Pondering the Future of the For-Profits
Education lead generation has for lack of a better word been on a tear – an absolute bull market in an otherwise bearish economy. Lead volumes alone do not tell the full story. They tell of the success of lead generation and of the school’s growth, but they do not tell about the broader perception of the industry.
Historically, marketing and the market could operate quite separately. If a marketer, it helped to understand the market you served, but not being a vertical expert didn’t stop you from generating leads in a particular category. Generally, those with greater vertical expertise scaled larger than those who did not. The vertical expertise enabled them to talk shop with their clients and create more effective ads because they understood the nuances. That vertical expertise also meant a greater awareness of the issues surrounding the industry. Except, until now, that hadn’t been an issue. Vertical expertise was really about talking shop not as a means for staying out of trouble.
The landscape is dramatically changing; yet, it feels like too many people in a position to influence enrollment (namely those who touch consumers) do not appreciate the seriousness of the situation and the scrutiny under which the industry has come. The average affiliate, responsible for 10% to 25% of all leads, does not see the connection between their actions and the 70 Billion dollar / year education industry. They view the world only in terms of conversions. From their perspective, the industry doesn’t extend beyond their ability to generate a lead. Their job is the lead. The advertiser’s job is after that, and if the advertiser doesn’t empower them to create conversions, they take matters into their own hands. They say to themselves, “What’s the big deal,” and “No one will really care.” They then create misleading ads like this one.
Even we, who have been following the more developments closer than the average person (namely the 2008 Higher Education Opportunity Act and subsequent negotiated rule making process), find making sense of the processes, time lines, institutions, and acronyms confusing. Ads like the above, the countercyclical success of the for-profit industry, and the re-examination of government funds has lead to the every so-often re-examination of the for-profits. Almost every major publication has run a piece on the topic, but this same complexity that makes it tough for us to summarize makes it just as tough for others to as well, especially if education is not their focus. The pieces, though, are becoming more frequent, and one in particular came out that initially had those who lean towards for-profit education growth nervous.
Frontline, the documentary series on PBS, ran an expose titled, “College, Inc.,” a piece that given the generally tone of most public broadcasting seemed as though it would turn out as a roast of the for-profit sector. It wasn’t quite roast, but for those who care enough to understand the issue but need to see something, this is for you. The Frontline piece (6 segments online) is just under an hour long in total and worth every minute. Watching it and reading this post from Higher Ed Watch, will help any marketer understand those with misgivings about the for-profit space. If I could, I’d make this required viewing for any lead seller, especially those for whom education is not their primary focus. Below is Part 1.
Perhaps the best quote in the piece comes from a former Director of the University of Phoenix who from the sound of it made millions during his tenure through mostly equity growth. He quips, “What makes education so special” and compares the spending and profit margins of schools to perfume. Not his best moment. And he says what most marketers know – that they must advertiser; to succeed, the schools “have to get people’s attention.” If you believe education should not be a business, you’re reading into that as a prime example of a system that is broken.
Some other facts from the piece:
- The typical for-profit schools spends double on marketing than what it does on teaching
- For-profit education is not cheap; a degree costs 5x a typical community college and 2x state schools. The degrees are not far off from the typical private liberal arts school, leading to the comparisons of what you get for your money.
- The for-profit sector has a lot of financial backing; they have investors who expect certain returns, the implication being that they must not only grow fast but charge as much as possible
- Sector also has to spend a lot because they have to add a lot of students per year to keep pace with all that theylose
- Not mentioned but worth mentioning is if this were an other big ticket item, there wouldn’t be as much sensitivity, but it’s education so talk of sales tactics and business growth will unsettle many people
- The sector represents 10% of the total higher education student body but consumes 25% of all student aid, i.e. a much larger than average reliance on tax dollars, and roughly 20bn loans are generated each year to the for-profit
- Regional accreditation is key, and the financial community values that alone at $10mm; regional accreditation is what enables a school to qualify for student loans. It’s the key for unlocking federal funds.
- The criticism is that accreditation is treated like a tax badge, able to be bought indirectly when a struggling not-for-profit agrees to go for-profit.
- One school charged 30k for a 12 month program for nursing without the students ever stepping foot in a hospital; they are suing as no one will hire them
- The for-profits might be 10% of all college students, but one person estimates it is responsible for 44% of all student defaults
- Mandate by Obama – by 2020 America will have the highest percentage of college graduates. Community colleges can’t fulfill that. The for-profits will have to play a role
- It’s all about student loans. They aren’t like other loans. If you default on a federal student loan you are “hounded for life.” It’s the “most collectible debt” – non dischargeable in bankruptcy, wages can be garnished, tax refunds intercepted, you can be sued in court and ineligible for other federal benefits. In other words, it’s a serious thing when agreeing to one, and 20bn are being generated each year. The should go to only people qualified and with an understanding of what they are getting into. When marketers use language
- Outstanding student loans equal the nation’s credit card debt, 750bn. We got into a credit crisis among other reasons when people were given credit who were at risk from the start of paying it back. That’s the issue here with student loans, especially from the for-profit sector; could it contribute.
- “You can’t be afraid of going into business because of regulation risk, “Jack Welch, who invested in a for-profit and lends his name to one of the graduate degrees.
As Secretary of Education Arne Duncan says, there is nothing inherently wrong with for-profits providing education. The focus now is on making sure the practices are honest and that the students and especially taxpayers are getting value for their investment. High pressure tactics, deceptive actions, and dishonesty is what the Department is challenging in a very serious way. Again, we will see just how serious the challenge is and if the new rules suggest he believes that nothing is inherently wrong.
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