Why education is not a business: The University of Phoenix example

In the US it is not uncommon for business people to regularly claim that they know how to ‘fix’ education and that if the educational system were run like a business, then it would produce much better outcomes than it currently does. School districts sometimes fall for this line and hire business executives and companies to run systems. In fact, some wealthy business people like Bill Gates use their financial clout to muscle their way into school policy making and get their pet theories implemented (the ‘small schools’ model for one) that have very little research backing.

I have long felt that the goal of an alliance of right-wing religious, libertarian, and capitalist interests is to completely destroy the public education system in the US and thereby divert the vast amounts of money that goes into it into private hands, some of them religious. This is part of the general desire to privatize large public sectors (like Social Security) so that they can make a profit from them.

A good example of the perils of privatizing education is what happened to the University of Phoenix. This for-profit institution experienced rapid growth but has recently fallen on hard times. Ben Miller, Senior Director for Postsecondary Education at the Center for American Progress, says that what caused it to arrive at its current predicament is a warning sign to all for-profit educational institutions.

The basic problem is that when you have a publicly traded for-profit business, shareholders demand growth. In the case of Phoenix, the entrance criteria that it initially had for enrollment (and was the basis for its early success) did not allow for the growth in the number of students that it required to satisfy investors, so it steadily lowered its standards until it fell afoul of federal regulators because of low completion rates.

So in the 1970s Phoenix created a model attuned to this type of learner, complete with flexible schedules and programs paired to workforce demands. But Phoenix would not take just anyone: Enrollees had to be at least 23, work fulltime, have at least two years of employment experience, and have some college credit. It was certainly not selective in the way that status-seeking traditional colleges were, but Phoenix did say no to people who were not set up to succeed in its coursework.

Phoenix found a population waiting to be served. By 1994 it had 31,000 students—the size of most large public colleges. But the university wanted to be bigger, and Wall Street was ready to assist. In 1995, the university’s parent company went public and, before the decade was out, enrollment passed the 100,000 student mark.

There was just one problem: The population suited to Phoenix’s specific model was not big enough to keep meeting the quarterly investor demands for new students. Faced with the choice between maintaining quality but capping growth (and stock prices) or abandoning the core model in pursuit of profit, Phoenix’s age, work and other restrictions went by the wayside. A learning environment calibrated to a very particular set of students was suddenly welcoming anyone with a pulse.

This reminds me of the situation prior to the housing bubble collapse where banks were handing out home mortgages to practically anyone. As a result of this open-enrollment policy, enrollment at Phoenix rocketed to over 460,000, inspiring a whole host of similar companies to enter the market. Many of these students were dropping out but were paying for tuition with federal loans and grants, another example of taxpayer money being siphoned off to private hands. But as the government started cracking down by enacting new regulations and closing loopholes in order to stanch the dropout rate, business at Phoenix suffered.

The descent was not pretty. More than a hundred campuses closed. Enrollment halved and kept dropping. A special learning platform built by top-notch engineers had technical difficulties so significant the company says it hurt retention rates and is being dropped for other commercial options. Phoenix’s peers in the for-profit education market started shrinking too. One went bankrupt; another is exiting the market. Still others might fold.

On Monday, Phoenix’s parent company ended the experiment and announced that it was considering implementing new admissions criteria that would limit the number of underprepared students it enrolls. It is also closing most of those problematic associate degree programs once housed under the Axia brand.

This idea that the private sector can run schools better ignores the fact that other nations have effective government-run school systems.

Education is not a business and those who claim that it is so and try to run it as they would a business will fail.


  1. doublereed says

    These for-profit colleges are also some of the worst offenders when it comes to Student Loan Debt. The schools themselves just sound like total scams, and even when they close, it looks likely that they’ll have significantly worsened lives to the extent of having a significant effect on the economy.

    So yea, that’s the free market. A bunch of scammers ruining uninformed people’s lives with lies and bullshit.

  2. doublereed says

    This idea that the private sector can run schools better ignores the fact that other nations have effective government-run school systems.

    On the contrary, all the countries with the best education have strong, centralized public school systems. You’ll be hard-pressed to find a country with a good school system that relies on the private schooling (except maybe for after-school tutoring or something).

  3. V. Amarnath says

    I am sure the situation in Sri Lanka is the same as in India. When we (old like you and me) went to school, most schools were either public or were run by a charity trust. During the past fifty years, politicians and business people conspired to destroy the public school system. Now, you can not send your children to school without spending a lot of cash. Something US politicians to learn from India.

  4. Chiroptera says

    Let’s remember that there is a difference between a private school and a for-profit school. In the US, most private schools are non-profit and many of them, to my understanding, offer a good quality education. And some countries, like Japan, private schools do form a significant part of the system.

    But, yeah, I haven’t really heard any success stories coming from the for-profit education sector. And many of the smaller public institutions are being forced by legislators, regents, and administration to take on the “business model” that has been a significant factor in the failures of the for-profit sector.

  5. lorn says

    This pisses me off. I don’t give a tinker’s damn if Wall Street investors lose money. I do care that people trying to get an education, coordinated and motivated enough to make something happen, get jerked around, their few resources squandered discouraged, offered up as sacrifices, in another entirely predictable failure of the free-market religion. Lives are being ruined.

    We know what works. But can’t allow it to work because the high priests of the Chicago School of Economics have convinced people in power that government, collective, and not-for-profit activities are lost opportunities to concentrate capital.

  6. Pierce R. Butler says

    … suddenly welcoming anyone with a pulse.

    “Pulse, schmulse! MasterCard, Visa, or Discover?”

  7. Excluded Layman says

    that have every little research backing.

    I assume that was supposed to be “very”. Otherwise it would be a strange objection. :þ

    What pisses me off about market obsessives is that they’re so monomaniacal they won’t even accept the existence of a different tool. The hammer they’re holding can do the job, they indignantly insist, you just have to be a super thinky smartypants to understand how screws are really just like nails.

  8. says

    Putting a financial barrier in place to keep education the province of the wealthy and privileged. It’s amazing but, yeah, they fell for it.

  9. militantagnostic says

    The basic problem is that when you have a publicly traded for-profit business, shareholders demand growth

    Only fools and economists extrapolate an exponential growth function.

  10. smrnda says

    The for profit model of education assumes that education is a private good -- basically a vocational credential whose purpose is to push the student into a higher income bracket. The problem is education is really a collective investment in the future. A society full of educated people will have advantages over one where education is a a privilege of the few. You also see a difference in the attitudes of educated people as to the purpose of their education -- is it just a ticket to more money, or something more?

    And then there’s the problem that, in the end, a for profit business is there to *make money.* If the solution is to offer an inferior product to those who have no access to other educational opportunities so be it and we then have the ‘degree mill’ problem. Give the degree mill enough money and it’ll start having political clout and will demand it’s piece of paper be treated with respect.

    Another issue is many colleges and universities are primarily research oriented. The research is usually the type of stuff which would benefit us as a society, but whose goals are too long term to appeal to most businesses (or too hard to monetize.) Public institutions who don’t have to return a profit are freed from the short term focus of for profit businesses.

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