A business school’s link-up with a private firm is an interesting case study
THE sort of people who go through business school, one might think, would have no problem with the idea of education being provided for a profit. But when Thunderbird, a struggling school based in Arizona, announced three months ago that it was planning a partnership with Laureate, an education company, there was uproar among its alumni and students.
A petition calling for the deal to be halted has won almost 2,000 signatures. By “selling out”, Thunderbird’s management is diluting the school’s brand and cheapening its degrees, it says.
Thunderbird insists that the school itself, founded on a former air-force base after the second world war, will remain a non-profit. The partnership will be used to create foreign campuses, to expand the school’s online teaching and courses for executives, and to introduce undergraduate degrees.
But a damning report on America’s for-profit higher-education firms, issued last year by a Senate committee, helps to explain the suspicions about the deal. It found that such institutions got $32 billion of student aid from the government in the 2009-10 academic year. They charge higher fees than state universities but spend less on teaching. Their drop-out rates are alarming: in 2008-09 the median student lasted just four months.
Laureate already has a similar arrangement in place with the University of Liverpool, a well-regarded British institution. Besides running Liverpool’s online programmes, it has opened a campus for the university in China that now accounts for around a quarter of its enrolments.
Laureate owns or partners with 70 institutions around the world, with 800,000 students enrolled on its courses. Many are in emerging markets—including 11 in Brazil—where they often outperform pallid state-run competitors and help to widen access to higher education. For this reason, in January the International Finance Corporation, the commercial arm of the World Bank, invested $150m in Laureate shares.
Like many American colleges, Thunderbird is short of cash. Enrolment on its $67,000 full-time MBA programme is down from over 1,000 students in 2001 to just 142 this year. Despite a wealthy alumnus donating $60m in 2004, the school’s endowment fund is just $27m, a puny sum compared with others’ war chests: Harvard Business School’s is $2.7 billion.
Thunderbird thinks the Laureate deal, which it hopes to ratify within weeks, could herald a return to the good days. In return for getting a share of the new ventures’ revenues, the school will give Laureate seats on its board—though the firm will have no say on academic matters. This is important if the school is to keep its tax exemptions as a non-profit.
Larry Penley, Thunderbird’s president, has flown around the world to try to persuade alumni that the deal is a necessity. He thinks he has won many of them round.
But Ben Piper, the alumnus who organised the petition, has proved more stubborn. The school has had its lawyer write to him, claiming that he was breaching copyright by using Thunderbird’s name in his campaign.
Whether students like it or not, such partnerships could be the future. Doubts over the quality of education at for-profit universities have begun to hit their enrolments.
It makes sense for them to seek links with institutions that can lend their good names in return for a cut of the proceeds, says Roger Geiger of Pennsylvania State University, who studies the higher-education business.
However, the company must still win hearts at home. Laureate’s biggest American outfit, Walden University in Minnesota, spent just $1,574 per student on teaching in 2009-10. This is the second-lowest figure for an American for-profit institution, and far below spending at comparable state universities. It did, however, spend $2,230 per student on marketing, and record a profit of $101m.
Such margins give Laureate deep pockets. The company, mainly owned by private-equity investors, does not publish accounts, but its turnover was around $4 billion last year. It is looking for more partnerships with American colleges. Several impecunious institutions are knocking on its door, says Doug Becker, Laureate’s chief executive. Winning over students and alumni may be harder.
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