For-Profit Higher Education

  • Kevin KinserEmail author
  • Dante J. Salto
Living reference work entry
DOI: https://doi.org/10.1007/978-94-017-9553-1_105-1
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Synonyms

Definition

For-profit higher education includes private institutions that are controlled by individuals, companies, venture capitalists or publicly-traded corporations. This is in contrast to private nonprofit higher education where ownership is invested in a charitable foundation, board, or religious entity. Excess revenue generated by for-profit institutions can be distributed to owners and shareholders, or invested in activities outside of the education sphere.

Introduction

For-profit higher education is a relatively new form of private higher education worldwide. Its introduction to higher education systems has generated controversies, in many cases resembling the debates over nonprofit higher education caused when the private sector was introduced in countries where public higher education dominated the scene. Although many countries have moved toward legally allowing for-profits, they are still a minority, and there is a lack of information on function, size, and scope of the enterprise worldwide (Kinser and Levy 2006).

For-profit higher education has developed in different ways, depending on national context. In most developing countries, the sector was not regulated until it was a visible part of the higher education systems (Levy 2006). In fact, many governments (directly and indirectly) have used for-profit higher education to meet access targets in systems that neither the public nor the private nonprofit could suffice.

This article aims at defining for-profit higher education, introducing relevant national cases, and exploring prospects of the sector. National case selection is based on geographical scope (one case per continent) and data availability.

Definition of For-Profit HE

For-profit higher education definition is blurry and dependent on local context. Regulation plays a critical role in it. In many countries, lack of legal framework spurs de facto for-profit institutions. In other cases, for-profits are explicitly forbidden but both private nonprofit and public institutions engage in similar types of revenue-generating activities. Adding to this complexity, sometimes prohibition or authorization of the for-profit form is clearly set out in educational or higher education legislation, and in other cases, the only rules are provided by finance/taxation regulation (Kinser and Levy 2006).

Although the definition is subject to local policies, for-profits and nonprofits differ in one key respect. A nonprofit institution typically must reinvest all profits (often referred to as excess revenue) in the nonprofit entity to further the aims of the organization. For profit institutions, on the other hand, can do whatever they want with their profits, including distributing profits to owners and shareholders, or investing in activities outside of the education sphere. Thus, this distinction between nonprofit and for-profit should properly rest on what the institutions can do with the money, rather than whether or not they make money (Kinser and Levy 2006).

The relationship between taxes and profits is another area of contention. Usually, nonprofits benefit more from holding tax-exempt status. However, taxation does not provide a clear-cut distinction between for-profit and nonprofit. In most cases, nonprofits pay some taxes, though much of their revenue is typically tax free. For instance, in the United States, many nonprofit institutions compensate the local government for public services provided. This is not a tax; rather it is a fee or contribution negotiated between the higher education institution and the government. In other cases, such as in Brazil, governments incentivize for-profits through tax exemptions to meet some policy targets. And even when they hold different tax statuses, for-profit and nonprofit institution can have similar tax obligations.

Traditional distinctions between for-profit and nonprofit higher education can be challenged by an ownership model where a for-profit entity controls the operation of a nonprofit institution. Multinational for-profit companies can take ownership of nonprofit institutions and continue to operate them as nonprofits under the regulations of the country they are in. Another model is contracting with a for-profit management company to operate a nonprofit institution. From a legal perspective, the institution remains nonprofit even as the control is held by a for-profit company.

This article centers on legally defined for-profits based on local context, not dealing with profit elements of public and private nonprofit higher education institutions.

Profiling For-Profits

Even though large institutions, usually owned by publicly-traded companies such as the US-based University of Phoenix or the Brazilian-based Universidade Estácio de Sá, attract the attention of media and society, there is no “typical” for-profit profile, at least regarding ownership and size. For-profits span from small, local, and family-owned institutions focused on a few areas of specialization to large, national, and corporation-owned institutions that cover a large variety of specializations (Kinser 2006a, b).

Despite ownership and size differences, for-profits tend to offer more vocational and technical programs than their public and private nonprofit counterparts. These types of programs are usually shorter than traditional ones and are highly linked to specialized training in professional vocations. However, there is no uniformity regarding types of programs either. In countries where public and private nonprofit higher education is consolidated and has absorbed most of the demand, for-profits tend to develop specific market niches in vocational programs. In countries where the for-profit sector enrolls the bulk of the demand, they tend to offer similar programs to their public, usually more selective counterparts, but with less selectivity.

Due to their mostly demand absorbing role, for-profits tend to concentrate on teaching rather than research. Thus, faculty tends to be part-timers and hired in temporary positions. Professors’ positions tend to be weak, not only due to the lack of tenure-track positions, but also due to their limited role in teaching. They deliver the curriculum rather than create it (Kinser and Levy 2006; Kinser 2015b).

Another key feature of for-profits, which distinguish them from their public and private nonprofit counterparts, relates to their management and governance structure. Owners and investors tend to have a commanding presence and determine the direction in a more hierarchical way than usual university presidents. In line with this hierarchical structure, professors and students have little say in matters of governance (Kinser and Levy 2006).

Students attending for-profits are usually within the nontraditional types (older than average, with full-time jobs, among other features). For-profit institutions tend to offer more flexible programs than their public and private nonprofit counterparts. They usually offer programs late at night, at distance, giving students more chances to attend after work than other institutions.

Origins and Most Recent Developments

For-Profits Around the World

Data on for-profits around the world are sparse, often unreliable, and inconsistent. The following sections draw on known information from various countries to identify the size and scope of the for-profit sector (in terms of enrollment and number of institutions), and a brief summary of public policy toward for-profits institutions.

United States: A For-Profit Pioneer

For-profit higher education in the United States has a long history (Kinser 2006a). Beginning in the nineteenth century, for-profit colleges began offering courses to prepare students for entry-level employment in business and industry. Many of these business colleges continued operation into the twentieth century, and some still exist today. The current for-profit sector in the United States, however, includes large publicly traded corporations and institutions funded by venture capital firms, many of which have developed extensive online programs. Other, small institutions owned by local proprietors, are focused on career education in entry level occupations. Combined, these populate a sector that represents nearly half of all institutions of higher education and, at its peak, about 13 % of total postsecondary education enrollment.

In most respects, the for-profit sector is held to the same regulatory and quality assurance standards as nonprofit and public institutions. Like all institutions, in order to gain access to federal student aid funding, for-profit institutions must be accredited by a private, nongovernmental agency recognized by the federal government. But the Higher Education Act, the governing federal legislation, authorizes for-profit higher education under a separate definition of higher education that requires these institutions to prepare students for “gainful employment in a recognized occupation” after graduation. Current policy has focused on how to hold for-profit institutions accountable for this gainful employment standard. Another regulation limits percentage of revenue that for-profit institutions may earn from federal financial aid programs authorized under the Higher Education Act. For the last decade, the for-profit sector has been under scrutiny from Federal, state, and accreditation agencies for improper student recruiting and false statement of outcomes. In part because of this scrutiny, enrollment in for-profit higher education has declined substantially since 2010, and a number of large for-profit companies have declared bankruptcy and closed.

United Kingdom

Starting in 2011, the UK opened its market to for-profit higher education providers (Levy 2012). Recently, for-profit institutions were allowed to achieve full-university status, with the first for-profit awarded this status in 2012 (Paton 2012). At that time, five other for-profit higher education institutions had degree-awarding powers but had not reached full-university status. Although the UK allows for-profits to award degrees, regulation is stricter for private institutions than for public ones. The former receives that power for 6 years in contrast to the public sector which has that privilege in perpetuity (OBHE 2010).

As it happens in other countries, the for-profit sector has certain limitations in access to public funds. Unlike the public sector, for-profits cannot access public funds to develop infrastructure and domestic student support. However, for-profits have more access to private financial funding, making it more responsive than the public sector to market demands. Both sectors largely compete in the provision of professional and vocational education (OBHE 2010).

France

European higher education systems vary in size and shape, although in general, their public sectors are dominant (Levy 2012). The French higher education system epitomizes Clark’s Continental model (Clark 1983), a state-centered, highly regulated higher education system. While the public sector prevails, the private sector is large, and it includes a growing for-profit sector (Casta and Levy 2016). As it happens in many other countries, France does not publish disaggregated data on for-profits. Private institutions enroll about 19% of the higher education students, and rough estimates indicate that a quarter to half of those students in the private sector attend for-profit institutions (Casta and Levy 2016). At least four multinational, for-profit corporations including Laureate dominate the scene. France imposes restrictions on awarding degrees to private higher education institutions; only public universities can be universities and award degrees (Casta and Levy 2016).

Brazil

Latin American higher education has joined the for-profit trend with a major player worldwide. Brazil, along with Chile (nonuniversity) and Peru (all education levels including higher education), has legally allowed for-profit higher education institutions. Since Brazil allowed for-profits, the sector effortlessly surpassed the public sector in enrollment share, and it has recently done the same with the nonprofit sector. Brazil moved toward allowing for-profit higher education institutions on the recognition that many de jure nonprofit institutions were de facto for-profit, but the state was not collecting taxes (Levy 2006). After 1996, Brazil has been supportive of the private sector, a main ally toward the goal of increasing enrollment, through a variety of public policies toward private higher education, including financial aid to students and tax relief to both nonprofits and for-profits that provide aid to needy students (Salto 2017).

South Africa

Most countries in Africa do not legally allow for-profits in higher education, although in many of them nonprofits tend to behave as for-profits (Levy 2007). South Africa is an exception to this pattern. Regulation explicitly allows for-profit higher education, and it constitutes a sizable part of the relatively small private sector. The reality of an existing private and, even, a for-profit sector contrasts to the situation before 1980, when only a few private institutions existed in South Africa (Levy 2003, 2007; Mabizela 2007). Africa resembles the case of most Latin American countries, where private higher education came into existence long after a dominant, reputable public sector was consolidated (Levy 1986). As it happens in many other countries, data on for-profits (or even privates) is restricted, and in many cases, unreliable. In addition to the lack of governmental, official figures, a series of studies on South African higher education show wide discrepancies regarding enrollment, the number of institutions, etc., leaving little room to depict the size and shape of private higher education in South Africa.

The Philippines

The presence of the private sector in the Philippines is noticeable. Most of the sector fulfills a demand-absorbing mission (Kinser and Levy 2006). For-profit higher education is legally allowed by the 1980s Corporation Code, not through a particular educational law (ADB 2012). A sizable number of students, estimated at 70%, attend for-profit institutions (Kinser 2013a). Other Asian countries such as Malaysia, Singapore, and Vietnam also allow for-profit higher education. China and Japan have recently allowed for-profits, the former through allowing a “reasonable economic return” (Kinser 2013a; Yan and Levy 2003). In many of those countries, large international corporations have established new institutions or partnered with existing ones to offer educational services (Kinser 2013a).

New Zealand

New Zealand, along with Australia, allows for-profit higher education providers. The former recently allowed private higher education providers. Until the 1989 Education Act, only public higher education institutions. From that moment, a small but important private sector has been providing higher education services (Abbott 2014, 2005). Most private institutions, both nonprofit and for-profit, are small privately owned institutions that fill the gap supply of public institutions or compete in limited areas. Also, most private providers are nonuniversity institutions (Xiaoying and Abbott 2008). Unlike in other countries such as Brazil where for-profit higher education is explicitly mentioned in the legislation, in New Zealand, the 1989 act just mentions private higher education. Thus, for-profits are allowed, following the rule that anything that is not explicitly prohibited, is allowed (Levy 2006). As it is usually the case, the government collects taxes from for-profit providers (Abbott 2014). Access to data on for-profits is limited. The latest report released in 1995 indicates that 46% of private were limited liability companies and 37% were trusts.

Issues and Future Prospects

For-profit institutions have demonstrated the ability of the private sector to expand access to higher education. In countries where the government is unable or unwilling to expand state supported institutions, the private sector has often provided the capacity to meet student demand (Kinser and Levy 2006; Salto 2017). This demand-absorbing aspect of the for-profit sector has been lauded as one of its strengths. For students who have few other options for education, for-profit higher education provides a welcome alternative.

In addition, some for-profit providers represent a quality enhancement compared to the public sector because they bring investment and international standards to the local system. This effort is represented, for example, by the investment of the International Finance Corporation in a for-profit option for education in Africa (Sharma 2013). Often, though, quality in the for-profit sector is relative to the alternative of no access at all to the higher-quality publics or to the generally very poor quality of other private sector options. There are no world-class for-profit institutions by any conventional measure.

Typically, the for-profit sector is associated with low quality or even predatory providers that are interested in making profits over providing education. Typically, for-profit institutions are small and under-resourced institutions, yet charge relatively high tuition to serve a disadvantaged population (Kinser 2015a, b). Given their ability to convert revenue into profit, the incentives for owners can tilt toward private gain over the public purpose subsidies are intended to support. Questions have been raised about the quality of teaching in these institutions, in particular regarding online instruction that is provided without adequate local support. The involvement of foreign providers in the for-profit sector is also problematic, given the unclear and uncertain jurisdiction for regulating these entities.

A significant issue exists regarding quality assurance mechanisms and their adequacy for a profit-oriented model of higher education. Quality assurance demands standards for quality that are enforced by external evaluation, as well as internal policies and processes to assure quality that are enforced by the institution itself (Kinser 2014). The assumption is that institutions want to maintain quality and will use the quality assurance process to verify and validate the mechanisms the institution uses to enforce quality standards. For-profit higher education often challenges that assumption by placing revenue generation as the primary goal, and seeing quality assurance as purely an external regulation that is necessary only to continue operation. As a cost of doing business, then, quality assurance can be manipulated or resisted. Quality assurance agencies have found it challenging to address this problem. The United States in particular has faced a series of issues related to the quality assurance of for-profit higher education, leading the federal government to deny authorization for an accreditation agency that was responsible for a large number of for-profit institutions.

The business model of for-profit higher education relies heavily, and usually exclusively, on tuition fees paid by students. Depending on the country, students may have access to loan schemes or other government sponsored financial aid. In such instances, the business model is focused on maintaining access to aid programs in order to maintain and increase student enrollment. There is an ongoing tension between the regulatory efforts governments put into verifying the legitimacy, quality, and value of for-profits, and the need for for-profits to do whatever it takes to continue participation in financial aid program. This regularly leads to crack-downs on the for-profit sector that poses existential risks for institutions. Globally, however, it is unlikely that such regulatory interventions would cause the for-profit model to fade away.

Instead, as the private sector has been increasingly recognized as a legitimate provider of education, for-profit higher education has made inroads into postsecondary systems worldwide. Its current status, however, suggests that it is far from being a welcome partner in educational access. Questions remain about whether for-profit education is truly a legitimate form of education, and the assumption remains that for-profit provision is necessarily low-quality provision (Kinser 2013b). Efforts to expand for-profit higher education have been resisted in many countries; in others, expansion has been followed by scandals and fraudulent activity. It is important to note that no country that has seen the sustainable development of for-profit higher education as a significant source of capacity. Although that does not mean that for-profit provision is problematic as a niche player in a country’s higher education system, it does suggest the difficulties that for-profit face in becoming a provider equal in status to public and nonprofit higher education.

Cross-References

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Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Education Policy StudiesPennsylvania State UniversityUniversity ParkUSA
  2. 2.Instituto de Humanidades (IDH) – Consejo Nacional de Investigaciones Científicas y Técnicas / Universidad Nacional de CórdobaCordobaArgentina