need the answer to only discuss in blackboard. it should be one page. no need to write as essay , no need for introduction or conclusion. I want to show as my opinion – use words like this. i believe. i think answer all the parts of the question use

20190414234508april17___breneman_pusser__

need the answer to only discuss in blackboard.

it should be one page.

no need to write as essay , no need for introduction or conclusion. I want to show as my opinion

– use words like this. i believe. i think

answer all the parts of the question

use the material to answer the question. and also put opinion.

do not write too long sentences.

you should write in comprehensive way.

They are two questions:

:Based on our reading for this week, please answer two questions, be sure question two has two parts.

1.) The evolving higher education landscape is more complex than ever before, especially with technology changing the landscape of higher education. While traditional institutions are beginning to offer online programs, for-profit institutions have led the way. Not only are they meeting the growing demands of the workforce market, but they’re also meeting the needs of students with less of an expense. Most importantly, they invest in new technology, innovate rapidly and have the ability to quickly shift programs based on student demand and preferences. With this in mind, where do you see traditional nonprofit institutions in the next 10 years? Should administrators at traditional nonprofit institutions be concerned?

2.) “With regard to costs, it has been argued that the different institutional norms of the for-profit institutions may enable these providers to reduce costs and achieve greater efficiencies than their peers in the nonprofit sector (Kirp, 2003; Marchese, 1998). The spiraling costs of higher education, at public and private institutions, and the increased burden on individual students, are creating enormous pressure on the nonprofit institutions in the United States and around the world (Duderstadt and Womack, 2003; Ehrenberg, 2000)”

Secondly, carefully read the above from page 11; which was quoted in the late 90s and early 2000s. That said, as technology continues to rapidly evolve, and enrollment growth continues to decline while student debt continues to rise, how can traditional institutions ensure that they’re equipped to meet the growing demands of current and future students?

Attachments area

Chapter 1

The Contemporary Provision of
For-Profit Higher Education

Mapping the Competitive Market

David W. Breneman, Brian Pusser, and Sarah E. Turner

INTRODUCTION

It has become an article of faith in popular accounts that the next decade will
be a period in higher education defined by significant competitive gains by for-
profit providers of degrees, educational services, and products (Odening and
Letsinger, 2003; Newman and Couturier, 2001; Ruch, 2001). As one sign of
the rapid pace of change, the growth in the number and the nature of con-
temporary for-profit providers, in the United States in particular, was
described by one experienced observer as “shocking” (Levine, 1997). Reports
from market analysts have evoked images of an imminent collision between
efficient, technologically innovative, well-capitalized edu-corporations, and a
host of tradition-bound, inefficient, revenue-challenged, postsecondary insti-
tutions (Odening and Letsinger, 2003; Farrington, 1999). Inherent in these
presentations is the presumption that the competitive environment in higher
education is changing rapidly and that colleges and universities in the public
and nonprofit sectors are inefficient and failing to meet market demands.

The entrance of for-profit providers suggests the potential for dramatic
changes in the market for higher education, affecting the range of programs
available to potential students and the costs associated with different courses
of study. The nonprofit higher education sector in the United States alone
encompasses over 3,900 institutions, some 14 million students, and annual
expenditures of over $200 billion. Despite the importance of the topic and the
initial headlines, to date little empirical research has been devoted to a docu-
mentation of the changes in the number, distribution, and characteristics of
for-profit education providers over the past three decades.

This chapter begins with a discussion of the historical evolution and vari-
ation in the organizational form of institutions in higher education. The
second section presents an overview of the current demographics in the market
for higher education, with particular focus on the size of the for-profit sector.
The third section turns to the analytic framework and discusses the shifts in
supply and demand that determine equilibrium in the market for higher edu-
cation as well as the growth opportunities that the for-profit institutions expe-
rience. The final section provides a discussion of the public policy implications
associated with the rise in the for-profit provision in the rise in higher educa-
tion services. Data are drawn from Integrated Postsecondary Education Data
Systems (IPEDS) Institutional Characteristics, and from over twenty semi-
structured interviews conducted in 1999 with institutional leaders in the for-
profit and nonprofit higher education sectors, as well as venture capitalists and
education industry analysts.

CONTEXT AND HISTORY

The sustained dominance of the public and private nonprofit institutions in
higher education throughout much of the twentieth century suggests that
these institutional structures hold advantages beyond historical precedent
(Goldin and Katz, 1999; Clark, 1983). One argument for the extensive role of
nonprofits in the delivery of higher education concerns the very nature of the
product. Unlike many commodities, which are well-defined and singular in
consumption, the benefits of a higher education experience may be difficult to
measure with precision in the short term and may also provide benefits to soci-
ety beyond the gains to the individual student. To the extent that higher edu-
cation is characterized by these conditions—“information asymmetries” and
the “public goods characteristics”—there is a potential role for nonprofit
provision.1

“Higher education” is not a single output but a range of different educa-
tional products. Degree programs vary markedly along a number of dimen-
sions including how they are subsidized, the extent to which the course of
study provides general or job-specific skills, the selectivity of admission
requirements, and the mode of instructional delivery. As such, it is not sur-
prising that the distribution of organizational forms varies appreciably across
the range of educational providers.

History has played a significant role in the institutional evolution of the
provision of higher education. Both technology and public policy have shaped
the degree to which education has been provided by nonprofit or for-profit
institutions, as well as the extent to which higher education has been financed
by public or individual sources.

4 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

Well into the nineteenth century proprietary education, though often not
degree granting, was a source of basic skills in areas such as teaching, medicine,
law, and accounting that enabled individuals to make the transition to profes-
sional employment (Goldin and Katz, 1998; Honick, 1995; Geiger, 1986;
Veysey, 1965). Rapid industrial growth at the turn of the century led to a pro-
liferation of commercial schools that offered training in a number of new
technologies, including the typewriter and stenographic machines (Honick,
1995). Yet, the latter portion of this period was less kind to proprietary schools,
as the Progressive political movement and advocates of public vocational train-
ing placed increased constraints on the provision of for-profit education
(Honick, 1995; Trivett, 1974). The release of the Flexner report in 1910
severely curtailed for-profit medical education programs and led to further
calls for regulation and oversight of the entire proprietary sector.

Concurrently, the basic dynamics of the production process of higher edu-
cation shifted in the early decades of the twentieth century with the advent of
the comprehensive research university (Goldin and Katz, 1998). These insti-
tutions became characterized by economies of scale and scope, brought about
by substantial changes in the natural sciences and in the public policies fur-
thering the application of academic science in local industry. These emerging
research universities operated with an increasing division of labor and degree
of specialization. At the same time, complementarities in production emerged
among undergraduate education, graduate training, and basic research. Com-
bining these activities under one umbrella proved to be more efficient than the
independent production of each education service (Paulson, 2002; Ehrenberg,
2000; Lowen, 1997). These comprehensive research universities were also pre-
dominantly nonprofit and public institutions. The entrance of the research
universities ushered in an era of collective public investment in higher educa-
tion, accompanied by increasing public funding for, and public oversight of,
higher education (Goldin and Katz, 1998; Veysey, 1965).

The period from 1945 to 1975 is often cited as the “golden era” of Amer-
ican higher education. That phrase generally refers to the expansion in enroll-
ments and expenditures at existing public and private nonprofit institutions
(Clark, 1983, 1971; Kerr, 2003, 1991). As part of a general expansion of the
public support for educational programs beginning with the Sputnik and con-
tinuing through the Great Society initiatives, this period represented a golden
age of public funding for higher education; furthermore, the federal govern-
ment provided substantial infrastructure through research grants to universi-
ties and financial aid to students (Brinkman and Leslie, 1986; Bowen, 1968).
This period also encompassed the emergence and growth of a significant
public policy debate over the appropriate forms of university adaptation and
the balance of public and private funding in the provision of higher education
(Pusser, 2002; Tierney, 1999; Calhoun, 1998).

David W. Breneman, Brian Pusser, and Sarah E. Turner 5

The Resurgence of For-Profit Providers

One of the more significant events in the period was the passage of the Higher
Education Act (HEA) of 1972. HEA augmented the amount and types of
student loans and significantly increased the amount of direct financial awards
to students, primarily through Basic Educational Opportunity Grants, subse-
quently renamed as Pell grants. HEA offered key benefits to for-profit educa-
tional providers as several types of for-profit schools and their students were
made eligible for federal financial aid. Given the portability of Pell grants,
HEA also shifted control of the largest share of federal financial aid dollars
from institutions to individuals.2

More recently, a number of market factors have driven a substantial trans-
formation in the for-profit sector and strong projections for growth into the
foreseeable future. On the supply side, investments in new technology and
improved organizational practices may enable for-profit providers to deliver a
variety of higher education services at lower costs than those provided by
public and nonprofit providers. On the demand side, the rising return to col-
lege training, combined with the increasing size of the college-age population,
changed the opportunities for entry among for-profit providers.

DEMOGRAPHICS OF THE FOR-PROFIT
HIGHER EDUCATION SECTOR

A major problem in conceptualizing specific changes in the for-profit degree-
granting sector is the conflation of statistics and reports on the growth of the
overall “education industry” in the United States with data on the growth in
the specific arena of degree-granting, for-profit education. The total education
industry is estimated at about $826.6 billion in 2003. Higher education expen-
ditures are generally estimated at about $315.4 billion in 2003, for an enroll-
ment of about 17.4 million students (U.S. Department of Education, 2005).
The corporate education and training market comprises another $75 billion,
and is expected to grow more rapidly than any other segment (Altbach, 2001).
The for-profit degree granting industry is, to this point, significantly smaller.

The three degree-granting institutions most cited in contemporary
accounts, the University of Phoenix, DeVry Inc., and Strayer Education Inc.,
together account for well over 100,000 students and over $1 billion in sales.
The largest provider, Phoenix, has seven times as many students as the third
largest provider, Strayer. These are significant numbers—particularly in rela-
tion to the average scale of long-established institutions in the public and non-
profit sectors—but the overall scale of the degree-granting proprietary sector
currently remains relatively small.

6 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

The basic demographics of the for-profit sector of the higher education
market are not well documented. The empirical analysis of the sector is com-
plicated by the observation that definitions and terminology developed for
quantifying various types of provision of higher education in earlier decades
may be insufficient to capture the myriad new forms in this emerging sector.3

It may come as something of a revelation that there are currently nearly
as many for-profit postsecondary institutions as there are nonprofit postsec-
ondary institutions.4 The 2002–3 census of institutions by the National
Center for Education Statistics documents 2,382 for-profit institutions,
1,921 private nonprofit institutions, and 2,051 public nonprofit institutions
(Table 1.1). Distinguishing institutions by degree-granting status and length
of study changes the distribution markedly, with the 297 for-profit institu-
tions accounting for about 12% of all postsecondary institutions with four-
year courses of study. Of the total number of institutions identified as
for-profit, the majority (55.3%) offer programs that are less than two years in
length and award certificates rather than traditional degrees like the BA or
MA (Table 1.1).

A focus on the institutional level in the for-profit sector among degree-
granting institutions points to the substantial concentration in this market.

David W. Breneman, Brian Pusser, and Sarah E. Turner 7

TABLE 1.1
Title IV Postsecondary Institutions by Control, Academic Year 2002–03

Institution Type N

TOTAL 6,354
For-profit 2,382
Nonprofit Private 1,921
Nonprofit Public 2,051

Degree Granting Non-Degree Granting

4-year 4-year
For-profit 297 For-profit 3
Nonprofit Private 1,538 Nonprofit Private 20
Nonprofit Public 631 Nonprofit Public 1

2-year 2-year
For-profit 494 For-profit 270
Nonprofit Private 127 Nonprofit Private 124
Nonprofit Public 1,081 Nonprofit Public 74

Less than 2 year
For-profit 1,318
Nonprofit Private 112
Nonprofit Public 264

Source: U.S. Department of Education, National Center for Education Statistics. Integrated Post-
secondary Education Data System (IPEDS): Institutional Characteristics, Fall 2002.

Examination of data on degrees granted compiled through the CASPAR
system indicates the extent to which providers differ markedly in their market
representation. Baccalaureate level degrees awarded by for-profit institutions
are a small share of the total, accounting for just 2% of degrees awarded, even
in recent years (Table 1.2). While the growth rate in degrees awarded by
public and private nonprofit institutions has been about 30% from 1982 to
2002, baccalaureate degrees awarded by for-profits increased by 10% (Table
1.2). The story is parallel but more exaggerated at the MA level. In the late
1960s and early 1970s, MA degree production was extremely small, repre-
senting awards by one or two institutions. In 1982, fewer than 400 MA
degrees were awarded by for-profit institutions, relative to more than 300,000
degrees awarded by public and private nonprofits (Table 1.3). By 2002, MA
degree production among the for-profits increased more than fortyfold to
over 14,000 degrees; still, this number represents only 3% of the market for
MA degrees (Table 1.3). It is reasonable to conclude that it is not the current
level of participation of the for-profits in the degree-granting sector that is of
policy interest. Rather, it is the growth potential of these institutions that
merits consideration.

It is also useful to look at the degree of concentration within each degree-
granting sector. While the overall categorization of institutions describes

8 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

TABLE 1.2
Trends in BA Degrees Awarded by Institution Type

Number of BA Degrees Distribution of BA Degrees

Total Proprietary Private Public Proprietary Private Public
Nonprofit Nonprofit Nonprofit Nonprofit

Number of
Institutions 3,353 200 1,660 1,493 6.0% 49.5% 44.5%

Year
1970 786,478 641 266,238 519,599 0.1% 33.9% 66.1%
1975 926,575 968 288,569 637,038 0.1% 31.1% 68.8%
1980 939,113 1,939 309,980 627,194 0.2% 33.0% 66.8%
1982 962,715 2,419 320,892 639,404 0.3% 33.3% 66.4%
1985 988,874 4,778 328,838 655,258 0.5% 33.3% 66.3%
1990 1,058,197 5,510 351,349 701,338 0.5% 33.2% 66.3%
1995 1,166,901 7,744 377,996 781,161 0.7% 32.4% 66.9%
2000 1,237,875 20,062 406,958 810,855 1.6% 32.9% 65.5%
2001 1,244,171 23,032 408,701 812,438 1.9% 32.8% 65.3%
2002 1,291,900 26,398 424,322 841,180 2.1% 32.8% 65.1%

Source: Author’s tabulations for 1970 to 1995 are based on institutional level data from the
CASPAR compilation of the HEGIS/IPEDS Earned Degrees Conferred Surveys using institu-
tions with identifiable classifications and for the years 2000 to 2002 from the National Center
of Education Statistics IPEDS data.

nearly 300 for-profit institutions as both degree granting and offering pro-
grams at least four years in length, far smaller numbers of institutions can be
identified as actually awarding BA and MA level degrees. Thirty-six for-profit
institutions awarded BA degrees over the three decades for which institutional
data are available and only ten institutions awarded the MA degree. In the
early years, two institutions—Armstrong College and Madison Junior College
of Business—awarded all the BA degrees granted by the for-profit sector, with
Armstrong also awarding all of the MA degrees until 1971. While these two
institutions have not been part of recent expansion, the market remains simi-
larly concentrated. At the baccalaureate level, six campuses of DeVry, Strayer,
and the University of Phoenix award nearly 80% of the BA degrees awarded
by the for-profit sector. The University of Phoenix and Keller School of Man-
agement have awarded more than 80% of the MA degrees in the for-profit
sector since the mid-1980s.

A FRAMEWORK FOR ANALYSIS

In framing the evolution to date of the for-profit sector and expectations for
future growth, it is helpful to conceptualize the transformations in terms of

David W. Breneman, Brian Pusser, and Sarah E. Turner 9

TABLE 1.3
Trends in MA Degrees Awarded by Institution Type

Number of MA Degrees Distribution of MA Degrees

Total Proprietary Private Public Proprietary Private Public
Nonprofit Nonprofit Nonprofit Nonprofit

Number of
Institutions 3,353 200 1,660 1,493 6.0% 49.5% 44.5%

Year
1970 208,354 11 73,822 134,521 0.0% 35.4% 64.6%
1975 292,561 48 99,017 193,496 0.0% 33.8% 66.1%
1980 298,832 280 110,893 187,659 0.1% 37.1% 62.8%
1982 296,306 376 113,549 182,381 0.1% 38.3% 61.6%
1985 286,729 1,462 115,177 170,090 0.5% 40.2% 59.3%
1990 323,862 1,261 136,922 185,679 0.4% 42.3% 57.3%
1995 397,292 2,950 170,243 224,099 0.7% 42.9% 56.4%
2000 457,056 10,308 203,591 243,157 2.2% 44.6% 53.2%
2001 468,476 11,633 210,789 246,054 2.5% 45.0% 52.5%
2002 482,118 14,264 218,034 249,820 3.0% 45.2% 51.8%

supply side and demand side factors. This framework is also useful for think-
ing about global for-profit providers, and the commodity value of higher edu-
cation goods and services, as well as degrees (Altbach, 2001; Marginson and
Considine, 2000). The supply side factors represent changes in the costs of
inputs and innovations in the “technology” of higher education that affect
profit opportunities. Changes in the labor market returns to higher education,
and the demographics of the population, help determine the demand side of
the market. Policy variables—including the level of student subsidies provided
through financial aid programs, and barriers of regulation and accreditation
also play an important role in the changing institutional compositions in the
market for higher education.

The Supply of For-Profit Education

Existing research on the supply of for-profit education, while not extensive,
offers quite different perspectives on these questions. Interview data collected
for this research reveal significant variation in perspectives on the future
prospects for growth in for-profit provision in the United States and around
the world. Institutional researchers in the United States capital markets and
for-profit leaders suggest that the for-profits will be extremely successful in
competing with the nonprofits. They cite increased availability of investment
capital, excellent job placement records, freedom from traditional curricula,
lower costs through increased productivity, economies of scale, and state-of-
the-art technology as key assets of the for-profits. Taken together they see
these factors enabling the for-profit degree-granting institutions to capture
market share from the nonprofits, and their perceptions are in accord with
those expressed by investment industry analysts and for-profit providers
(Odening and Letsinger, 2003; Ruch, 2001; Ortmann, 2000).

Others, including a number of higher education institutional leaders who
were interviewed, suggested that there will be a competitive struggle at the less
prestigious institutions, but they saw little possibility that for-profits will be
able to supply a product that can match the peer effects and signaling value of
elite nonprofit higher education institutions. It is in those institutions with low
prices and high capital requirements where the distinction between nonprofits
and for-profits in their access to capital markets may prove to be most deci-
sive. While both nonprofits and for-profits have access to capital through the
bond markets, a key (and unresolved) question is whether costs of capital are
identical through debt financing. For-profit institutions have direct access to
equity markets while that source of capital can only be accessed by nonprofit
institutions that work in partnership with for-profit entities or that create for-
profit subsidiaries (Pusser, 2002). Michael A. Olivas (2004), Pusser (2002),

10 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

Slaughter and Leslie (1997) have argued that the competition will be more
legal and political than economic, and that the exploitation of faculty knowl-
edge and course materials as revenue sources can occur in both for-profit and
nonprofit institutions.

With regard to costs, it has been argued that the different institutional
norms of the for-profit institutions may enable these providers to reduce costs
and achieve greater efficiencies than their peers in the nonprofit sector (Kirp,
2003; Marchese, 1998). The spiraling costs of higher education, at public and
private institutions, and the increased burden on individual students, are cre-
ating enormous pressure on the nonprofit institutions in the United States and
around the world (Duderstadt and Womack, 2003; Ehrenberg, 2000). This in
turn suggests increasing competitive leverage in the for-profit sector if those
institutions are able to utilize capital investments and lower wage scales to
maintain lower overall operating costs, while highly structured labor markets
and the institution of tenure limit the ability of nonprofit providers to adapt
quickly to changes in student demand.5

On the pricing dimension, for-profit institutions may also be more likely
to break with the traditional “one price” model of nonprofit higher education
(Paulson, 2002; Rothschild and White, 1993). Challenges to the “one-price”
model raise the following question, if the cost of educating a student in the
physical sciences is higher than the cost of educating a student in the human-
ities, why do they pay the same tuition? Although differential fees for gradu-
ate and professional education are increasingly fundamental to the pricing
structure of nonprofit higher education, the for-profit enterprises are likely to
endeavor to expedite and extend the “unbundling” of higher education pricing,
charging individual students at all levels, prices more closely matched with
underlying costs.

Winston (1999) has suggested that barriers to the entry of for-profits in
higher education may be inversely related to the degree of subsidy for each stu-
dent at the institutional level. The degree of subsidy is, in effect, the amount
of public subsidy (broadly defined) combined with donative contributions
from private gifts and endowment income, devoted to subsidizing tuition
prices. Accordingly, the high subsidies at the most selective liberal arts colleges
and research universities create essentially insurmountable barriers to entry by
for-profits. Similarly, Hansmann (1998) suggests that at the most selective
level, where access is highly allocated and subsidies the highest, consumers are
fundamentally interested in the attributes of their fellow students. That
market, where higher education becomes an “associative good” is also virtually
unobtainable by existing for-profit providers.

While research universities and liberal arts colleges provide undergradu-
ate programs targeted to full-time residential students, much of the growth in
enrollment in the last two decades has occurred among older, nontraditional

David W. Breneman, Brian Pusser, and Sarah E. Turner 11

students (Seftor and Turner, 1999). The type of skills demanded by this new
group of students is in some respects quite different from the broad, general
training provided in the traditional four-year residential experience. As one
education industry analyst has written, “these for-profit institutions are not
offering education as much as they are offering careers” (Soffen, 1998).6 The
University of Phoenix, where nearly half of all students have their tuition sub-
sidized by their current employers, has also been conceptualized as being in the
business of “degree-granting corporate outsourcing” (Pusser and Doane,
2001). Nor is there evidence that the contemporary degree granting for-prof-
its will overcome the traditional challenges to vocational training programs;
the difficulty of transferring credits from vocational programs to more broadly
oriented baccalaureate programs, the sensitivity of vocational education pro-
grams to declines in the rate of job creation, and the rapid obsolescence of
vocational skills (Levin, 2001; Grubb, 1997, 1995).

The Regulatory Environment

Starting a for-profit higher education institution is more challenging than
entering many competitive markets because the product—the awarding of
degrees—is heavily regulated by state and regional accrediting bodies. The var-
ious layers of regulation, and the variation in requirements for accreditation in
different regions of the United States create significant barriers to entry in for-
profit higher education (Eaton, 2003).

It has been noted that for-profit institutions seeking accreditation can be
generally divided into three categories (Eaton, 2003). The first group consists
of those institutions that are already accredited, as in the case of the Univer-
sity of Phoenix, and DeVry Inc. A second group includes those institutions
that are not accredited and do not need accreditation. These are for the most
part institutions that do not require Title IV financial aid.7 These institutions,
such as the IBM global campus and the Oracle corporate-training section, are
primarily interested in providing employer-subsidized training and creden-
tials. The third group consists of those organizations that seek rapid accredi-
tation through partnerships with existing accredited institutions. Examples
include the acquisition of Huron University by Whitman Incorporated.

There are two components of accreditation that are key to shaping the
competitive environment in higher education. First, accreditation is central to
the information asymmetries mentioned earlier. Accreditation sends a signal to
potential students about the threshold quality of education provided. Second,
accreditation is a prerequisite for student eligibility for federally sponsored
financial aid under Title IV. Recently some analysts have suggested that large

12 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

and publicly traded for-profits, such as the University of Phoenix, may ulti-
mately provide all of the loans and grants needed by their students from insti-
tutional funds generated in alliance with investment firms (Goldstein, 1999;
Soffen, 1998). In that case, if it proved to be in their interests to do so, they
might also be able to forego the traditional accreditation process, as is the case
with many of the largest international for-profit education programs (Tooley,
1999).

The Demand for Higher Education Services

The demand conditions faced by for-profit schools can be conceptualized as
part of the more general demand for the training, skills, and credentials offered
in higher education. The level and character of demand determine the partic-
ular implications for the for-profit sector. Overall, we can gauge the demand
for higher education—and the services provided by higher education—in
terms of the “prices,” the levels of subsidy, returns in the labor market, the
demographics of the population of potential students, and state and local
norms affecting access. Whether one regards the return to a BA degree or the
return to a single credit, the evidence is incontrovertible that the relative return
to postsecondary training has increased since the early 1990s. This transfor-
mation in the labor market is a significant determinant of the probability of
for-profit entry (Pusser and Turner, 2004). However, for-profit enrollments are
nevertheless sensitive to broader economic shifts (Tables 1.2 and 1.3).

Among high-achieving recent high school graduates, the demand for col-
lege training may be largely insensitive to changes in labor market conditions
or college costs, as those students seek elite (and highly publicly subsidized)
training and credentials. However, for older and nontraditional students,
demand for training is likely to be quite sensitive to cost, as well as to labor
market conditions. A further issue is the extent to which for-profit degree pro-
grams will appeal to the largest portion of the degree market, traditional-aged
students seeking their first degrees. The ultimate growth of the for-profit
degree-granting institutions may depend on their ability to tap into the
demand for this group of students. At issue is whether students—and the labor
market—view the educational products offered by these institutions as close
substitutes to the options provided by traditional colleges and universities.

If for-profits can provide narrowly tailored skills that lead to specific,
high-value job placement, older students in particular may prefer this other-
wise “no-frills” approach to higher education to institutions providing a wide
array of student services and recreational activities (Sperling and Tucker, 1997;
Ruch, 2001). While survey data including the Higher Education Research

David W. Breneman, Brian Pusser, and Sarah E. Turner 13

Institute’s “American Freshman Survey,” report an increase in the share of
freshmen citing the desire to “be well-off financially” (Astin and Parrott,
2003), this trend may not predict an increase in enrollments at the for-profit
institutions. The increasing returns to college quality documented by Hoxby
(1997), Turner (1997), and Brewer, Eide, and Ehrenberg (1999) would suggest
that the largest increases in demand among traditional undergraduate students
would be among the most highly selective institutions in the nonprofit and
public sectors. It is also the case that traditional nonprofit institutions, resi-
dential as well as nonresidential higher education providers, are increasingly
seeking to enter the competition for adult student training and degree grant-
ing, through innovative degree programs, continuing education, and extension
programs (Pusser and Doane, 2001).

A number of these issues are manifest in contemporary responses to the
shortage of teachers. The problem of how to rapidly recruit, train, and retain
able young people in the teaching force is a challenge that may benefit from
market competition (Turner, 2000; Raphael and Tobias, 1997). Whether for-
profit provision of teacher training will help to resolve the shortage and
enhance the quality of entering teachers is an open question (Turner, 2000).

The proportion of students who will be served by the emerging for-profit
sector, and at what cost, is an outcome determined by the intersection of
supply and demand forces. Public policy initiatives such as the availability of
federal financial aid also serve to influence this equilibrium. Changes in the
availability and specifications of aid such as Pell grants or Stafford loans affect
the budget constraints faced by students and their families. At issue is the
extent to which these demand shifts are countered by increases in the prices
charged by the colleges and universities, and whether the for-profit schools
respond differently than the nonprofit institutions.

IMPLICATIONS AND AREAS FOR FUTURE RESEARCH

As the data presented here demonstrate, for-profit providers currently repre-
sent a tiny fraction of the total degree-granting activity in American higher
education. While the capital markets’ excitement over the rapid growth in
enrollments and the number of degrees granted by for-profits brings with it a
very loud “buzz,” that enthusiasm must be tempered to some degree by the
very small base from which that growth is measured, and by the uncertain
prospects for the continuation of the current rate of growth. There are, how-
ever, a number of key public policy issues that must be considered in light of
the shifting economic, political, and social conditions that have given rise to
the growth of for-profit participation in higher education.

14 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

Much of the concern over the growth of for-profit education reflects an
historical debate over the risks associated with the private provision of an
essential public good (Pusser, 2002; Weisbrod, 1998; Labaree, 1997; Veysey,
1965). Traditional arguments address the possibility of opportunistic behavior
on the part of profit-seeking providers, the information asymmetry between
consumers and providers, and the likelihood of uncertainty leading to under-
investment ( James, 1998). More recently, public higher education has been
seen as a key arena for the redress of historical inequities in access to educa-
tion and leadership positions (Bowen and Bok, 1998; Kerr, 1994; Carnoy and
Levin, 1985). It has been argued that the expansion of nonprofit education in
the postwar period, and the concurrent implementation in those institutions of
public policies on affirmative action and gender equity, have contributed sig-
nificantly to increased access and diversity in higher education (Breneman,
2003; Hurtado and Navia, 1997). Hansmann (1998) predicts that increasing
stratification and privatization will present significant challenges to efforts to
maintain equity and efficiency in higher education. How competition from
for-profit providers will affect the distribution of access to higher education is
a key public policy question going forward.

The impact of for-profit providers on curricula in higher education has
also been raised by several researchers (Paulson, 2002; Marginson and Consa-
dine, 2000; Raphael and Tobias, 1997; Rhoades and Slaughter, 1997). Raphael
and Tobias examined the competition for the provision of teaching credentials
in Arizona between the University of Phoenix and a number of nonprofit
institutions. They found that while nonprofit providers had requirements that
went beyond the state minimum for credentials, the University of Phoenix
gained some competitive advantage by requiring only the state minimum of
their students. A number of researchers have expressed concern that the deter-
minant of curricular standards will increasingly be the political arena, where
for-profit institutions are active financial contributors and nonprofits are pro-
hibited from many aspects of lobbying (Aronowitz, 2000; Apple, 1999).

Initial research on “hybrid” institutional forms (Pusser, 2002) suggests
that the increasing adoption of commercial behavior in nonprofit higher edu-
cation institutions represents a potentially problematic convergence of non-
profit and for-profit forms. The long-term effect of the growth of auxiliary
enterprises, credit and noncredit continuing education programs, industry-
university partnerships, and the creation of for-profit subsidiaries of nonprofit
institutions are not yet clear. A key challenge for this research is to explain
what factors distinguish educational products in which convergence appears,
from those in which increased stratification dominates the landscape such as
the changing dimensions of baccalaureate programs in the national market
(Pusser and Turner, 2004; Hoxby, 1998).

David W. Breneman, Brian Pusser, and Sarah E. Turner 15

Another important area of future research addresses the extent to which
competition among for-profit and nonprofit institutions leads to a socially
optimal level and distribution of educational attainment. A key aspect of this
question is whether increased competition promotes productive efficiency—or
getting an output at the least cost—in the education sector.8 It is often argued
that the competitive effects associated with the entry of new producers
improves efficiency. Yet, such claims may not translate to a mixed-market con-
text in which the underlying product is difficult to observe and encompasses
collective benefits as well as individual rewards. Finally, higher education in
the United States has not historically been equitably distributed between var-
ious racial-ethnic and socioeconomic groups. While changing demographics
and increased efforts to access high-quality higher education by traditionally
underrepresented groups will be key factors in shaping future demand, the
nature of that demand and how it will affect the provision of higher education
is at this point unclear.

NOTES

1. Hansmann (1987) provides a useful taxonomy of the potential economic moti-
vations for the provision of goods and services. Social scientists disagree about the
extent to which there is an appreciable “public goods” character to higher education.
While it is widely argued that the provision of basic education (e.g., literacy skills) has
a widespread public value in facilitating smoother social functioning (Labaree, 1997),
and that higher education is a key component of State efforts to increase equity (Pusser
and Ordorika, 2001; Carnoy and Levin, 1985) it is also argued that the returns to
higher education may be largely confined to the individual. Still, one of the most com-
pelling motivations for the subsidization of particular types of training in higher edu-
cation (e.g., advanced scientific study) is that the social rate of return may well exceed
the private return.

“Information problems” or “contract failures” are certainly a potential problem for
students in higher education as it may well be difficult to ascertain if a student received
the quantity or quality of education that he or she expected. While for-profit firms may
have an incentive to take advantage of customers by providing an inferior education to
increase their profits, the ability of agents of nonprofits to benefit personally through
the provision of inferior services is limited by the nondistribution constraint.

2. An unanticipated consequence of that shift was a significant increase in the
share of Pell grants allocated to students in for-profit institutions. For example, while
only 7% of Pell revenue went to students at for-profit institutions at the start of the pro-
gram in academic year 1973-1974, that share climbed to a peak near 30% in the late
1980s (McPherson and Schapiro, 1991, Table 2.5). Subsequent revelations of financial
irregularities in awarding Pell grants and student loans (largely among trade schools)
led to increased federal scrutiny and to a decline in the for-profits’ share of those funds.

16 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

3. For example, an “institution” is a frequent unit of analysis that is used to refer to
a single governing body with a single campus, while in the for-profit sector, an institu-
tion may have many campus affiliations.

4. These include degree-granting and nondegree-granting programs and institu-
tions.

5. Nonprofits, out of necessity, have already begun to find new efficiencies in order
to remain price competitive with one another as state block funding decreases (Blus-
tain, Goldstein, and Lozier, 1998; Duderstadt, 1998). Rhoades and Slaughter (1997)
point to the increasing and widespread use of nontenured and part-time faculty as an
example of rapid cost reductions that have been implemented in the nonprofit sector.
Other studies of nonprofit universities point to the increasing concentration of institu-
tional resources in those disciplines and in professional schools perceived to yield the
most favorable labor market outcomes (Kirp, 2003; Marginson, 1997; Slaughter and
Leslie, 1997).

6. Beyond changes and adaptations in curricular content, for-profit providers may
be better positioned to utilize innovative technologies for delivering program content,
primarily through the use of the Internet (Ruch, 2001; Graves, 1998; Marchese, 1998;
Levine, 1997). The three largest for-profit degree-granting concerns, the University of
Phoenix, DeVry and Strayer, generally make relatively little use of the Internet in their
delivery, though Phoenix currently has about 15% of its population, nearly 15,000 stu-
dents, pursuing degrees online. It is also important to note that each of these institu-
tions uses a predominantly synchronous learning process with instructor-led classes
offered at convenient times in relatively unconventional locations, including shopping
malls and industrial parks that are easily accessed by their largely adult and employed
student bodies. The increasing incidence of “virtual degrees” is not, however, limited to
the for-profit sector, as indicated by the offerings of the nonprofit case of Penn State’s
World Campus.

7. Title IV financial aid refers to federally subsidized loans and grants, including
Pell grants.

8. There is of course little agreement on how best to define or measure the out-
puts of higher education (Levin, 2001).

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22 THE CONTEMPORARY PROVISION OF FOR-PROFIT HIGHER EDUCATION

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