, I very much describe oh, I describe myself as an accidental a lot of things, an accidental entrepreneur because didn't really intend to found a new publication, but and very much sort of became an accidental higher ed reporter. I had worked at the New York Times for two years out of college covering worked at one year covering sports and one year at the city desk, and then got a job covering college athletics at the Chronicle, which is a publication I hadn't heard of six months before I applied there. I mean, I guess I'd seen it around the student newspaper or whatever, but so I got a job covering college athletics. Sort of on the issues side was really interesting stuff, but never expected to become, quote, a higher ed reporter. Didn't set out to do that. And so I think I try and tell my kids now, ask everybody you talk to how they got where they are, because almost everybody's accidental something. And I think that's important to keep in mind.

No, it's a very good point. And we're going to come back to the sports thing later. But but I'm just curious right now, just come off this big conversation about all these for profits trying to convert to nonprofit status. What's going on and where should this where is this going and what should we expect?

Well, it's funny because about four or five years ago, Paul Fain, who's a colleague of mine in Sahara, I wrote a chapter for a book out of Stanford about I think the book was something like the New Ecology of Higher Education. And we wrote the chapter on For Profits. And we predicted that sort of there would be this we talked about this cycle that happened where there was this enrollment growth overreach and terrible missteps, often cleansing through increased regulation and then shrinking of the sector. And we described that at each time that happened and if you look at history, there's a series of those. Each time that happened there would be. The sector would move closer to the rest of higher education which at the same time was moving sort of in the other direction.

It's working both ways.

Yeah, exactly. And so, and then about during the Obama years, Paul and I. So this was probably in the early mid Obama years before the real crackdown on. And Paul and I thought, oh crap, we were wrong because the sector is going to disappear entirely. The for profit sector, I think, you know, the election I think maybe reset that a little bit again. So what I think is, I think it's actually our original thing isn't all that far off. There is, I think there is some movement, some elimination and shrinkage and I think there are clearly people getting out. It'll be hard to tell what happens politically. But I, I do believe that over 5, 10, 20, 30 years a lot of the differences disappear. The lines will disappear and there will be, I mean because God knows we're seeing not quote nonprofit higher education look a lot more like for profit in certain ways. We're seeing. And so I, I don't know that the delineations will ever completely disappear, but we're obviously seeing a blurring of the lines now with some policy encouragement. So that's part of, to what's actually driving this. I mean listen, we've seen certainly know that the for profit sector, the investors have fled. There is a policy environment that is,

this policy environment is much more friendly.

Well, that's what I'm saying.

Right. So you would think that maybe they would kind of go back to the old days or possible.

But I think the, I mean listen, they've taken a huge hit. They took a huge hit enrollment wise. It took a huge hit sort of public perception wise. Some of them may recover and I think some will stay. I believe there will be some that stay. I don't know that we'll see a lot of new entities start up. But I think the, what we've really, what we've really seen the end of are the big for profit companies. Those, those all go non profit or

in these public, you know, Purdue Kaplan type arrangements.

Possibly. I think there may be a couple else. I mean I think there may be a couple that try to become public, that state public benefit corporations that stay technically for profit I don't know that they'll all go, but I don't think we've seen the last of the conversions. And I think. And there is absolutely. So. I mean, I think the Apollo people probably wish they hadn't gone so far down that road before the election, because I think they might well have. They sold low and so anyway. But I don't know what. And obviously I can't predict what happens politically.

Nobody can in this deck. So there's a lot of turmoil in the nonprofit world as well. We see a lot of talks of mergers and acquisitions. We've seen stuff up in the Boston area, both at Wheatlock and Boston University and Mount Ida and LaSalle. A couple of weeks ago you have a poll. Inside Higher Ed has a new poll out in conjunction with the ACE meeting of presidents that you do every year. And a stunning number of presidents said they could see their institution going out of business or merging in the next five years. As Michael knows, Clay Christensen makes this prediction every couple of years about all these colleges going out of business, and it never happens.

That was one of the arguments, one of the first arguments, discussions and arguments Michael and I had was about that question. It was probably five or six years ago.

So what's going to happen in this area? Out of business? Mergers.

So listen, I think, I think, I think higher education is a surprisingly hardy enterprise. And so, and it's almost impossible to kill off a public institution. It's damn difficult to kill off a private institution. Mergers are very much a last resort and I think a lot of institutions. So I think we will see. I mean, what I've predicted is, and I don't. Not a big, big predictor type, but I have seen, I, I think we will see an increase from the 5 to 7 that we've historically seen a year to. I mean, Moody's predicted a tripling, which I think makes sense to me. So I've predicted that a couple hundred institutions go out of business over 10, 15 years, which is 28, 15, 20 a year. And that's a lot. It's a lot. And I think they'll mostly be small privates. And again, that's through some combination of closures and mergers. And I think we are, I think, I think there are, I think we're the, the point at which many institutions get willing to make the kind of collab do the kind of collaboration and serious cooperation that's necessary. It's going to be too late for, for a lot of them.

So I see Inside Higher eds having an event on this up in a couple months. So is there a lot of. There seems be to, to be then a lot of interest at least in, in at least thinking about this, right?

Yes, well, yes. Although it's really interesting. I think it's not a topic that a lot of people want to talk about publicly. So we actually have, you know, we're sort of, we're broadening the thing to talk more about sort of. We added this phrase that there's a really interesting thing called TCS education. I don't know if you know it, but it's out of. It's the former Chicago School of Professional Psychology and they've created this sort of nonprofit system where they bought up Pacific Oaks and some other struggling places and they're. And they. The founder of that place, Michael Horowitz, uses this phrase, radical cooperation, which is sort of serious back end alignment and whatever. So we've added that to the title because I don't think a lot of presidents want to get on a plane to go to a conference about mergers because there are some buyers. Well, there are some buyers, but probably more sellers.

So I was going to say the trustees might have some questions.

Well, right. So anyway, so it's a. So anyway. But I think there's a lot of conversation about it. I think it's a, it's a visual, it is a high profile thing. But I don't think we're going to see tons. I think we'll see some and that'll be. I think the real value is going to be in again, serious collaboration short of it. But even that is proving difficult in higher education.

Yeah, for sure. What's behind the poll numbers though there where you see that percentage, those serious risk in your chief financial officer polls.

I mean you see a of lot. So it was interesting because that's 13% of presidents said that they would. Could see their, their institution closing, emerging. And I was, I agree with you. I thought that was high. And it's interesting because it doesn't really jibe so much with some of the other. In general, the financial analysis of the presidents of their own institutions was not. It was pretty stable. Yeah. So that's remarkable.

Yeah.

So. So this was. So I don't know. It's a. I would be. Well, although actually I suppose if you talk about, if we talk about 5 to 7% over a long time you can get to, you know, so double that. I don't know. Anyways, I agree with you. It was a little high. I think there's some fear and I get it, it's a, it's a difficult time and I think institutions are, I think there's a slightly more clear eyed analysis than I think you and I have seen over the many years.

Yeah, I mean it feels, it feels like a different climate than it has been shifting gears a little bit to the accreditors of all these new institutions or these mergers for profit conversions, everything. It seems like the one thing Washington agrees on, maybe for Republicans and Democrats is that they both don't love the current accreditation system, but no one has a fix that they do agree on. Is that an accurate.

I think that's absolutely right.

Where's that all going?

I think that's absolutely right. I think, you know, I've done some stories over the years that basically say there is, there is not. Replacing what the current accreditation system does would be a massive undertaking. Now if you jettisoned a whole bunch of stuff that they do, you might be able to get to it.

Wait, meaning that you could peel out, say you're not in charge of looking at the financial health of an institution anymore. Is that what you mean?

Potentially. I mean, that's the thing. But they, they are. But, but then you'd have to, you know, are we going to, is this certainly this, is this an administration or is any maybe Republican administration administration that's going to hire 500 analysts to go, you know, do the work that some of the accreditors do with volunteers? I mean it's, that's the part of the. There is absolutely, you're absolutely right that there's dissatisfaction and near as I can tell, not really any brilliant ideas for how to do it differently.

But do you think that the accreditors. You know, I'm on a board, a private college board that just went through a middle state evaluation under some of their new measures, it seems. Do you feel like the regional creditors are kind of getting that message and have done kind of the necessary reforms, starting to finally.

I mean, listen, this is certainly consistent with the stuff Michael and I have talked about before. Higher ed changes a lot slower than anybody really, most people think it should. Now I happen to be somebody who thinks that the slow change isn't in and of itself a catastrophe. I think there are a lot of things that some of the fast change that some people have suggested, not sure would be in the best interest. So is it too, too slow, including the accreditors to change? Yeah, but I mean, we just saw somebody from the Obama administration go head the western accreditor. And, and we now have the, you know, Somebody who the colleges really didn't like when he was at the now heading the main association of Higher education ace Ted Mitchell. So I'm, I mean there are people in these roles who I think buy into the idea that things need to change. And that's, you know Lamar Alexander was charging five minutes, you know, 10 years ago saying warning. So I think they're getting it through their heads.

So let's talk about slow change and that's college athletics you mentioned, you mentioned that's how you kind of got your start in higher ed, covering athletic issues, covering unlv. Right.

SMU football scandal. Yeah.

So those are the good old days

compared to, compared to now.

Well and that's the thing. I mean college athletics has been under fire for a long time. As you know, it seems to be getting worse rather than better.

I think. Listen and I think, I mean the interesting thing. So the last story I did that was relevant to this was sort of this is not an enterprise that's going to change from within. I just don't believe it. And you know Mark Emmert, the head of the NCA can have another commission. They're not going to, it's going to take asteroids from outside in the form of you know it was the late whether it's not going to be the labor union stuff. It's. But it's going to be concussion stuff I think has a serious, poses a serious threat. I think that the ultimate. Well I have a theory about that would involve the revoking of the tax exemption which they Congress made a little step toward with the revoking of the seat license money this year. I think the, it's going to be harder and harder to justify the big time financial nature of big time sports and having it be tax exempt. That's to me that where the.

But you don't think that that that financial incentive stuff will ever come from the inside. In other words, it won't be the trustees, it won't be anybody else.

No.

It won't even be state lawmakers who say enough is enough because we're mostly talking about big public universities.

Right, Right. It's possible there's been a little bit of legislative interest over the years but the legislators like their tickets.

They like their tickets. Right. So I mean when you say outside does that mean like the NBA says our developmental league is going to take over the college basketball program instead of alongside as a for profit?

I mean there's a bunch of different possible things that could knock foundations of the edifice of big time amateur sports out. And some of those can be, could be congressional, some of those could be legal. The lawsuits on likeness and, you know, there's a bunch of different things that could knock little bricks out and make the whole thing collapse. But I still wouldn't bet on it.

I was going to say, so you won't bet on it. We won't make you in the midst of March, Mattis make us a prediction about where that all goes because that's probably more uncertain than the national championship. But, but Doug, thank you for joining us on this and for all our listeners. Thanks for joining us. On Future you, I'm Michael Horn and you can follow me on Twitter at michaelbhorn or@michaelbhorn.com on the web.

And I'm Jeff Salingo and can you can follow me on Twitter @jsalingo or on the web@jeffsalingo.com and you can download, subscribe and rate Future youy on itunes and Google Play or follow us on Facebook @FutureYou podcast. Great to have Doug Letterman joining us here in Washington, D.C. and until next time, enjoy.