Chapter Five

For-Profits on the Move

As a seventeen-year-old high school senior in Baltimore in the early 1980s, Douglas Becker combined his interest in computers, his aspiration to be a doctor, and his entrepreneurial sensibility to start a company that could carry out his ideas for computerizing medical records. He was so intent on pursuing his plan that he twice deferred acceptance to Harvard (and ultimately never went to college at all). Within two years, his health care firm was purchased by Blue Cross/Blue Shield. Becker and three friends who were his partners took the proceeds and created a private equity firm. They quickly decided to focus on education investments, reasoning that the education sector had some resemblance to health care—notably in its potential to be improved by the transformational power of technology.

Before long, the group of investors had purchased a little-known tutoring firm called Sylvan Learning Centers, which offered a rudimentary version of computerized academic coaching. Becker became CEO of the firm in 1991. During his twelve-year tenure as head of the company, now known as Sylvan Learning Systems, it rode the wave of the testing and accountability movement sweeping the nation to serve 200,000 elementary and secondary students at more than 1,000 centers around North America. Because Sylvan relied heavily on moonlighting teachers as its academic coaches, Becker and his colleagues eventually realized that the 25,000 teachers the firm had hired made it the largest private employer of teachers in the United States. The recognition that teacher training was “a strategic imperative for us,” Becker says,¹ led to the firm’s first foray into the world of private sector higher education when, in 1997, Sylvan purchased Canter and Associates, a teacher-training company focused on distance learning that offered a fast-growing master’s program in education.

Within a few years, Sylvan had a controlling interest in Walden University, another for-profit online university offering a range of career-oriented degrees. It also acquired a majority stake in the Universidad Europea de Madrid, a for-profit university in Spain. By 2003, postsecondary education was the source of two-thirds of the company’s revenues, which approached $1 billion annually. It spun off its tutoring business into a publicly traded company called Educate, Inc., and renamed its existing company Laureate Education, positioning it to focus on the burgeoning market in for-profit postsecondary education in general—and global for-profit higher education in particular. The resulting firm is now a key player in the private sector version of global higher ed. Through the universities it owns, Laureate—now privately held—educates nearly half a million students in forty-three institutions in twenty countries around the world, from Mexico, Chile, and Brazil to France, the Netherlands, Cyprus, China, and Australia.

Becker himself has followed the company’s global trajectory, moving his family from Baltimore to China to oversee several new acquisitions there, then going on to Paris to track Laureate’s global business interests. The secret of Laureate’s success, he says, is not that it has a global vision for what universities should teach and how they should teach it; quite the contrary. Unlike some Western nonprofit universities that have sought to spread overseas by setting up branch campuses, he says, “we never had a single model to export. We looked at every individual market. We asked, ‘What does that market need?’ And we said, ‘Let’s go give it to them.’ ”

A VAST NEW MARKET

Why did for-profit higher education become the kind of high-growth worldwide industry that would attract entrepreneurs like Becker? Because the globalization of traditional research universities has so far been largely an elite phenomenon. The for-profit sector, by contrast, has targeted a vast and vastly different student market: non-elite learners, often poorly served by existing institutions, who are eager to earn practical, career-oriented degrees. And for-profits have grown quickly in part because of their willingness to use technology far more aggressively than their more conventional university counterparts.

Growth in for-profit higher education is in part a function of growth in postsecondary education more generally. As of 2001, more than 90 million students around the world were enrolled in postsecondary institutions. Just two years later, that figure had passed 100 million (with much of that increase taking placing in China). And by 2006 the number had risen to some 115 million students. But this soaring enrollment, driven by growing middle-class populations with a healthy appetite for higher education, could not easily have taken place in the public sector alone because of lagging government spending on postsecondary education in many countries. That is why the new global demand in turn created a vast private higher education market, with a value estimated by the World Bank’s International Finance Corporation at about $400 billion worldwide in 2006.²

For-profit higher education has grown especially quickly in Asia and Latin America. A leading expert on private sector higher education globalization cites a range of statistics that demonstrate the trend. Ron Perkinson is a New Zealander who was formerly senior education specialist with the World Bank’s International Finance Corporation and senior vice president of Whitney International University System, one of the new U.S.-run for-profit providers moving into international markets. He notes that in the eight Asian countries with the largest populations, student enrollment from 1991 to 2001 grew by 260 percent. “Most of this growth was absorbed by the private sector,” he writes. In Indonesia, for example, state universities are vastly oversubscribed: in 2004, 344,000 students applied for about 80,000 slots. Growing numbers of Indonesian students leave the country to study overseas each year. And domestic enrollment is skewed toward private sector institutions, which enrolled 68 percent of students—2.1 million—in 2004, compared to 900,000 students enrolled in public universities. Elsewhere, for-profit higher education makes up an extremely high percentage of enrollment: 80 percent in South Korea; 77 percent in Japan; 75 percent in India and Brazil; 68 percent in the Philippines, Indonesia, and Columbia; and 63 percent in Belgium. The percentage is substantial in Mexico and in the United States as well, at 33 and 32 percent, respectively.³

The majority of for-profit postsecondary institutions are domestically owned and operated. But a group of new corporate players, most based in the United States, have seized on the potential of for-profit universities, acquiring a growing number of institutions that have the capacity for even greater growth. Laureate is certainly not alone on this terrain. Other participants in the new market include Whitney International, created by Texas entrepreneur Randy Best; Apollo Global, formed by the Apollo Group, the parent company of the hugely successfully University of Phoenix; Kaplan, Inc., the fast-expanding education provider; and DeVry Inc., the parent company of DeVry University, which specializes in business and management degrees.

Whitney International, for instance, is a relatively new entrant that has controlling interests in Brazil’s University Center Jorge Amado, Panama’s Isthmus University, and two Colombian community colleges. It is also creating alliances with a number of established Latin American universities, including Argentina’s Twenty-first-Century Managerial University and Colombia’s Grancolombiano Polytechnic. It relies heavily on moderately priced distance-learning programs and is seeking to partner with for-profit institutions—most considered low- to middle-tier—that offer practical degree programs at the associate and bachelor’s level, including business, engineering, and marketing. The company enrolled some 40,000 students in distance-learning classes in Latin America in 2008, a figure it hoped to double the following year. And beyond Latin America, it plans to expand into India and other Asian nations. “With a bit of technology and affordable tuition, we’re reaching thousands of people,” Whitney’s chief technology officer told the Chronicle of Higher Education.⁴

International education now provides a significant source of revenues for companies better known for other activities. Kaplan, Inc., became a giant in the U.S. test preparation business, making the company a huge financial success (so much so that its parent firm, the Washington Post Company, has been able to stay profitable even as its flagship newspaper suffers from the same woes as the rest of the media industry). Like Laureate, however, Kaplan made a significant move into higher education, with test preparation now accounting for less than a quarter of its business. Its major activity is now postsecondary education: in the United States, the company offers mostly online certificates and degrees in practical fields such as nursing, criminal justice, and information technology. Overseas, it runs a variety of higher ed ventures, often so-called pathway programs that serve students in assorted non-Western countries who wish to study in the West. These programs are typically one-year courses that cover everything from English-language training and core academic skills to instruction in how Western universities work. Such preparation is sometimes required as a condition of admissions by British or Australian universities. Kaplan doesn’t only offer a year of college prep, however. Some of its campuses have partnerships with Western universities that allow students to begin in China, under Kaplan auspices, and then go on to complete their coursework at, say, Northeastern University, the University of Adelaide, or Sheffield University in Britain.

Another giant on the American for-profit higher education scene, the Apollo Group, sees big growth prospects overseas. Apollo, the parent company of the University of Phoenix, which created a thriving business catering to working adults with mostly online courses, waited for some time to dive into the international for-profit market. It did so with a splash, however, announcing a joint venture with the Carlyle Group in October 2007. The two partners agreed to pledge $800 million and $200 million, respectively, to the newly formed Apollo Global, which set its sights in particular on serving the “attractive demographics” of Latin America and Asia.⁵ The following year, the new venture went on to acquire the Universidad de Artes Ciencias y Comunicación, a Chilean arts and sciences university known as UNIACC, and to purchase a majority stake in the Universidad Latinoamericana, a private university in Mexico City specializing in dentistry, medicine, and communications programs that had previously been part-owned by Carlyle. By the spring of 2009, Apollo Global was in talks to acquire a British higher education company, BPP Professional Education, which was the first for-profit institution to offer degrees in Britain.⁶

Apparently not wishing to be left behind in the rush to seek international business, one of the biggest publicly held for-profit higher education companies, DeVry Inc., is also entering the fray. The firm has already been successful enough in the United States to win over onetime skeptic Harold Shapiro, former president of Princeton and the University of Michigan, who now chairs DeVry’s board.⁷ Next, in March 2009, DeVry, which owns such U.S. institutions as DeVry University, Ross University, and Chamberlain College of Nursing, announced its first major overseas foray—the purchase of a majority stake in Fanor, a firm that provides private postsecondary education in northeastern Brazil. The agreement called for DeVry to pay $23.5 million in cash for Fanor and to assume the company’s debt in exchange for a 69.3 percent stake in the company. The three colleges owned by Fanor serve more than 10,000 students in some twenty-eight undergraduate programs in business, law, and engineering.⁸ This vocational focus is in keeping with the U.S. operations of DeVry, which focuses on professional education in technology, business, and management, delivered in undergraduate, graduate, and lifelong learning programs aimed at working adults.

The international for-profit education market is certainly not restricted to U.S. companies. Singapore-based Raffles Education has campuses in Australia, India, Malaysia, and Hong Kong. The Estacia University Group in Brazil invested in a Paraguay campus. Nyenrode Business Universiteit, an elite for-profit business school in the Netherlands, opened a branch campus in Nigeria.⁹ But the largest and higher-profile new entrants in the cross-border for-profit university market are American firms. And of those, by far the biggest is Laureate, which seems poised to build significantly on its already dramatic success.

Laureate already has more than 150 campuses in North America, Latin America, Europe, and Asia. It offers a multitude of degrees in engineering, education, business, health care, hospitality, and information technology. The company experienced 30 percent growth annually for six years running, with $2 billion a year in revenues.¹⁰ CEO Becker projects that demand for higher education among eighteen- to twenty-four-year-olds will continue to grow by 10 percent a year. And he notes that private, for-profit operators are no longer content simply to acquire open secretarial schools and other vocational programs; now they are beginning to operate mainstream research and medical institutions as well—both of which Laureate has done. Indeed, in July 2008, Laureate announced that it had acquired several large private universities in Mexico and Costa Rica, one of which includes a medical school (overall Laureate now runs fifteen medical schools).¹¹ And in Chile, according to Becker, Laureate’s institutions are the largest private recipients of federal research funds.¹²

While Laureate runs postsecondary institutions worldwide—including well-regarded hotel-management schools in Switzerland and Spain—the core of its operations are in Latin America. Becker cites two Laureate-owned universities in the region as particularly good examples of the company’s approach. One is the Universidad del Valle de México, or UVM, a well-regarded university founded in 1960 that educates some 90,000 undergraduate and graduate students on thirty-five campuses. Becker calls the university a “mid-tier” institution that caters to Mexico’s expanding middle class. He is proud that in a Reader’s Digest survey UVM placed in the top ten for six years in a row, ranking seventh in 2009. He is prouder still, however, of the fact that all the higher-ranked institutions were elite universities—either public institutions that cost little or nothing but reject most applicants, or private universities that charge two or three times UVM’s annual tuition (which stood at around $4,100 in 2009).¹³ Using language that echoes almost precisely the rhetoric used in U.S. higher education policy debates, he argues that through institutions such as UVM, Laureate delivers “recognized quality education while adhering to a mission of access and affordability.”¹⁴

That the rising global for-profit sector typically focuses on universities offering programs in health care, nursing, business, and the like is no accident. Increasing numbers of university students are nontraditional age: close to 40 percent of U.S. undergrads and 30 percent of Canadian undergrads are over twenty-five years old, while more than 20 percent of first-year university students in Australia, New Zealand, Denmark, Norway, and Sweden were over twenty-seven in 2000, according to OECD figures. That demographic shift, toward what is usually known as “lifelong learning,” has required universities to rethink the mix of educational offerings they provide to cater to the needs of different kinds of students, many of whom are older and seek part-time coursework. That has led them to consider not only the formal education they have traditionally provided but also on-the-job vocational training, as well as distance learning that students can complete at home.¹⁵

At the same time, Perkinson reports, demand for technical and vocational education and training has risen substantially with, among other developments, the massive growth of the information technology (IT) industry. For example, some European and U.S. firms have reported shortages in IT jobs, a development that—combined with other factors—has led many universities to include vocational programs in their mix of offerings. It has also, of course, provided huge new opportunities for for-profit institutions to offer classes, both in and outside university settings, that are typically less expensive and shorter in length than regular college courses. India’s IT training firm APTECH, for instance, has some 3,000 training centers in 52 countries.¹⁶ For similar reasons, plenty of international activity can be found in the corporate-training sector as well. Cisco Systems has a “Networking Academy” that provides practical IT courses to 600,000 students in more than 160 countries. In Morocco, enrollment rose 47 percent from 2007 to 2008 alone, with women making up nearly one-third of students.¹⁷

That market demand is so career-oriented explains why international for-profit universities rarely do more than dabble in research. Despite conducting some applied research projects—in part because this kind of work can be important to the job satisfaction of faculty members—Becker says pushing scientific frontiers will never be part of Laureate’s mission. “We will never do basic research,” he says. “We need to pick our niches.” That is one of several defining characteristics of the flourishing private university market overseas, he adds. While he takes pains to note that his institutions are universities, not trade schools, Becker says that in general, “the private sector will focus on employment-oriented outcomes for students who can afford to pay. The public sector will focus on three things: research, the absolute elite best students, and the students who aren’t great students and can’t afford to go to private universities.”

However, while the growth of for-profit universities has led to criticisms that they provide education for the privileged elite, the reality is far more complicated. In some ways, the growth of private institutions, which cater to a level of demand that public universities are often unable to meet, overturns stereotypes about which kinds of students are served by each type of institution. While good data are hard to obtain, many students who would not otherwise have access to higher education receive important skills from private institutions, argues Daniel Levy, a professor at the University of Albany (SUNY) and director of the Program for Research on Private Higher Education. “A lot of the private institutions are what I call ‘demand-absorbing institutions’—they are attracting a lot of people who couldn’t make it in the public sector.”¹⁸

While Americans tend to associate private (nonprofit) universities with elite education (even though most U.S. private universities are not elite), in the rest of the world almost all elites are public. With fiercely competitive admissions exams, often the children of the wealthy are best able to obtain the preparation necessary to get in. In a country such as Brazil, with its deep class divides, Levy says a typical pattern would be for exclusive public universities to admit affluent students who have attended private primary and secondary schools before receiving taxpayer-subsidized postsecondary education. Lower- and middle-income students tend to be squeezed out: “At stage one, they weren’t from privileged backgrounds,” Levy says, while at stage two, “they weren’t strong enough academically.” All this means that domestic opportunities for some students are limited, thus opening the door for the Apollos, Kaplans, Laureates, and more.

While global for-profit universities certainly face barriers, they have investors convinced that they represent a major financial opportunity notwithstanding gloomy economic times. Brooke Coburn, managing director at the Carlyle Group and head of the blue chip investing firm’s U.S. Growth Capital Team, lays out a detailed case for his company’s interest in private sector education in general and its decision to enter a joint venture with Apollo Global in particular. Carlyle invests in for-profit companies, with Coburn’s fund focusing on “long-term investment in growth sectors where you have the potential to meaningfully expand companies over five to ten years.”¹⁹ Carlyle makes particular efforts to help the companies in which it invests expand internationally. For more than a decade, Coburn’s fund has been active in the global education sector, which he views as an area where “opportunities are very significant from an investor’s point of view.”

Why are those opportunities so great? First, massive funds are spent on education. Coburn notes that in most countries around the world, education “is a big-four or big-five spending item” coming not far behind health care. Moreover, the importance of developing human capital is increasingly clear on a practical level. “There’s a near-perfect correlation between educational level and earnings potential, so it’s one where, from the consumer’s standpoint, there’s a very high return on investment.” In addition, he sees growth potential for the for-profit sector because of the capacity limits that have often characterized postsecondary systems in nations where university education has been geared at the elite rather than the masses.

Finally, drawing another health care parallel, Coburn says the introduction of technology has improved efficiency a lot, whereas “education is still relatively nascent in terms of technology adoption.” As an example of the room that exists for growth, he points to Blackboard, Inc., an education-technology firm in which Carlyle invested more than ten years ago. In the past decade, Blackboard has grown a hundredfold, from a small firm to the world’s largest provider of instructional software for postsecondary institutions. Most of Blackboard’s business is in the United States, but it has expanded overseas as well.

While Carlyle rarely forms joint ventures with corporations, it did so with Apollo because “there was a very symbolic fit between what they do well and what we do well,” Coburn says. The investment firm brings capital, of course, plus an international presence that is rare among private equity firms, long-standing interest in education, and extensive experience making acquisitions. For its part, Apollo has developed a flourishing domestic business but hadn’t previously done much to expand internationally. The online-learning giant stands out from many other companies, Coburn believes, because of its course delivery mechanisms, its student support structure, the breadth of its curriculum, and operational strength so great that it has call center staff around the world who speak more than thirty different languages. (The company’s programs reach more than 130 countries.)

Carlyle is happy with the joint venture so far, but it is too early to tell whether it will be a success either financially or in terms of student learning outcomes, enrollment, and job placement, Coburn says. “We’ll answer that question in five years.” While rival Laureate remains by far the largest for-profit operator internationally, the company’s overall size is considerably smaller than Apollo’s. And there is apparently plenty of room to grow. “Cornering the education market is a little bit like cornering the health care market—it can’t be done,” Coburn says. “This sector is so large that it could support fifty or one hundred companies the size of Apollo worldwide.”

He sees Apollo’s particular strengths—notably the centralized operations it has perfected at the University of Phoenix—as positioning the company especially well for global expansion. “There is a lot of leverage and efficiency to be gained from having multinational operators.” Apollo’s course-delivery systems, from technology infrastructure (computer servers and software, call centers, and so on) to telephone advisers who walk students through the matriculation process and advise them about financial aid, are well established, scalable, and give the company distinct advantages over its competitors, Coburn maintains. “These technology platforms and the concept of scalability is something that’s foreign to many institutions.” The goal of eventually going to scale, of course, is to serve the significant numbers of adult learners to whom mainstream universities have not traditionally catered. “Ultimately, is Apollo Global going to be competitive with Harvard and INSEAD [the Fontainebleau- and Singapore-based international business school] and other elite institutions around the world? No. But that’s not the objective,” Coburn says. “The objective is to focus on the fat section of the demographic curve where there is an unmet need, and where elite institutions don’t have the capacity, or it’s not within their strategic objectives to meet the needs of those students.”

PLUGGED-IN LEARNING

With the expansion of the global for-profits, those needs are being catered to with distinctly new forms of instruction. Hand in hand with the rise of for-profit education, technology is increasingly being used to reach students both within individual nations and across borders. Overall, the growth of online postsecondary education around the world has been enormous—it makes up some 15 percent of all higher education globally. That, says Perkinson, makes it “the fastest growing subsector in education today.”²⁰ While some students take purely online classes, the most common arrangement is for students to combine some face-to-face classroom instruction with distance learning, an approach sometimes known as click-and-brick or “blended delivery.” As of 2004, in China alone there were about 2 million postsecondary distance-learning students, with about a million in Latin American nations and another million in Europe. Half the students enrolled in Australian universities from Hong Kong and Singapore are doing so through distance-learning programs, while about one-third of all postsecondary courses in Russia are being taken online.²¹ In the United States, the 400,000-student University of Phoenix is now the largest private university, enrolling about three-quarters of its students in distance-learning courses. Overall U.S. enrollment in individual online courses jumped from under 1.9 million students in 2004 to 3.5 million in 2009. Even when the student count is limited to those enrolled in fully online programs, the numbers are substantial: the research and consulting firm Eduventures estimates that 2 million Americans studied wholly online in 2009, up from 1 million in 2004.²²

Most of this growth in Web-based education has taken place in the private sector. “For-profits are the logical purveyors of distance learning,” according to William Tierney, director of the University of Southern California’s Center for Higher Education Policy Analysis.²³ While elite institutions such as MIT and Yale have attracted considerable attention for their “open courseware” offerings that provide either their entire curriculum (MIT) or selected courses (Yale) free to students willing to study online, for-profit firms, unsurprisingly, have targeted paying customers seeking practical courses. And they have quickly done so at scale. In Mexico, for instance, Tecnológico de Monterrey, one of the largest private universities in Latin America, has thoroughly integrated online courses into its programming. About 83,000 of the university’s 101,000 students take one or more of their classes online through its affiliated Universidad Virtual.²⁴ And more than 5,000 of its students live outside of Mexico, taking a mixture of online and campus-based classes in other Latin American nations.

The possibilities that this kind of learning can open up—as well as some of the uncertainties—are apparent in the Chronicle of Higher Education’s portrait of a Whitney University venture in one small town in Colombia.²⁵ In Anapoima, two hours from Bogota, construction of a five-foot satellite dish at a local school has opened up new vistas for residents such as Jhon Harold Peña, who works in the stockroom at a nearby country club, and his wife, Marta Castiblanco, who cleans guest rooms there. The two want to improve their family’s life—they have three children—but they have never before had the chance to study. Now Castiblanco, who wants to be a tour guide, is studying tourism. Pena, who would like to run his own auto-parts business, takes classes in financial management. Both study via weekly online classes beamed to their town from the campus of Grancolombiano Polytechnic in Bogota, which runs the classes in Anapoima as well as at four other distance-learning sites (dozens more are in the works). Many of their classmates never knew how to use e-mail or surf the Web before taking the class.

Technology apart, the setting in which these students pursue their education is distinctly low-budget. In one business administration course, students sit in a ramshackle metal-roofed classroom and take notes as a lecture—delivered via satellite—is shown on a screen. A proctor e-mails their questions to Bogota, where professors can sometimes respond right away. Another group of students studies in a small computer lab, while a third studies at picnic tables lit only by a few bulbs. Still, the ability to study close to home is a must for many students. “Bogota is too far,” says Jimmy Benavidas, who is studying for a business degree. “I couldn’t afford to live there, plus I’d never see my family.”

Whitney University says its online partnership with Grancolombiano is bringing higher education to disadvantaged students—often adults—who are typically unable to access traditional universities. The rector of Grancolombiano says he wanted “a new education model that didn’t just serve the privileged few.” Whitney, of course, wants to make money—in part by linking its virtual classes with university brand names that are known in the region. At Grancolombiano, the university develops the online curriculum, while Whitney International’s end of the deal includes building a modest television studio, connecting the university to its Panama-based South American satellite network, setting up remote-learning sites, adapting existing course materials for online use, and training professors to lecture from the studio.

The adaptation process isn’t always easy. At first “I was nervous as heck,” says mathematics professor Nidia Mercedes James, who had never before lectured to a camera in a TV studio (students get a combination of live and prerecorded lessons). But she is now becoming used to the new medium and says she enjoys the online forums that let her interact daily with some of her 250 students. Students studying long-distance, she says, are especially in need of feedback. “They aren’t here on campus, so they need the extra motivation,” she told the Chronicle.

While students certainly benefit from personal interaction, receiving such attention in a distance-learning environment is inevitably harder. Many are nonetheless willing to make the trade-off because of the enormous flexibility that online study provides. Around the world, the convenience of distance learning for working students is a major selling point for the international for-profits. In Australia, for instance, a division of Kaplan, Inc., known as Kaplan Professional offers specialized graduate-level degrees and certificates in applied finance—asset and liability management, equity analysis, sales and marketing for financial institutions, and the like. The company’s marketing materials play up the practical nature of the coursework, the personal guidance provided by a student adviser, and the flexible scheduling made possible by online learning options. Students can choose from a menu of “delivery modes”—distance learning, the more personal touch of face-to-face instruction, or a combination of the two.

A brochure for the courses, which were previously delivered by the Securities Institute of Australia and the Financial Services Institute of Australasia, touts the benefits for self-paced learners of “comprehensive course notes, downloadable lectures, electronic assignment submission and online access to experts and learning tools [that] enable you to study when and where you choose, anywhere in the world.” In the same vein, a first-person testimonial from Luke Bates, an analyst with the global accounting firm KPMG, backs up the point. “The course gave me the flexibility to be mobile without my studies being affected. I started in Sydney, spent six months in Perth and then finished in Adelaide,” he says. The pamphlet also quotes Bates praising e-learning tools that allowed him to build professional networks with fellow students, across Australia and overseas, “with whom I would otherwise have had no interaction.”

That Internet technology holds special appeal for for-profit educational firms is in many ways unsurprising, given the long tradition of private sector leadership in long-distance education. As far back as 1840, when the penny post was introduced in Britain, a correspondence course in shorthand was offered by Isaac Pitman. Correspondence courses became a veritable industry—the online learning of its time—offering much of the same flexibility as today’s distance-ed classes and also dominated by private providers. For a time, public sector universities offered various forms of distance learning, but today the for-profit sector is again at the forefront of the trend. As global higher education experts Sir John Daniel, Asha Kanwar, and Stamenka Uvalic-Trumbic explain, online learning makes particular sense for the private sector because of the way its costs are structured: relatively high investment on the front end, offset by substantially lower marginal costs as more and more students are signed up.²⁶

“For-profit institutions’ access to capital markets makes them uniquely suited to make those investments,” they write. Moreover, they argue, for-profit firms offering distance learning also benefit from two concurrent trends—the availability of freely shared course material, known as open educational resources, together with online learning–management systems easily available to anyone. Still, they fret that cross-border distance-learning programs, given their market-driven nature, too often focus on business and information technology at the expense of liberal education. They also worry that programs designed in one nation to be offered to students in another “may incorporate no recognition of social, cultural, and ethnic differences.” Maybe so. But one clear lesson of the surge in demand for cross-border education, both online and in brick-and-mortar classrooms, is that students and their families are less interested in cultural sensitivity than in securing the opportunities—and often the practical skills—associated with universities and training programs that are sometimes to be found most easily at institutions based in other countries.

Indeed, the version of branch campuses established by for-profits underscores the point. A number of programs operated by for-profit universities could be viewed as counterparts to the satellite campuses, established by mainstream universities, that have swept the Middle East and Asia. The two have in common the quest for new revenues, particularly in Asian countries (although some elite Western universities insist that internationalization, rather than tuition dollars, is their primary motivation). One notable difference, however, is the for-profits’ unusual hybrid credit-transfer arrangements. These permit students to begin part of a degree program at a for-profit institution in their home country, then travel abroad to earn a degree in another nation, often at a state university. In India, for instance, students can begin studying information technology at APTECH (the private firm with worldwide training centers), then after two years go on to complete a degree at the University of Sunderland in the United Kingdom or Southern Cross University in Australia.²⁷

The model bears similarities to the one offered by Kaplan in partnership with a consortium of nine British universities, as well as institutions in Australia and Singapore, that allows students in, say, China and Vietnam to combine coursework from Kaplan and the institution that will grant their degree. This arrangement might involve one year at home followed by three overseas, or two years each at Kaplan and the foreign university. “If you look at a place like China, with a rising middle class that’s expanding, many families could afford to send their child to a really good-quality university program,” says Mark Harrad, Kaplan’s vice president for communications. “But they’re unable to gain access to that because there are so few spaces. And my understanding is that there’s a big gap between high-quality programs and lower-quality technical programs. So the opportunity to go to the University of Sheffield in the U.K. is a very good opportunity for them.”²⁸

In some places—Shanghai, for instance—students who wish to receive a degree from an overseas institution while staying in their home country can study for all four years at a campus either created by or operated by Kaplan, which essentially acts as a subcontractor for the foreign university. This doesn’t mean a watering down of standards, company officials insist. “There’s an extraordinary amount of quality assurance put into the delivery of these educational programs by the overseas universities,” says Gerald Rosberg, a Kaplan senior vice president who is the architect of many of the company’s global partnerships. “The partner universities want this done to their satisfaction, in terms of not only articulating the curriculum and creating the examinations students have to take, but often also moderating the exams—they actually read the students’ exams.” In certain cases, the degree-granting universities send their own faculty to teach courses to third- and fourth-year students at the overseas campus.²⁹

Even as it forges alliances with mainstream universities, blurring the distinction between for-profit and nonprofit, domestic and overseas campuses, the next frontier for Kaplan will be to establish its own full-fledged educational programs around the world. “We’re going to be delivering higher education programs that are entirely our own, that don’t come with degrees from conventional universities,” Rosberg says. The firm’s higher-ed division is unapologetic about the kind of education it provides, he adds, bristling at the notion that Kaplan offers simply a stripped-down, less expensive, and lower-quality version of what traditional institutions offer. “We view it as equal or better, with a clear focus on outcomes, lots of testing, and very creative use of technology. What we are very eager to do is take all those capabilities that we believe have worked so successfully for students in the U.S. and make them work for overseas students. They won’t get big brand names, but they’ll get a better educational experience.”

As profit-making universities expand worldwide, finding the right balance between a global and a local presence can be a delicate matter. At least one major player—Laureate—makes a point of portraying itself not as a McDonald’s-like multinational conglomerate, spreading a single product and brand identity around the world, but rather as a culturally aware parent company of a network of distinctive local institutions. “We never talk about Laureate International University. We talk about Laureate International Universities,” says Joseph Duffey, senior vice president of Laureate and a former president of the University of Massachusetts system and of American University. He contrasted this approach with Apollo’s, which he said focused first on creating a model in the United States, then on exporting the same model overseas.³⁰ For his part, Jeff Langenbach, a former investment banker and now president of Apollo Global, disputes that characterization. It is true that the University of Phoenix was at one time marketing its core brand-name services to students around the world, he says. Now, however, with the formation of Apollo Global, the company’s strategy is twofold: targeting the University of Phoenix’s offerings at the U.S. market, including servicemen and women on American military installations, while using local brands, not the Phoenix or Apollo name, for Apollo’s overseas university acquisitions. These universities will, however, be linked globally by technology, and, unlike Laureate’s mostly on-the-ground classroom instruction, they will be largely online, permitting shared use of back office functions among campuses.³¹

If companies such as Laureate and Phoenix are not cross-border purveyors of a particular curriculum and brand-name educational experience, in what sense can their operations truly be considered part of the globalization trend in higher education? Becker answers this question by first underlining the “huge competitive advantage” Laureate brings to its spreading empire by applying its business model to institutions around the world. “These individual universities are made strong by welding them into a global network,” he says. Laureate’s market-based “best practices” include everything from how classroom capacity and scheduling are handled to the use of technology to design and build campuses (the company built 9 of its 150 campuses from scratch and renovated many more of the institutions it acquired).³² “These things are incredibly powerful, but students may never see them,” Becker says.

All this contrasts significantly with the international activities of nonprofit universities, he stresses. “The mind-set of business is accountability, measurement, and analysis. And there’s not a lot of that in the international [nonprofit postsecondary] markets. A lot of that is in the private sector.” When Cornell opens a branch of its medical school in Qatar, he continues, “they’re not there to bring state-of-the-art analytics and a commercial sense of accountability, because that’s just not what traditional nonprofit institutions do—that would not be their strength. But what would be their strength is academic rigor, a tremendous reputation and brand awareness, and [awarding] a U.S. degree.”

As for the growing global student mobility that has been such a striking feature of the nonprofit sector, Becker sees it as largely irrelevant to for-profits. “Some people think having a few wealthy people traveling around the world really creates globalization. What is that really going to do for students in Mexico and Shanghai who can’t afford to go overseas?” Becker says that the privately held company earns at most 35 to 40 percent of its revenues from Europe and the United States combined. By contrast, it earns about 60 percent of its revenues in Latin America and is investing heavily in Asia. In these emerging markets, overseas study is a pipe dream for the kinds of students Laureate targets, he says. While Laureate offers its students in Mexico the opportunity to study at its university in Madrid, and at the same tuition they pay at their home universities, few are able to take advantage of the company’s global network simply because travel and living costs are too high.

By contrast, Becker does see international synergies in the ability of Laureate-owned universities to share faculty know-how and curriculum. A professor at one of the company’s Mexico campuses might be trained by a professor from China or the United States or Spain, for instance. Similarly, there is cross-pollination between Laureate’s showcase programs and other universities. Students at one of the firm’s Mexican universities can study the same curriculum offered by the two elite hotel-management schools Laureate runs in Switzerland.

Still another way of understanding the participation of for-profit universities in globalization is as providers of human capital. “There is some global culture, but the primary focus of the privates is responding to the localized postsecondary learning needs of the population,” says Gerald Heeger of Whitney International.³³ Private universities are less likely than elite nonprofits to train students to be global businesspeople, he says. But they are very likely to educate, say, accountants who must know how to help local businesses confirm to increasingly standardized international accounting rules, “even if they never leave their hometown of Cordoba, Argentina.” Thus, for-profits train local human capital for local and regional businesses, which in turn take part in the global economy.

REGULATING QUALITY

For all the successes of the global for-profits and their rapid spread to new markets around the world, they face huge skepticism from their more traditional nonprofit counterparts—and sometimes from outside analysts and government regulators as well. The key question mark for many critics is quality. In Colombia, for instance, Whitney International’s alliances with several for-profit universities have drawn concern. “Very little is known about Whitney or its partner universities,” says Ana Lucia Gazzola, who directs UNESCO’s International Institute for Higher Education in Latin America. “I strongly suspect that what we are seeing here is a commercial service operating at the margins of the education system, with hardly any oversight.”³⁴ Daniel, Kanwar, and Uvalic-Trumbic are even more emphatic about the quality shortcomings of some private providers. In India, for instance, while international for-profit institutions are needed to expand access, many have “problematic” quality, they write. “Even when the foreign providers are universities, they are not in the premier league and have mediocre reputations in their own countries.”

Some criticism of the for-profits is grounded in legitimate concerns about their shortcomings. At the same time, some seems to be based on fundamental philosophical disagreements about the legitimacy of profit-seeking entities entering the postsecondary market in the first place. Higher education is widely viewed as a public good—one with such widespread benefits to a nation, its citizens, and its economy, that it should be viewed, and funded, as any public service would be. Hence, the suspicion of the Whitneys, Apollos, Laureates, and Kaplans of the world. “I think a large part of it is cultural,” says Levy of the University of Albany (SUNY). “It’s [also] historical. Higher education in most of the world, outside the United States, has been a public enterprise—publicly funded, with public across-the-board rules.”³⁵ With that university form so well established, he says, any new entrant would inevitably face wariness and challenges. For-profits typically shy away from expensive areas of study and from conventional scholarly research, he notes, operating with significantly lower costs per student than their inefficient public sector counterparts. This has the effect of increasing access to underserved student populations—but also fuels a continuing debate about whether greater efficiency comes at the price of substandard quality.³⁶

Still, even some observers who share a degree of skepticism about the quality of for-profits argue that what they have to offer must be understood in the context of the markets in which they compete—all the more so in the case of for-profits expanding into foreign countries. Jason Lane, an assistant professor of education at SUNY–Albany who studies the global for-profit sector, argues that cross-border higher education providers come with a certain level of built-in quality assurance because of the reputations they bring with them from their home countries. In places like Malaysia, which has a large for-profit postsecondary sector, foreign providers may well provide educational quality superior to that of the often-problematic domestic for-profits. Moreover, an argument can be made that foreign-owned for-profit universities have a clear self-interest in policing their own quality standards. “They want to make sure they maintain a positive image,” says Lane. “They have a product to sell.”³⁷

Indeed, the international for-profits take the view that it is domestic universities of all stripes, rather than their globally minded counterparts, with which they must contend for market share. “Our competitors are not the Apollos or the Kaplans,” insists Laureate’s Duffey. “Our competitors are the other universities in the countries where we operate, both public and for-profit.” That view is certainly held, at times with alarm, by many of the conventional universities in countries that have seen a substantial and growing presence of for-profit providers. In September 2008, Universities U.K., a group representing British university heads, issued a report warning that U.S. firms such as Kaplan and Apollo are aggressively expanding into the United Kingdom, Western Europe, and beyond, sometimes working in partnership with state universities—and sometimes purchasing them outright. That means British universities may lose both students and money, the study concluded. Kaplan “is Hoovering up institutions in the UK and Australia,” said the report’s author, Roger King, a longtime higher education scholar and visiting professor at the Open University’s Centre for Higher Education Research and Information.³⁸

King pointed to cases where regulators cracked down on for-profits for “over-aggressive and inappropriate student recruitment and retention practices,” suggesting that these indicate how much pressure for growing revenues exists in the for-profit sector. Sally Hunt, the general secretary of the University and College Union, put it even more bluntly: “If we move towards more private involvement in higher education, then successful universities of the future will be the ones who can flog cheap courses for the most cash.” Others, however, said the entrance of for-profits expanded student choice and usefully catered to the needs of employers. “How much should we all be worrying if it encourages us to further sharpen up the quality of higher education provided to the benefit of our students?” said Alice Hynes, CEO of GUILDHE, an organization representing newer and more specialized postsecondary institutions.³⁹

Perhaps unsurprisingly, political ideology plays a decisive role in whether cross-national for-profits are granted access to a new global market. While Laureate has had notable success in Latin America, a secondary presence in Europe, and plans to expand to Asia, it has been frustrated in its efforts to enter the massive and potentially lucrative Indian market, according to Levy. The firm thought it could gain permission to operate in India but was then told no. Indian neoliberals favored Laureate’s entry, Levy says, but the country’s powerful socialists vetoed the plan.

This kind of antipathy toward new private sector players seems to rest on a fundamental conviction that education is a public good, just like national defense or perhaps health care. In this view, there is something inherently distasteful about private provision of something that is close to a fundamental human right and ought therefore to be provided by the state. It is true, write Daniel, Kanwar, and Uvalic-Trumbic, that higher education is a public good. “Having a fire brigade at hand if your house catches fire is a more obviously useful public service than having accessible higher education, but the proportion of people with higher education correlates well with a society’s state of economic and civic development.” However, because of the personal economic rewards that accrue to those with greater education, it is simultaneously a private good, “with direct benefits to those who participate.”⁴⁰

The latter argument has not made significant inroads in many nations, however. The philosophy that there is something dubiously mercantile and crass about for-profit higher education is reflected in the laws passed in countries such as Mexico and Chile that require all private postsecondary providers to be nonprofit. Operators such as Laureate have found a variety of creative means around such provisions, however. Douglas Becker of Laureate says the company sometimes receives contracts with nonprofits to run universities, or is able to operate as a nonprofit itself in countries such as Mexico, where certain kinds of nonprofits can nevertheless have shareholders and declare dividends. (“We operate in the cultural and regulatory context of each country,” a Laureate spokeswoman says.) More important, Laureate officials argue, distinguishing between for-profit and nonprofit universities is often difficult. Some nonprofits are run by families that have built up significant wealth through university real estate holdings, and some have for-profit business units. Moreover, they say, their money-making universities engage in plenty of altruistic activities, from providing shelters to refugees from severe flooding in Villa Hermosa, Mexico, in 2007 to offering free medical care to patients being treated by students at Laureate-owned medical schools.

In the vast majority of cases, Duffey suggests, the for-profit versus nonprofit distinction is moot in the communities where Laureate operates. “Let me describe a conversation I’ve had about a dozen times on the fringes of Mexico City or in nearby cities. I look the place over, sit down with the city fathers, and say, ‘Do you have young people who are eager for a university education? Could you get more investment in your community with more trained workers? Oh, and by the way, I saw an abandoned monastery on my way here. Suppose we put a university branch there? Would you like to have a career-oriented higher education institution here that would pay taxes on its earnings?’ ” This isn’t a hard sell, Duffey says. “Nobody else has come in and offered to set up a university.” Little surprise, then, that there are now a dozen branches of Laureate’s UVM around Mexico City.

Laureate’s example is evidence that official policies may have little bearing on the ability of the for-profits to spread and thrive. The University of Albany’s Levy cautions against falling into the trap of equating government policy or national attitudes with the level of student demand necessary to sustain a successful postsecondary enterprise. “It is not a requirement that most of the country like you. You need to attract enough students, and maybe enough capital. But for most people to have a visceral reaction that’s negative doesn’t mean the private can’t thrive—so long as the regulatory regime is liberal.”

The regulatory regime, of course, falls precisely at the intersection of the current operations of for-profits, critics’ concerns about their quality and viability, and their prospects for further growth. How can the promise for-profits offer of access and equity be squared with the need to ensure basic standards? Higher education should not be treated as a government monopoly, Daniel, Kanwar, and Uvalic-Trumbic argue persuasively, particularly in circumstances when state-run universities are not able to meet the needs of a nation’s citizens. “So a choice must be made between inadequate provision of higher education by a public-sector monopoly,” they write, “or meeting the demand by a combination of public and private for-profit institutions.” That said, they say that a role for government oversight is inevitable: “Government is most effective when it monitors and regulates the provision of public services by others, rather than controlling those services directly.”

But given that for-profits are spreading rapidly and that regulation is inevitable, what form should it take? This is a hot topic in the higher education and international development communities. Regulatory barriers to for-profits can be huge. Uncertain and inconsistent oversight criteria; quotas for students from certain backgrounds, as in India; rules prohibiting foreign ownership of private institutions; and limits on fees and for-profit status are just some of the obstacles with which the for-profit sector must contend. In Vietnam, guidelines from the Ministry of Education and Training require that, in addition to their regular coursework, students “must study and obtain a full diploma in Marxist-Lenin philosophy, Marxist-Lenin political economy, scientific socialism, history of the Communist party of Vietnam, and ideology of Ho Chi Minh.”⁴¹

Such regulations are a significant impediment to companies that want to enter and operate in new markets. “Regulatory risk is one of the few things that can put you out of business,” says Brooke Coburn of the Carlyle Group. The company is far less likely to enter a country such as India, with its highly restrictive regulatory environment, he says, than China, which welcomes capital and expertise from abroad, or Chile, which he calls “one of the most progressive markets in the world from a regulatory standpoint.” Governments with severe postsecondary capacity problems, others concur, are thwarting innovation and hurting their own citizens by “putting up barriers” to new entrants, in the words of Sir Graeme Davies, vice chancellor of the University of London.⁴²

Interestingly, however, at a May 2008 meeting on innovation in private higher education, sponsored by the World Bank’s International Finance Corporation, two leading representatives of the for-profit sector, Doug Becker of Laureate and Jorge Klor de Alva, a senior vice president at the Apollo Group, both expressed support for greater regulation as a means of keeping out fly-by-night providers. “My biggest hope is that governments will set high standards,” Becker said. “The people really in it for the quick buck—they’re not helping the industry.”⁴³ Agreed Klor de Alva: “We have to make it very difficult for shoddy providers.” (Perhaps not coincidentally, a higher bar for all for-profits would likely cement the dominance of the market leaders.)⁴⁴

The two approaches are by no means mutually exclusive, of course: it seems possible to imagine a general policy of relatively easy entry for for-profit universities, combined with careful oversight designed to guard against either academic or financial fraud. Still, even finding this golden mean may be harder than it seems. Daniel Levy suggests that regulators avoid taking a one-size-fits-all approach to institutions that vary enormously—and that lower-status universities warrant respectful treatment. “I don’t think there is an ideal regulatory framework,” he says. “If there is for my setting, there might not be for someone else’s.” Governments ought to tread cautiously when it comes to university oversight, he says. “While I believe fervently in regulation, and it’s certainly necessary for private institutions, ideally it should be done with a sense of modesty and humility. There will be lots of mistakes made, lots of unanticipated consequences—some negative, some positive.”⁴⁵

Whatever obstacles regulation may bring, for-profit providers remain bullish on their prospects in the years to come. One likely source of expansion, according to Kaplan’s Rosberg, is continued growth in partnerships between public universities and for-profit providers, such as Kaplan’s “pathways” college-prep programs, in which conventional universities hire for-profits to provide a range of services that were previously handled on campus. “Student recruitment, English-language training, and teaching the basic first part of the curriculum can really be done more efficiently and effectively by for-profits—and there are more and more examples around the world of this happening,” Rosberg says. At this point, these arrangements are far more common in the United Kingdom and Australia than in the United States, however. “At some universities the faculty senates are very uneasy about outsourcing—the whole word ‘outsourced’ is anathema to them.” Nevertheless, he predicts confidently, “it’s going to come here just as it has at other Western universities.”

Rosberg acknowledges that for-profit universities face obstacles to overseas expansion, notably the difficulty of competing with traditional universities that are so heavily subsidized that students pay only nominal tuition. But he is convinced that the entrepreneurial approach pioneered by for-profits, first in the United States and now internationally, will give them a larger and more important place in the higher education systems of many nations. “We’re challenging some of the assumptions on which the traditional education world is based,” Rosberg says. For-profits are typically better than traditional universities at focusing on part-time students and working adults who want studies that will further their careers, he says. Their mantra is outcomes-based instruction in which student progress is measured regularly. And they have become adept at using a blended learning environment that combines classroom and online instruction.

“One of the tensions that exists all over the world,” Rosberg says, “as countries are looking at what to do in the higher education sector and whom to admit from overseas, is prestige. For many students, prestige is very important. However, many of these same students will come to realize they cannot get into elite institutions without conversion programs that prepare them for Western universities. For other students, prestige is less important than access to schools that provide retraining programs, skill enhancement, and the academic fundamentals necessary to win acceptance into Western universities. When you look around the world to see who knows how to do that, the answer is that it’s again America’s for-profits.”

Certainly, nobody expects vocationally oriented for-profits to push aside the global research institutions that are vying for global predominance. But the for-profits make a respectable case that, notwithstanding their differing mission and status, they are likely to have a place at the table. As long as the middle class continues to grow in the developing world, demand for postsecondary education continues to outpace supply, and government provision of public higher education lags behind the public’s needs, customers will flock to global players such as Laureate, Kaplan, and Apollo, and to their non-brand-name counterparts. While this form of globalization is certainly not identical to the kind sweeping more conventional nonprofit universities, it nevertheless holds significant promise as a form of global educational influence that reaches a completely different segment of the population and builds the human capital that is so vital for global economic growth. To make the inevitable comparison, in the decades since multinational corporations began to dominate industry after industry, their proliferation has dismayed critics but has also brought huge benefits to the global economy. Similarly, in the realm of education, the multinational for-profit firm could turn out to be the vehicle best suited for providing broad-scale access to practical higher education, benefiting students who might otherwise have far fewer opportunities.