For-Profit Universities Want Some Respect

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PARTNERS "People who have negative comments about online schools are being old-fashioned," says former GE CEO Jack Welch, above. He has invested $2 million -- and his own name -- in the Jack Welch Management Institute, an MBA program at Chancellor University, a for-profit school in Cleveland, which is part of the education portfolio put together by investor Michael Clifford, left. | Photographs: Aaron Lindberg (Clifford); Joe Raedle/Getty Images (Welch)

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Photograph by Jamie Chung

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Not Quite Ready for the Honor Roll

Michael Clifford never went to college. He was a trumpet player "strung out on sex, drugs, and rock and roll," he says, until he started a new life as a born-again Christian and successful tech investor. Then Bill Bright, founder of Campus Crusade for Christ, gave him a life-changing piece of advice: "He knew I loved business and did a lot of charity work," says Clifford. "He told me education is the one business where you can help people live better lives and make a lot of money for your investors."

Today, Clifford chairs Significant Federation, a private equity firm that is a principal investor in a half-dozen higher-education companies, including the most successful IPO of 2008 (Grand Canyon University) and one of the most successful of 2009 (Bridgepoint Education). His six colleges have almost 100,000 students -- 90% of them studying online -- and he has close to $100 million in capital. Now he is trying to create the kind of prestigious brand name that for-profit online education has lacked: the Jack Welch Management Institute at Chancellor University.

Today, for-profit colleges enroll 9% of all students, many of them in online programs. It's safe to assume they'll soon have many more. President Obama has called for America to have the world's highest percentage of college graduates by 2020, and for-profits are the only sector significantly expanding enrollment -- up 17% since the start of the recession in 2008. Emerging from its scandal-plagued "diploma mill" rep (see "Not Quite Ready for the Honor Roll," page 54), the industry consolidated in the past decade under a handful of publicly traded names, including Kaplan (part of The Washington Post Co.), DeVry, and the University of Phoenix, which with 420,000 students is the largest university in North America. These companies, which depend on tuition revenues backed by federal student grants and loans, have been strong performers for stockholders.

Clifford likes to take over the accreditation of a struggling bricks-and-mortar institution, sometimes just days before it runs out of cash. "We're a SWAT team," he says. "We love fixing schools." Full-time professors with PhDs and seasoned administrators run the home campus as a "learning lab," developing and testing curricula and texts for the much larger online programs. As a bonus, the brand maintains all the trappings of a traditional university -- sports, dance line, pep band, community service, and in Grand Canyon's case, a Christian mission. Clifford, whose personal charitable efforts include a soup kitchen and housing for 600 ex-gang members in L.A., says that Grand Canyon online students who have never set foot on the Phoenix campus log on to the Web site and check the status of the basketball team, or watch the live stream of Sunday chapel.

While private colleges have taken huge hits to their endowments, and public universities weather historic cutbacks, for-profits like Clifford's keep costs down with innovative use of technology, publish metrics like job placements, and are open to any high-school graduate. They target under-served markets like first-generation students and working adults with convenience and a customer-service ethic. Tuition and fees, which tend to be higher than public institutions' for on-campus programs, are comparable for online -- $687.50 per credit for undergrads on campus at Grand Canyon and $415 for online, for example, compared to $476 for the public University of Arizona.

But questions about quality linger. Despite the traditional campus trappings, Clifford's schools tend to have a vocational focus, such as health-care administration (L.A. College); only Grand Canyon and Crichton College have any liberal-arts programs.

Since there are no generally accepted measurements of learning in traditional higher education, the proxy for the value of a diploma on the job market is prestige. Rankings like those of U.S. News & World Report depend on reputation; spending per student, including spending on research; and selectivity -- a measure of inputs, not outputs. On all these measures, for-profits come up short.

The Jack Welch Management Institute is an effort to change that equation. In the summer of 2009, the totemic former CEO of GE announced he was acquiring for $2 million a 12% stake in Chancellor University System LLC, a Clifford investment that took over nearly bankrupt business college Myers University, in Cleveland. "I think it's an incredibly exciting market, a great business opportunity worth a lot of money, and an opportunity to do something good for society," Welch told Fast Company. "People who have negative comments about online schools are being old-fashioned."