Profit and the Public Good

A common lament about higher education is that it has become more of a private good than a public one, with students as consumers and colleges as businesses focused on hawking their product. But that model won’t cut it anymore, at least not for the nation’s largest regional accreditor, which in January redefined what an institution’s philosophical bottom line should be.

“We felt it was important to make a statement -- that education is a public good,” said Sylvia Manning, president of the Higher Learning Commission (HLC) of the North Central Association of Colleges and Schools.

As a result, the commission included language describing how colleges must first serve the public -- rather than themselves or outside interests -- as part of its updated criteria for accreditation. The document lays out standards of quality that colleges must meet to earn accreditation or have it reaffirmed, which is required every 10 years.

That language reads: “The institution’s educational responsibilities take primacy over other purposes, such as generating financial returns for investors, contributing to a related or parent organization or supporting external interests.”

The commission's reaffirmation process is also getting a test, as a commission review team last month recommended a sanction of probation for the University of Phoenix, the nation’s biggest university. According to a corporate filing from the Apollo Group, which is Phoenix’s holding company, what tripped up the university in its bid for reaccreditation was the site team’s belief that Phoenix lacks autonomy from Apollo. (Note: This paragraph has been updated to correct an earlier version, which stated that the new criteria were used in Phoenix's recent accreditation review. HLC officials say that is not the case.)

The university, which produces 90 percent of Apollo’s revenue, also failed to meet aspects of a supplemental “minimal standards” document, the team found. But all of the identified concerns relate to the university’s administrative structure and governance, Apollo said.

The university has become more autonomous since its last HLC review, which was in 2002, company officials said. For example, the university’s president, William Pepicello, created his own, independent cabinet about two years ago.

Mark Brenner, an Apollo spokesman, said in a written statement that the review team included a number of positive findings in its report, including that the university is well-resourced and innovative, and had strengths in student services and technology. "In fact, the University of Phoenix was found to be in compliance with substantially all criteria associated with academic matters."

Meeting the Standard

Phoenix isn’t the only institution paying close attention to how the commission applies its new criteria. Officials from other for-profits and some private colleges raised concerns about the standards as they were being developed, sources said.

However, the public good section appears to be aimed at the for-profit sector, or is at least particularly problematic for it. That’s because for-profits by definition seek returns for their investors. And for publicly traded chains like the University of Phoenix, holding companies issue shares of stock. Financial regulators require public companies to try to earn money for shareholders. And investors regularly sue for-profits for allegedly failing to preserve their money.

Upping the stakes for HLC is that it accredits the bulk of the major for-profit college chains. The commission oversees institutions managed by DeVry University, Career Education Corporation, Education Management Corporation, Bridgepoint Education and Kaplan, Inc., to name a few.

HLC extends over 19 states, more than any of the other five regional accreditors. It has long been a home base for big for-profits, because of geography and a belief that the commission had a relatively welcoming view of the sector. However, that perception changed years ago, partially due to the 2008 arrival of Manning, who signaled a get-tough approach with for-profits after she was hired.

The high-profile woes of Phoenix raise a question: Is corporate profit-seeking a disqualifier under the commission’s new standards? Accreditation by a federally recognized agency is a requirement for institutions to be eligible to participate in federal financial aid programs, which provide a high percentage of their revenue. So if HLC has a fundamental problem with the industry's business model, for-profits would be forced to seek accreditation elsewhere or risk going out of business.

However, that scenario appears unlikely. Manning said the section was not designed specifically to challenge for-profits, but rather to establish that every college must prioritize the education of students. For a for-profit holding company, or for a parent organizations of a nonprofit college -- like a church -- that means allowing the institution to focus on education rather than money or other concerns, she said.

Observers had varying takes on how aggressive the commission would be with its new standards. And officials at several for-profits said the "public good" language was vague enough that it could be either worrisome or a non-factor. However, most predicted that for-profits would be able to meet the criteria.

Kevin Kinser, an associate professor of education at the State University of New York at Albany who studies for-profits, said recent rhetoric from the industry matches up well with the public good language. The sector stresses how it contributes to work force development and enrolls underserved student populations, he said, in part by offering working adults an alternative to traditional, campus-based models.

Furthermore, over the last few years the major for-profits have been investing more in systems that measure their performance, Kinser said. Many are also spending more of their financial returns on scholarship programs and free orientation courses and trial enrollment periods.

“They have given up profit,” or at least some of it, he said via e-mail. “So it is more than just rhetoric.”

Phoenix is among that group. The company cited several recent actions by the university that demonstrate its commitment to the public good, such as tuition freezes and new scholarships. Chief among them is probably Phoenix’s relatively new orientation program. About 20 percent of students either choose not to enroll after the free trial period or are turned away by Phoenix – obviously a big, voluntary revenue hit for the university.

And at least one thing is clear: HLC didn’t go as far it could have if the goal was to take a whack at for-profits. Judith Eaton, president of the Council for Higher Education Accreditation, said that’s because regional accreditors “have the authority to exclude for-profits. They didn’t do that.”

In the Spotlight

Accreditors are taking a lot of heat these days. Both President Obama and Sen. Marco Rubio, a Florida Republican, earlier this year called for an accreditation system that is more encouraging of emerging innovations in higher education, like prior-learning assessment and competency-based education. An Education Department panel has been studying the system of accreditation in advance of the pending renewal of the Higher Education Act.

But politicians have also loudly criticized regional accreditors for not doing enough to crack down on “bad actors” among colleges. Senate Democrats like Tom Harkin of Iowa and Dick Durbin of Illinois in particular have pushed for accreditors to turn the screws on misbehaving for-profits. Harkin gave Manning an earful during a Senate hearing a couple years ago, and Durbin has paid close attention to Phoenix’s reaccreditation process.

For example, Durbin issued a news release last year urging HLC to be thorough in its review of Phoenix and to make the results public. And he mentioned the proposed sanction during a speech on the Capitol floor last week.

“The regional accreditor, the Higher Learning Commission, announced it had some real problems with the way the University of Phoenix is running its business and treating its students,” said Durbin, who represents the state where the commission is based. “More accreditors, both regional and national, should take a closer look at the schools they accredit and the standards used to accredit them.”

Officials from several regional accreditors talked about the increasing scrutiny they face during a session last week at the annual meeting of the American Council on Education (ACE).

Terry Hartle, the council’s senior vice president for government and public affairs, led the discussion. He said accreditors are tugged in two directions, with calls for more flexibility and innovation on the one hand and, on the other, for more rigor in watching for underperformance and misbehavior. And because regional accreditors can yank colleges' federal aid eligibility, they are under pressure to safeguard increasingly strained government coffers.

“This dramatically complicates the work that accreditors must do,” Hartle said.

A council task force recently published a report on suggested improvements for accreditors, including a call for more transparency, a focus on student success and strong “public action against substandard institutions.”

The U.S. Department of Education requires regional accreditors to review their criteria every five years. HLC began working on revisions to its language four years ago. Manning said the chief goal was clarity because of a widely held view that the previous version was “too vague, too general.”

The interest in more accountability in higher education was also a factor, as evidenced by the statement the commission decided to make with the public good language.

“It’s not a new concept,” Manning said, “But it’s certainly something that’s been articulated for the first time.”

'A Tricky Business'

The commission did not hash out that language in secret. The lengthy rewrite of its standards included multiple drafts that were rewritten after HLC received public comments and held open meetings with its members.

“It was my first attempt at crowdsourced editing, and hopefully my last,” Manning said.

The new criteria are part of HLC's broader revamp of its review process. As that effort began, the commission received a harsh reprimand from the Education Department. In 2009 it granted accreditation to American InterContinental University, a for-profit owned by Career Education that was troubled at the time. The department’s Office of Inspector General said the commission had not adequately described minimum requirements for accreditation, such as definitions of program length and adherence to the credit hour.

In response, the commission created a “stopgap” set of definitions, Manning said. After revisions, that list has become the new “assumed practices” document, which also went live in January.

One part of that list of expectations that is more explicit than it was in the previous version deals with governing boards. The commission requires the inclusion of "public” board members who “have no significant administrative position or any ownership interest” in the college, parent organization or partner institutions.

That requirement could be an issue for some for-profits, as well as private nonprofits, such as religiously affiliated or tribal colleges, according to observers.

Manning said the commission had planned to spell out a minimum number of public board members, but “backed off” that idea.

Besides the public good section, the commission’s new criteria document includes several other significant new requirements. In particular, Manning pointed to language on the ongoing assessment of student learning. “This pushes the envelope,” she said. “Very few institutions are really there already.”

But the biggest addition, according to Manning, is a requirement that colleges show they are attentive to boosting student retention and completion rates. That means defining goals, collecting data and using it to make improvements.

Eaton praised HLC’s new standards, which she called a “constructive and very useful response to the calls for accountability, while at the same time respecting peer review” and industry self-regulation. “It’s a tricky business.”

Seeking Improvement

Only 1-2 percent of HLC’s more than 1,000 member institutions -- fewer than 20 colleges -- are currently facing sanctions, according to Manning. Yet she said there is a “fixation” on those cases.

Furthermore, during ACE’s recent panel discussion, Manning and her peers at a few other regional accreditors said lawmakers typically fail to recognize that a sanction generally means the accreditor is seeking for a college to do something better. If the college makes the fixes and a sanction is dropped, that’s a good thing, they said. But critics often view that outcome as letting an institution off the hook.

Lawmakers want bad actors to lose their accreditation, said R. Barbara Gitenstein, president of the College of New Jersey, who is also a board member and former chair of the Middle States Association of Colleges and Schools. They don’t like to see colleges improve their way out of a sanction, she said, unless that institution is in their district.

Apollo officials said they are confident that the review team's concerns would be addressed. But if the university is placed on probation, that period will last until fall 2014. Phoenix will need to cite its probationary status in every public communication that mentions its accreditation.

Meanwhile, the commission is expected to make a decision on the probation recommendation this summer. HLC and Apollo have not released the review team’s draft report. That’s not surprising, however, as such reports are generally kept private during an ongoing accreditation review.

Phoenix went through an extensive review by the site team, which visited 148 of the university’s campuses and locations. It was required to pay for advertisements in the news media seeking feedback from Phoenix students for the reviewers. And approximately 160 reviewers participated in the campus visits.

Likewise, Phoenix is unlikely to take the possible sanction sitting down. Apollo said it plans to challenge and appeal the site team's recommendation.

The specter of possible lawsuits filed by for-profits with deep pockets loomed large during the recent ACE session. Regional accreditors would likely need to spend a lot of money on lawyers if a for-profit challenged a sanction in court.

Manning didn’t duck a question about lawsuits, acknowledging that it is a real risk of the accreditation process. She said that HLC has an arbitration clause in effect, meaning that colleges and the commission must first try to work out differences with an arbitrator before going to court. And she said institutions might also choose to avoid the public relations challenge of suing an accreditor.

“The issue of withstanding a suit has yet to be tested,” said Manning. “It hasn’t stopped us from moving forward.”