The explosive national debate over profit-seeking colleges has reached North Carolina. On September 9, a seemingly obscure technical report on the state’s licensure of private colleges—especially for-profits—ignited an emotional discussion at a meeting of the UNC Board of Governors’ Educational Planning, Policies, and Programs Committee.
James Anderson, chancellor at Fayetteville State University, said that his university is “getting killed” by competition from for-profits. Charles Nelms, chancellor of North Carolina Central, said that there is “no way we can compete” with their marketing power. While the chancellors were the most outspoken, one member of the committee expressed chagrin that the state has allowed a private, for-profit law school (Charlotte Law School) to be established, and one even said that if the for-profits can’t get their graduation rates up, the state should “jerk their license.”
Thus, the discussion had two major themes: One was that the for-profits are taking away business from UNC schools; the other, that the schools are not providing a quality education and the UNC should do something about it. The result of this brief and sudden outburst was that on September 10 the Board of Governors agreed to form a committee to review the state’s licensure of those institutions.
UNC is involved with these institutions because it is the state’s licensing agency for private postsecondary schools. More than half of these schools are for-profit institutions. North Carolina has been licensing postsecondary schools since 1923, and in 1972, when the university system was consolidated, the responsibility was given to the university system.
That doesn’t mean that UNC licenses all "nonpublic" schools—not Duke or Wake Forest, for example. Although UNC is responsible for licensing any postsecondary school, public or private, that wants to operate in North Carolina now, the colleges operating in North Carolina in 1972 were “grandfathered in” when UNC took over the job. In addition, schools preparing for a religious vocation (such as Bible colleges) are also exempt, as are schools operating solely on military property (although some of them obtain licenses).
So, UNC licenses only new schools established since 1972 (including new North Carolina branches of existing schools). But that means that UNC holds life-or-death power over them. And that’s where a big conflict-of-interest question comes in: Can UNC objectively evaluate schools that are competing for students with some of its 16 college campuses?
The issue is particularly heated because more than half the schools licensed by UNC are owned by for-profit companies, and such schools have been inundated by controversy over the past few months. Some background about those firms is in order.
For-profits, some of which are publicly owned and traded on Wall Street, have been growing rapidly and now enroll about 10 percent of all postsecondary students. They have expanded the market for higher education by appealing to older, nontraditional students who want to go to school while still having full-time jobs. Often those students are low-income and members of minority groups. Thus, in North Carolina, the schools compete directly with UNC’s historically black colleges and universities and UNC Pembroke (originally a school for American Indians).
The success of for-profit schools, especially through their ability to use online education to provide flexible learning, has made them a force that traditional schools must reckon with. But are they doing a good job? A lot of people claim they are not.
Some critics think that the for-profit nature itself taints the schools; if profit is their goal, they must be giving short shrift to their educational mission. But in recent months more specific attacks have been launched. The General Accountability Office, an arm of Congress, conducted a sting operation that revealed unethical recruitment tactics and misrepresentation at 16 for-profit schools—and Senator Thomas Harkin used the opportunity to harangue the industry in highly publicized hearings.
(It turns out that the government didn’t work alone. For example, an inflammatory letter charging for-profits with recruiting in homeless shelters was orchestrated by an investment firm. Wall Street short-sellers were deliberately trashing the industry in order to push down their stock prices.)
Other critics point to the schools’ heavy reliance on federal funds. Partly because for-profits serve low-income adults, their students frequently obtain federal grants and subsidized loans. A recent report found that the default rates of students at for-profit schools are higher than those of other school segments.
So too with graduation rates. An American Enterprise Institute paper revealed for-profits to have, on average, higher dropout rates than private non-profits and public colleges. The differences with public colleges was not very great, however. Community colleges, too, often have low graduation rates. And whatever a school’s ownership status, graduation rates differ dramatically from school to school. Some for-profit schools have relatively good graduation records, said Alan Mabe, senior vice president for academic affairs at UNC, who was coauthor of the report that initiated the committee’s discussion.
For these and other reasons (such as political hay-making), the federal government has virtually declared war on the for-profits. In addition to the attack by the Senate, the Department of Education is considering withholding federal aid to schools that prepare for careers but can’t prove that their graduates earn enough money to repay their loans. (One reason why this may not go through is that this rule could affect some public community college programs as well.)
Given the prevailing attitudes about for-profits, the animus against them at the UNC Board of Governors committee meeting is not surprising. James Anderson, chancellor of Fayetteville State, said his school is losing potential students to for-profits, which advertise constantly on the airwaves—while Fayetteville State has had to cut its marketing budget.
He explained that the for-profits are recruiting the same non-traditional, often low-income, students that often attend historically black colleges and universities and UNC-Pembroke. He also said that many of these potential students are “not sophisticated enough to look at programs and compare.” They are easily ensnared by the for-profits and may end up paying “three times the cost” of public university tuition and incurring heavy debt. The for-profits, he said, have “graduation rates that are miserable for students of color.” And he pointed out that Fayetteville State has to compete with nine for-profits offering nursing degrees.
Charles Nelms, chancellor of North Carolina Central, echoed Anderson’s remarks. His school is going up against the for-profits and their giant marketing budgets, while his own marketing budget has been cut. Nelms said that schools such as NC State and Chapel Hill are not affected by competition from for-profits, because they are “creaming off the top” from the potential student population, while his university is vulnerable.
But using stricter regulation to address those problems raises ethical and even constitutional issues. There is already some evidence that UNC’s scrutiny has been strict: North Carolina has only 26 postsecondary schools licensed by the state, compared with an average of 64 among seven other southeastern states. (Florida has 133 such schools; South Carolina has the fewest in those states, 26, the same as North Carolina.)
The discussion, while heated, was brief. But two possible directions emerged. One would be the imposition of tough restrictions on these schools.
The other idea is that the schools in the UNC system should compete more vigorously. One way to do this would be through greater collaboration among UNC campuses that have similar programs, so that they provide a more attractive alternative. Or perhaps UNC could create a single University of North Carolina online degree. Although UNC is by some measures a public-sector leader in online education, most courses are taught under the jurisdiction of a single campus, not the university as a whole. Although the general administration has a director of online programs, distance education is not represented at the very top levels.
The challenge of for-profit schools is a big one to UNC. It will be interesting to see which direction the Board of Governors takes on this issue in the months ahead.