Phoenix: America's For-Profit Education Capital?

In the story of for-profit education, Phoenix is pretty much ground zero. It was here that John Sperling, the Cambridge-educated founder of the University of Phoenix, built a for-profit giant after he identified a need for flexible, continuing-education programs in the 1970s.

Sperling's enterprise was initially born as a series of adult education courses in San Francisco. After a California accreditor began to scrutinize his program, Sperling moved to Phoenix, in part, because, as he told the Arizona Republic, Arizona "had never gotten around to writing any regulations."

What Sperling had called the Institute of Professional Development was now the University of Phoenix; at its height, the university enrolled more than half a million students nationwide.

Phoenix is also home to Grand Canyon University, which has had a successful run as a Christian for-profit university. GCU converted from a nonprofit institution when it was deep in debt in 2004.

During this period, the university has experienced tremendous growth, both in construction on the traditional ground campus and a huge increase in online enrollment. Four former University of Phoenix executives joined GCU in 2008 and took the company public.

But for-profit postsecondary education is nothing new.

In fact, for-profit, postsecondary schools have existed since the late 19th century, when numerous certificate programs popped up to teach novel skills such as management and stenography. Many of the schools were local and designed to serve a specific niche.

However, in the decades after Sperling’s brainchild, enrollment at degree-granting, for-profit colleges increased 100-fold. For-profit companies established a corporate presence on Wall Street and borrowed from Silicon Valley to streamline enrollment, allowing a new breed of education company to flourish.

Instead of traipsing to an office complex along the highway, students could study online, connecting with an instructor and other students on their own time.

Time, as it turns out, is key in the age of inequality, according to the sociologist Tressie McMillam Cottom. She’s an assistant professor at Virginia Commonwealth University and the author of the new book Lower Ed: The Troubling Rise of For-Profit Colleges in the New Economy.

Cottom argues that the twin explanations of the for-profit boom — either “a few million people woke up in 1999 and wanted to go to college,” or students didn’t evaluate their options and fell for a massive con — are both inadequate.

The flexibility of an online program is the natural choice when you don’t have access to affordable childcare or an education savings account, to say nothing of basic job security and a living wage.

“For millions of people, the time trap makes a for-profit college your only practical choice for labor market entry, stability, or mobility,” Cottom writes. A new credential can seem like the only way out of a dead-end job, and an army of enrollment counselors can guide you through intimidating loan paperwork.

Of course, what was good for Wall Street wasn’t good for many students. Horror stories of students left with crushing loan debt and worthless degrees began to emerge from the sector.

Critics also pointed out who recruiters targeted: The for-profit sector disproportionately enrolls not just older students and those with lower incomes, but also women, African-American, and Hispanic students, according to Harvard researchers David Deming, Claudia Goldin, and Lawrence Katz.

“It’s the ideal arrangement to have folks who may be first-generation, who may not be as familiar with how to navigate the system, or to make judgments about the quality the way the children of lawyers and doctors just instinctively know how to do,” Nassirian said of the for-profit strategy. “It would be really cool to be able to target them, and to make them the decision-makers, and somehow line up financing for them from a party that can’t say no.”

That party? The federal government. The financing? Title IV loan funding under the Higher Education Act of 1965. Although accreditation is a significant obstacle for aspiring for-profit education companies, once they have it, schools can reliably access billions in federal student loan dollars — so long as those loans and grant aid don’t exceed 90 percent of their revenue.

And even though the for-profit/nonprofit debate is everywhere in higher education and media circles, this distinction is probably lost on students. In 2014, the nonprofit Public Agenda and the Kresge Foundation surveyed a nationally representative sample of for-profit undergraduates. Sixty-three percent of alumni and 65 percent of current students didn’t know whether their school was for-profit or nonprofit.

Recently, state and federal investigations began probing the practices of for-profit schools, and the Obama administration stepped up regulatory pressure. High-profile collapses within the for-profit industry soon followed.

The University of Phoenix’s parent company settled a lawsuit in 2009 for $78 million that alleged the company illegally compensated recruiters. In 2014, multiple investigations zeroed in on two large for-profit universities: Corinthian Colleges, a massive California-based chain, and ITT Educational Services, a lucrative, publicly traded company with around 45,000 students at 130 campuses.

Ultimately, Corinthian filed for bankruptcy following a lawsuit from the federal government, and ITT shut down in 2016 after the Education Department banned the school from enrolling students using federal loan dollars.

And while investors are happy with Grand Canyon University’s performance, the university has tried to transition back to a nonprofit entity — perhaps because of the recent negative attention on the for-profit sector. GCU’s attempt to return the academic institution to nonprofit status was denied by its accreditor in 2016, though the university strongly disagreed with the accreditor’s rationale.

Ben Miller, the senior director for postsecondary education with the Center for American Progress, explained that such a move, if successful, would have significant reputational advantages.

“It removes the moniker of being a for-profit college, which is a fairly damaging thing to have these days,” Miller told Phoenix New Times. “You could see from Grand Canyon’s perspective, if they go nonprofit, maybe that helps them compete better with some of the other religiously affiliated online options out there.”