diploma mills

Why couldn't one argue that a profit-motive forces an enterprise to be attentive to the desires of its customers? (In this case students, but the point would seem to apply generally.) If a for-profit school wants to maximize its revenues, it will need to successfully attract students. Assuming that competition exists, students who aren't receiving the educational services that they desire will take their money to the competition.

If a non-profit school isn't trying to produce a return on investment, that doesn't necessarily mean that it is more efficiently serving its students. The opposite posibility exists. It might be less interested in serving students in the first place, and might be burning much of the money it receives in various kinds of inefficiencies unrelated to student needs.

Every student knows that some universities seem designed and managed in order to benefit professors and administrators, not them.

 

My comments have generally been stated but I still need to add my voice here. I am not a fan of for profit schools either but my experience with Walden graduates has generally been positive. I have encountered five of them in senior level positions including two faculty positions in Wash., DC area. I think we ought to blame individuals instead of the schools. This is not to say there are no bad schools. Walden is certainly a good school but I worry that if enrollment falls and the bottom line start dropping it may go on the chopping block. In any case, Walden is good for those who can afford the steep cost. I once served on a committee with an individual from an Ivy League school – I think it was Yale, her contributions to the committee was less than desirable and it was rumored that her work performance was also lackluster. Every school has its bad eggs, just because the school might be pricey does not eliminate the bad eggs either. Bottom line Walden is good.

 

One of the things that makes me most ambivalent about higher education is the number of individuals I have met in my working life that carry letters around behind their names but don't seem to have any common sense and/or work ethic. I know that it would seem that this would be a very small number of these people, but I sure have met a fair share, that while they may have "book learning", they have little else to contribute.

I have only been a nurse for 6 years but before that I was in mid-level management in banking for nearly 20 years. In both professions (which are very diverse), I've seen this over and over. That's why when people tout their credentials, my response is more "show me the money" than automatic worship for the letters behind their names and an assumption that they can do a job.

The best example I can give you is recently meeting a nurse who is currently working on her Ph.D in nursing. After talking to her a little, I discovered she's never done a day of nursing in her life. Never taken care of a patient, not one, ever. Education is great, but you have to pair it with its purpose. I guess there is learning for learnings sake, I just wouldn't hire anyone like that. Nor would I work for anyone like that. And hopefully, I won't have to work with too many like that.

I now work in a university hospital. Our executives are every bit as bottom line oriented as the private hospitals in the city. The only difference I can discern is there incessant need to pay consulting firms huge amounts of money to "study" our problems to try and find solutions instead of going to the very people who do the work for the answers they could get for free. There is a university mindset that just drives me crazy from my work history in the real world of business. And that is "Let's study this, let's study this, let's study this." Everything done by committees, and more committess.

I personally wish more education was run by private business, shareholders or no. I think some higher education might be better driven by those who do, rather than those who teach, to a certain extent.

 

Dear Seeking - I know you live in Kentucky but I can't help but think that we've worked in the same places
As you've undoubtedly understood, there's a distinct difference between being able to complete a PhD dissertation (or an MD for that matter) and the ability to work with others toward the solution of real life problems. I also have experienced this, "study, study study" approach. While a certain amount of this is warrant, and is even good policy, a certain amount of this is avoidance of decision making on the part of mid/upper level management. One person said to me, "If we don't hang together we'll hang separately," meaning that decisions made by committee are safer than decisions made alone. If I can presume to give you a tip... hospital, universities and small towns are essentially indistinct.
Jack
(who lives in a small town, works in a hospital and attends a university)

 

Bill,

I don't doubt your position if you pair competent managent of a for-profit against incompetent management for a non-profit. However, given equally competent management, I do not see how one could reasonably argue that the interest of students are equally served or the excess revenues flow more in favor of students than ensuring stockholder return.

I cannot imagine telling stockholders that the executive team decided to spend stockholder dividends on improving student programs without any direct consideration for advancing stockholder interest. I doubt that you would find the stock value skyrocket and new investors scrambling to buy new shares of stock.

Beyond sharing these views, let me extend to you and all of the folks here on DegreeInfo a happy New Years and best wishes for a rewarding 2004.

Tom

 

Richard Posner, a senior lecturer at the University of Chicago Law School correctly makes the following point about not-for-profit schools*:

In other words, a not-for-profit school is still very interested in making money over and above expenses. It just handles revenues differently than does a for-profit school. Still, a for-profit school may put a substantial amount of revenue back into its operations, perhaps even leading to improvements in teaching and learning.

_____
*Posner, R. (2002, June). The university as business. The Atlantic 389(6), pp. 21. Retrieved January 1, 2004, from http://www.theatlantic.com/issues/2002/06/posner.htm

 

Excellent post, Tracey. The largest of the for-profits, Apollo Group (owner of the University of Phoenix and a few others) does not declare dividends. It retains its earnings, reinvesting them into its opeartions and growth. See Apollo's Cash Flow Statement

 

Rich - I guess you and I will have to disagree on this point.

I've worked for non-profit and for-profit schools. There are significant differences. I'll never teach for a for-profit school again.

When you say "The differences are in terms of what to do with excess revenues (or profits), and how funds are raised. That's it. " I believe you are speaking in error.

First, who do schools serve? In the for-profit world the answer is clear - stockholders. In the non-profit world the answer is vastly different. The stakeholders of non-profits include society in general.

Second, in the past I've examined the financial statements of for-profits and non-profit schools (and reported them in this NG). They are dramatically different. If you really want to see 50% of your tuition dollars go for selling, administrative, tax and profit - I guess it is your choice. When I examine non-profits the cost structure is dramatically different. Typically, 85% or more of tuition dollars goes for education.

I'm troubled by the lack of faculty governance or academic freedom in the for-profits. I'm troubled by their lack of spending on academic infrastructure - libraries, full-time faculty, etc. I'm troubled by their lack of research or service to the community. I'm troubled by their excessive focus on being "student centered" while maintaining low academic standards. I'm troubled by a lot of things in the for-profit sector.

Are there some features of for-profits that non-profits could learn from? Sure, customer service in non-academic areas (like registration, student accounts, etc.) is one.

This is not to say that I don't have concerns for some non-profit schools. Some non-profits have acquired the same bad habits of the for-profits.

One final shot at for-profits. Can you show me a single for-profit that has achieved a high level of academic recognition (e.g. U.S. News or your choice of other ranking lists)? Of course not. For-profits aren't into academic excellence - they are into profit. None are selective of the students they enroll - in fact, they are just the opposite. I haven't seen much rigor in their programs, either. Turning out graduates with easy degrees is their bread and butter.

The non-profit world runs the gamut from the world's best to some pretty poor universities. The for-profit world, IMHO, contains only academically weak institutions.

Call me old fashion, but I see for-profits as a terrible innovation in education. The one saving grace is that the existance of for-profits may spurn the non-profits to improve their service to students.

I feel better now ....

Regards - Andy

 

Bill,

I took a little closer look at the financials and here is what I see:

Property Plant and Equipment increased by $17 million over a period of three years, while stockholders’ equity “common stock” increased from $104 thousand to over $293 million:

http://finance.yahoo.com/q/bs?s=APOL&annual

Retained earnings also more than doubled from $357 million to $765 million over the same period, while total stockholder equity increased by $545 million (yes, over a “half billion” dollars) from $445 million to $990 million.

Given these increases in stockholder equity over the three-year period, I do not think that paying dividends is necessary. Why? Because stockholders can (and did) sell off portions of their shares (without diluting their initial investment basis) for many multiples of the purchase value or option price and take their profit, which is exactly what even the insiders are doing:

http://finance.yahoo.com/q/it?s=APOL

Interesting distribution of stock:

http://finance.yahoo.com/q/mh?s=APOL

Buy in 2001 or exercise options at $7-12 (very little stockholder equity “common shares”) and sell at $65-70 (very high stockholder equity “common shares” induced by retained earnings) and I guess one doesn’t need to worry about receiving dividends to be smiling. It is just another way (a more leveraged one) to take profits, so the same interest is served but in just a slightly different way. It doesn’t look like these shareholders have done too terrible in terms of ROI.

Indeed, the shareholder’s interest looks to be quite well served since a few of the insiders, by themselves, have likely recognized more profit in the last month or two than the total increase in Property Plant and Equipment investment over the past three years.

And finally, a quick look at the income statement shows that during the past three years over $316 million flowed directly out of the institution for income taxes, which were dollars originally paid by students for education. Obviously, none of the tax dollars make its way back to the students or any student related benefit.

http://finance.yahoo.com/q/is?s=APOL&annual

Of course, if the institution would have elected to lower tuition or indeed flow much more of the “excess revenues” directly back to the students and their interest, then there would be little or no taxes to pay. However, you cannot retain the large amount of earnings needed to bolster stockholder equity by several hundred percent and gain many multiple increases in stock value (which is the profit taking vehicle) by doing that. Instead, $316 million flows out the door with no benefit to the student simply because the shareholder’s interest must be served first in terms of financial returns.

Without trying to sound crass... all I can say to everyone is welcome to reality land.

Tom

 

Tom:

Your posts tend to be crass. It's alright to disagree--I don't really expect to change your mind; I'm not even trying to. But you post a whole lot of nothing and expect that the volume will sway.

Owner equity increased because the stock price went up. That's an expression of owners' confidence in the stock's future prospects.

You don't think well-endowed universities grow their cash? Please point out the university that enjoys a financial windfall and then returns it to the students in the form of lower tuitions. I look forward to that example.

Harvard has more than 17 billion dollars in its endowment. They could have students go there for free, but they don't. That's an extreme example, of course, but you get the idea. Not-for-profits are just as adept at retaining cash--and raising tuitions.

By the way, I notice you have a Ph.D. Where did you earn it? Myself, I've only attended not-for-profit schools.

 

Rich,

My apology for sounding crass and for posting a whole lot of nothing; espeically when I was doing my best to debate your position and point of view.

However, at the risk of providing more volume, and perhaps adding even more of nothing, let me belabor my point a final time and attempt to kindly correct an error in what you indicate increases owner’s equity (AKA “stockholder equity” for corporations).

To that point: According to GAAP, stockholder equity does not increase because stock price increases. Indeed, it is the other way around. Stock prices increase as a result of an organization’s ability to retain earnings and grow assets beyond their liabilities which results in increased stockholder equity. Therefore, stockholder equity is independent of stock price changes.

For those that may not be so familiar GAAP or financial statements, the following is a basic explanation parsed from some MBA primer material:

*********

Balance Sheet

The balance sheet is based on the following fundamental accounting model:

Assets = Liabilities + Equity

Equity for a corporation is, of course, referred to as stockholder equity or shareholder equity in a corporation. The equity owners (shareholders) of a business are residual claimants, having a right to what remains only after the creditors have been paid. In the case of a corporation, equity would be listed as common stock, preferred stock, and retained earnings.

Statement of Owners' Equity (Statement of Retained Earnings)

The equity statement explains the changes in retained earnings. Retained earnings appear on the balance sheet and most commonly are influenced by income and dividends. The Statement of Retained Earnings therefore uses information from the Income Statement and provides information to the Balance Sheet.
The following equation describes the equity statement for a corporation:

Ending Equity = Beginning Equity + Investments - Dividends Paid + Income

The stockholders' equity in a corporation is calculated as follows:

Common Stock (recorded at par value)
+ Premium on Common Stock (issue price minus par value)
+ Preferred Stock (recorded at par value)
+ Premium on Preferred Stock (issue price minus par value)
+ Retained Earnings
----------------------------------------------------------------
= Stockholders' Equity

Note that the premium on the issuance of stock is based on the price at which the corporation actually sold the stock on the market. Afterwards, market trading does not affect this part of the equity calculation. Stockholder equity does not change when the stock price changes!

http://www.quickmba.com/accounting/fin/statements/

**********

To your point of institutions with an abundance of cash from endowments, I fully agree with your statements and position. However, I tend to think that most non-profit institutions do not quite enjoy such an over abundance of cash, so most of what comes in is spent on what it was intended: student education, services, infrastructure…etc. Certainly, none of the excess is needlessly wasted in the form of tax.

Regarding my PhD and other degrees, they are from non-profit institutions.

AA / AS (Public non-profit) Mid Michigan College
BS (Private non-profit) International College
MS PMP (Public non-profit) University of Wisconsin
MBA (Private non-profit) Touro University
PhD (Private non-profit) Touro University

Seriously Rich, I do see your points and they are valid in many ways. There is also no doubt that what you have to say and your contributions to this forum are both intelligent and insightful. However, in the case of this debate surrounding for-profits schools, I’m not so confident that it is a good thing for higher education overall.

With this said, I promise that I won’t persist to annoy you with further discussion on this subject, so go ahead and slam, jab, kick or punch me… the last word is yours. Just be a good sport about it.

Take care, and best wishes for the new year.

Tom

 

I love to be contentious, so I figured I'd show Dr. Borchers a whole bunch of for-profits that have achieved a high level of academic recognition.

To find my for-profits I went to the National Center for Educational Statistics.

"There are 312 institutions that are Private for-profit, 4-year or above. Select one of the institutions listed in the search results to view details. Sort by clicking a column header."

http://nces.ed.gov/ipeds/cool/InstList.asp?SORT=4

I'm sure there are plenty more, I did not see American Military University, or any other DETC school, on the list.

Anyway, here's my amateur input:

1. High level of academic recognition - This subjective, of course, I did not find one so outstanding where I would feel comfortable saying, "Look here, Andy, how can you say this school has not achieved a high level of academic recognition." Argosy, Capella, Walden and even AMU/APUS could be the one(s) to achieve a "high level of academic recognition" and are the for-profits I would pick most likely to take-on some research responsibility.

2. Most of the for-profits on this list are vocational in nature, so I don't think one should expect a great deal of research. Many of the schools listed are accredited by the Accrediting Commission of Career Schools and Colleges of Technology.
http://www.accsct.org/

3. Most of the for-profits listed are not what would come to mind when you thing of going off to college. No residence halls, no intercollegiate sports, etc. There was at least two exceptions:

Hesser College (Owned by Quest Education Corporation).
http://www.hesser.edu/day_home.htm

National American University (home campus)
http://www.national.edu/

4. Only two for-profit law schools?

Florida Coastal School of Law
http://www.fcsl.edu/

Western State University - College of Law
http://www.wsulaw.edu/

5. Emperor's College of Traditional Oriental Medicine begins its doctoral program this month.

 

Andy Borcers:

Didn't we go over this before?
First, for profits tend to offer a limited number of programs than traditional universities, about 4-5. Too small to be ranked by USNEWS.

Second, for-profits are not driven by prestige. In contrast, they are driven to prepare students to meet current market demands. Non-profits have been rather slow at meeting these needs, and have a reputation of making students take extra courses that are often not needed.

Third, any institution that is RA, has a good reputation with students, and in addition has professional accreditation is NOT by any means lousy or weak regardless of its administrative status.

With the exception of maybe UoP, I haven't seen much difference in rigor between both types of institutions. And I find your observation rather strange coming from someone who has a degree from an insitutitution with that same reputation (especially with undergrad degrees). I'm sure this reputation is wrong, but I hope you can see my problem with "knee jerk" generalizations. Would it be fair for me to say that all tuition driven (both for and nonprofit) are bad? No.

Old fashioned? for-profits have been around long before you and I were born and are still very small in number. Out of those, many are quite good and building strong reputations.

-S

 

Sulla and all - I'll admit this is a hot button issue with me. Forgive my ranting here, but I have to reply.

Regards - andy

We sure did - and no one answered my question. There are no high quality for profits.

Ok - so are the for-profits even universities? A dictionary definition of a "university" is:

" an institution of higher learning providing facilities for teaching and research and authorized to grant academic degrees; specifically : one made up of an undergraduate division which confers bachelor's degrees and a graduate division which comprises a graduate school and professional schools each of which may confer master's degrees and doctorates."

What do we see in the for-profits? No research, for one. A diverse collection of programs? Nope - only the ones that they can sell for profit. As for undergraduate studies, how many of the for profits provide full undergraduate study? Many defer to other schools to provide liberal arts component.

I'll agree that for-profits are not driven by prestige - profit is where they are at.

I'd disagree here - non-profits may expect students to complete a full degree program. Some may say "no" to "life experience" or refuse to compromise academic standards - as many of the for-profits have done. Unneeded courses? I think you're making a value judgment here that faculty at quality institutions would disagree with.

Ok - I'll buy this. Show me how many for-profits have professional accreditation in business (AACSB or ACBSP). None. Why? Because professional accreditation would require them to upgrade their faculty and programs. As for other professional accreditation - show me for-profits with ABA, ABET or APA accreditaiton. There are a few (some Argosy campuses have APA), but generally the for-profit sector avoids professional accreditation - unless it is absolutely necesarry to attract students. Why? Because they can make more money operating lower quality programs than they'd make running a quality program.


Regards - Andy

 

That seems very absolute.

Do you believe this applies across every level of education?

 

The University of Phoenix has professional accreditation in both counseling and nursing. That none of the for-profits have AACSB accreditation might say more about the AACSB than anything else.

 

Regarless of the accuracy of my previous comments in this thread I believe the above statement to be essentially untrue. What I mean by this is that Harvard does allow many, many students to attend for free. To their credit, one of the uses for that rather large endowment is to provide financial aid to both undergrad and grad students. What students are told, basically, is that if you are accepted then the money will be there. You may be reshelving books in the library, answering phones, or washing dishes but you will have your tuition. While this is true to some extent on any university campus, it is especially true at Harvard. I believe they award more in financial aid than any other school anywhere (sorry, no stats or citations to offer, just my opinion). BTW, I also believe that this is the reason that HES courses are so inexpensive - the endowment. Of course, you may say, they should allow everyone to attend at no expense, but that would be un-American, wouldn't it?
Jack

 

Some comments and questions, basically at random:

It's been forcefully argued that for-profits don't host high powered scholarship. Assuming that this is true, should we conclude that they won't, or that they can't?

I'd speculate that for-profits emphasize high demand vocational subjects because that's where the demand, profits and growth potential lie. If for-profits could see a way to make a better profit from high powered research, I think that they could probably perform it.

For-profit corporate laboratories produce very significant work in many fields Just think: biotech. BTW, are Bell Labs and IBM's research labs for-profit, or are they some kind of non-profit subsidiary? They have each produced multiple Nobel Prize winners. I can imagine some of these corporate labs putting in some very high quality Ph.D. programs if it was worth their while.

Why is it that non-profit and state-run DL programs stress vocational subjects so overwhelmingly? There are more than 200 DL MBA programs, but just try to find a mathematics or philosophy program. And have ANY DL programs achieved true academic distinction? I can't really think of any that are among the leaders in their fields.

If a non-profit earmarks money for "education", does this automatically mean that students benefit? Or does it mean that faculty have higher pay, research and sabatical funding, a cool faculty club, better working conditions, tenure and the ability to design and teach the low demand subjects that they want to teach rather than the subjects that most students would choose to pay them to teach?

I can't stop thinking that a lot of this argument is between a faculty-supply-centered model and a student-demand-centered model. In one case spending is directly governed by a need to maximize what students are most likely to pay for. In the other case, spending is determined by faculty priorities, with the implicit assumption that what is best for professors is also best for students. I think that in many cases that's entirely true, but in other cases it isn't.

This stuff also kind of reminds me of the Marxist-style doctrine that profit equals theft. If non-profits are so clearly superior while for-profits are so clearly rapacious, why shouldn't the argument be generalized to all enterprises? Wouldn't a non-profit automobile company be superior to a for-profit one? It would (supposedly) be dedicated to the public interest through producing better cars, not to the crass and greedy goal of making its owners rich.

Couldn't one make the obvious rejoinder that profit and public interest aren't opposed at all? Isn't it the case that for-profit enterprises maximize their revenues precisely by producing the kind of goods and services that consumers will freely choose to pay them for?

I don't know, perhaps I'm misreading things here. If so, I apologize. But I find it odd that it's our B-school professors that are leading what could be interpreted as a general attack against business. And it's even stranger that it's me, a totally impractical humanities guy, who is defending business' offended honor.

 

Bill - your comments are an interesting addition to this discussion.

It is indeed interesting that a business school guy that normally sees the power of markets, thinks differently when it comes to education. The point is that I see education - along with the hospital business - as areas where the profit motive isn't effective in achieving societal goals. I believe this is because universities and hospitals serve the public good in ways that for-profits aren't motivated. I try to be pragmatic about private enterprise, not evangelistic. Most products and services benefit from free enterprise. Some, such as education and health care, seem not to.

I took a look at US News list of the top hospitals in the U.S. Yep - you guessed it, as best I can tell the top 17 are all non-profits (either connected to universities or religious bodies). Sure, for profit hospitals take care of middle class American's with insurance. But where are the for-profits in caring for the poor, or conducting research or educating the next generation of doctors? There is no money in any of these pursuits - so for-profit hospitals aren't going to do these things. Yet society needs these tasks done.

Why don't for-profits "universities" go after research? I'm not sure, but I suspect that part of the problem comes from the need to have outstanding researchers. Given that the for-profits typically operate with almost entirely adjunct staffs and a hand full of full-timers - they aren't likely to get into the research business. Non-profit schools that are in the research business do so as part of their academic mission - extending knowledge. Faculty that deeply love their subjects conduct research and find ways to integrate theory and practice.

As for for-profit businesses like IBM and AT&T having top researcher - they certainly do. But where were these top researchers educated? At high quality non-profit universities. I'm certainly not holding my breath waiting for the day that a for-profit university produces a Noble prize winner. I reallly don't want to turn blue.

As for students benefiting from dollars spent on education, you raise a good question. If people are looking for immediately employable skills, perhaps a part-time practitioner focused faculty is the answer. If people are looking for education for a lifetime - perhaps traditional faculty offer something. Yes, full time faculty appear to have an easy life. Some get lazy after they earn tenure. But from my perspective I see a much different picture. I see full-time faculty that love their work, care for their students and put in crazy hours balancing teaching, research and service.

As for vocational oriented programs - Perhaps what students want isn't always what they need. I've seen my share of students so focused on making a dollar, that they don't appreciate anything else in this world. I've seen many a liberal arts faculty member take on a near missionary role in educating engineering students in subjects they don't think they need. The results may not seem important - but they can shape a student's life in very important ways.

Regards - Andy

QUOTE]Originally posted by BillDayson
Some comments and questions, basically at random:

I can't stop thinking that a lot of this argument is between a faculty-supply-centered model and a student-demand-centered model. In one case spending is directly governed by a need to maximize what students are most likely to pay for. In the other case, spending is determined by faculty priorities, with the implicit assumption that what is best for professors is also best for students. I think that in many cases that's entirely true, but in other cases it isn't.

This stuff also kind of reminds me of the Marxist-style doctrine that profit equals theft. If non-profits are so clearly superior while for-profits are so clearly rapacious, why shouldn't the argument be generalized to all enterprises? Wouldn't a non-profit automobile company be superior to a for-profit one?

Couldn't one make the obvious rejoinder that profit and public interest aren't opposed at all? Isn't it the case that for-profit enterprises maximize their revenues precisely by producing the kind of goods and services that consumers will freely choose to pay them for?

[/QUOTE]

 

Rich - Yes, some of the for-profits have professional accreditation in fields where a non-accredited degree is useless. But my point stands - unless accreditation is absolutely essential (as it is in nursing), for-profits don't seem interested in acccreditation for the sake of excellence. AACSB is a good example - as is ACBSP, ABET and ABA.

Regards - Andy