Non-profit or for-profit? In education, we need to take the best of both worlds and keep it all. … [+]
Two weeks ago, ACT, the nonprofit organization that has long run the college entrance exam of the same name, announced a new partnership with Nexus Capital Management, a Los Angeles-based private equity firm. As a result of the transaction, the company will operate as a public benefit corporation and lose its tax-exempt status. Unlike non-profits, public benefit corporations do not have to operate solely for charitable purposes and can distribute profits while balancing shareholder interests with the public interest. The change in the ACT's tax status is just one of many high-profile changes in the education sector.
Just three years ago, another high-profile deal captured the attention of the media and higher education world when publicly traded 2U acquired nonprofit edX from Harvard University and MIT for $800 million. ACT and edX are among the most recent and notable examples of blurring the lines of tax status in education, but there are many others.
Decades ago, several major for-profit universities strengthened their business by acquiring accredited nonprofit universities. There have been many such examples in recent years. non-profit organization Acquisition (and change of tax status) commercial purposeExamples include Purdue University's acquisition of Kaplan University in 2017 and University of Arizona's acquisition of Ashford University in 2020. The University of Idaho is currently in the process of acquiring the University of Phoenix. It's not just major public universities that are participating. Lindenwood University, a small private university, recently changed its status by acquiring the status of for-profit Dorsey University. At least one of these examples of transforming tax positions truly comes full circle. Bridgepoint Education (a private nonprofit) acquired Francisco College of the Prairies (a private nonprofit) in 2005 and changed its name to Ashford University. University of Arizona (public nonprofit institution).
This type of effort is not easy, and of course not all are successful. The University of Arizona currently faces a $177 million budget deficit due to a miscalculation of cash reserves. Some attribute much of this deficit to the acquisition of Ashford University (now the University of Arizona Global Campus), but only $2.5 million of the 2024 budget deficit can be attributed to the U of A Global Campus. only. Efforts by public universities in their own countries have not necessarily gone well. The University of North Carolina System invested $97 million in pandemic recovery funds through “Project Kitty Hawk” to launch its own online service, but the project has faced significant headwinds and enrollment expectations have declined. has decreased significantly. And after just three years, his 2U acquisition of edX has “lost its luster,” according to a recent headline.
Debating the pros and cons of “mission-driven nonprofits” versus “for-profits” may not be as important as addressing important standards that all organizations must adhere to. The truth is that teaching, whether for-profit or nonprofit, is hard work. Doing this successfully requires a substantial contribution to the public good, significant upfront capital investment and ongoing sustainable revenue streams, and prioritization of student outcomes. It is no longer clear whether an organization's tax status is particularly advantageous in achieving these fundamentals.
Although the number of for-profit institutions has declined over the past decade, the few that remain are thriving. Currently, of the seven largest universities in the United States by total enrollment, two are public, two are for-profit, and three are private, nonprofit universities. One thing they have in common is that they are major players in the online degree world. And the innovations pioneered by online for-profit colleges (e.g., large admissions counseling departments, widespread acceptance of prior learning and transfer credits) have been widely adopted by the most successful nonprofit universities.
On the other hand, just because a company is for-profit doesn't mean it's making a profit. Two of the most high-profile publicly traded education companies, 2U and Coursera, have had less than a single profitable year in their respective histories. For example, in 2016, 2U had revenue of $206 million and losses of nearly $21 million. That same year, ACT (then a non-profit) enjoyed a surplus of more than $22 million, earning him $357 million in revenue and total assets exceeding his $500 million. The distinction between for-profit and nonprofit is less important when considering examples from the nonprofit sector, such as the $23 million compensation package of a former University of Pennsylvania president or the firing of a football coach who left a public university like the University of Nebraska. It seems like that. He has a $16 million severance package and Texas A&M University has a $75 million severance package. It is worth noting that the most expensive educational services in the world today are degrees from elite non-profit universities. In fact, some companies are expected to reach sticker prices of $100,000 per year by next year.
We also witnessed powerful examples of how profits from activities such as student loans led to the creation of the Lumina Foundation and Strada Education Network, two of the most prominent philanthropic support organizations in higher education today. The Lumina Foundation is a transformational foundation created by the sale of assets from USA Group, Inc. to Sallie Mae. Strada was born out of USA Funds, a former student guarantee nonprofit. Both organizations make invaluable contributions to helping America's higher education institutions improve student completion rates and career outcomes.
All educational organizations, regardless of their tax status, must consider the public interest. They all need to generate self-sustaining revenue (living only on grants and philanthropy is a recipe for failure, or at least short-lived). And nonprofits and for-profits alike must be held to the same high standards, holding everyone accountable for student outcomes. For example, the U.S. Department of Education's gainful employment regulations (which currently apply to all programs offered by for-profit organizations, but only to non-degree programs offered by nonprofit organizations), regardless of tax status, , potentially extended to all institutions receiving federal aid. .
Every organizational model has advantages and disadvantages. But there are powerful lessons that can be shared across them. We need to embrace all models in education and set aside old prejudices. The new goal is to force all educational institutions, regardless of their tax status, to adhere to three basic, universal standards. 1. contributing to the public good; 2. generating self-sustaining income; and 3. taking responsibility for student outcomes.
