Blog Post | September 12, 2023

Beware the Trojan Phoenix: Three Approaches to Regulating Corporatization of Non-Profit Higher Education

Author: Dr. Frank Fernandez, University of Florida, and Dr. Neal H. Hutchens, University of Kentucky

In May 2023, the University of Idaho announced it would buy the for-profit University of Phoenix, which would allow the for-profit to be operated by the same administrators but with non-profit status. Announcement of the deal came just days after the Board of the University of Arkansas disapproved of a similar proposed arrangement  

University of Idaho leaders finalized this deal even after the University of Phoenix was accused of deceptive advertising and negotiated a settlement that required it to pay $50 million to the Federal Trade Commission and forgive $140 million in outstanding fees owed by former students. Under a completed deal, a for-profit corporation that had been forced to settle with the FTC would now operate under the umbrella of a state flagship university.   

The University of Phoenix’s potential conversion to a non-profit follows a pattern we have seen play out across multiple states. In the Southwest, the University of Arizona bought the for-profit Ashford University. In the Midwest, Purdue University bought the for-profit Kaplan University. In each case, the for-profit schools were rebranded as online “global” university campuses.   

In a variation on the outright acquisition of a for-profit institution, we also have seen problems when public or private, non-profit universities contract out academic programs to for-profit providers. For instance, the University of Southern California is facing a lawsuit by former students alleging they were subjected to an educational bait and switch. They claim to have paid $85,000 for a Master’s of social work online degree program that the university largely outsourced to a for-profit online educational company that was substantially inferior to the university’s on-campus program.  

In our previous work, we surveyed state regulations and judicial cases related to regulating for-profit corporations. We found several examples where the courts have sided with state policymakers to uphold regulations that regulate predatory practices in higher education. Students deserve to be protected from predatory practices, no matter where they attend college. Predatory practices disproportionately harm students from low-income and racially marginalized backgrounds. They involve recruiting students into programs that provide subpar education at a high cost, which saddles students with debt and limited employment opportunities. Federal regulations can – and should – help rein in such practices by increasing both accountability and transparency across sectors of higher education.   

Based on our review, we have identified specific actions policymakers can and should take to strengthen consumer protections for students. First, policymakers can prevent public and non-profit colleges and universities from adopting the types of predatory business practices used by unsavory for-profit providers by focusing on the accreditation process.    

State regulations historically have allowed public and non-profit universities to operate with minimal oversight if accredited by one of seven regional accreditors. However, the Trump administration eliminated the regulatory distinction between regional and national accreditors, which traditionally served for-profit and vocational institutions. That action heightened the risk of a race to the bottom, where accreditors may be tempted to weaken review standards in competition for institutional members. We need new universal accreditation standards that protect students from bad business practices and low-quality programs.  

Policymakers should also revisit the National Council for State Authorization Reciprocity Agreements (NC-SARA). NC-SARA enables institutions to offer online programs across state lines without seeking authorization from each individual state. Previously, a bipartisan group of attorneys general from half the states wrote a letter to the U.S. Department of Education warning that existing reciprocity agreements inadequately protect students or potential students.   

At the federal level, the Department of Education intends to use a negotiated rulemaking process to create a uniform definition of distance education. Federal regulators are also seeking to that a distance education program crossing state boundaries “complies with all State consumer protection laws related to closure, recruitment, and misrepresentations, including both generally applicable State laws and those specific to educational institutions.” However, NC-SARA has expressed concerns about the Department of Education’s ongoing negotiated rulemaking processes.   

Now is the time for state and federal policymakers should work together to raise minimum standards for reciprocity when it comes to consumer protections for students and even consider excluding states from the compact if they do not provide adequate consumer protections for students in online programs.   

Finally, as the Biden administration moves forward with a proposed gainful employment rule, policymakers should consider expanding protections and transparency requirements so they apply to degree-granting programs that non-profit and public colleges and universities outsource to for-profit companies. In its current form, the drafted gainful employment rule would not apply in the case of University of Southern California hiring a for-profit company to run its online Master’s of social work program. Even if gainful employment protections are not used to hold non-profit and public colleges accountable for outsourced programs, students and potential students should be informed when delivery of academic programs is being contracted to for-profit providers.   

Whether through formal acquisitions or service contracts, public and non-profit colleges and universities are adopting for-profit business models. To prevent the spread of bad practices that harm students, state and federal policymakers need to coordinate together to develop a holistic consumer protection framework for higher education, one that helps hold public and non-profit institutions to their distinct missions that put the public good above profit.  

 

Frank Fernandez is Associate Professor of Higher Education Administration & Policy and affiliate faculty with the Center for Latin American Studies at University of Florida. He writes about educational equity and policy issues.   

Neal H. Hutchens is a Professor in the Department of Educational Policy Studies and Evaluation at the University of Kentucky. His research focuses on the intersections of law, policy and practice in higher education.