Investor Groups May Be Nonprofit Colleges' Next Saviors

February 02, 2010

Nonprofit colleges in financial trouble have options other than merging, shutting down, or, as was the case for institutions like the College of Santa Fe and Daniel Webster, Kendall, and Waldorf Colleges, selling themselves to for-profit higher-education companies.

With so many private investors now looking to get a piece of the higher-education action—and especially, to get in on the boom in distance education— institutions, whether ailing or not, have growing opportunities to form joint ventures with private investors.

The joint ventures allow them to preserve their academic essence while also generating new revenue.

"Folks have figured out there's a lot of money to be made," said Michael B. Goldstein, a lawyer who worked on one such arrangement recently involving the newly formed College for Working Families, a joint venture backed by the National Labor College and Penn Foster Education Group.

"It's a classic example of self-help," he said on Tuesday, during a session of the National Association of Independent Colleges and Universities meeting here.

A Strategy to Share Profits

The joint venture that helps to run the all-online Ivy Bridge College of Tiffin University, established with an infusion of capital from a three-year-old, investor-backed company called Altius Education Inc. of San Francisco, is another example.

"Everything academic is run by Tiffin University," says Cam Cruickshank, vice president for enrollment management. Tiffin, in Ohio, could have started the two-year institution without the joint venture, he says. "But we would have had to do it on a shoestring budget." Ivy Bridge enrolled its first 32 students in August 2008; today, enrollment tops 540.

Tiffin officials project that the Ivy Bridge College LLC joint venture, which handles marketing, administration, and student recruiting, could begin generating profits for Tiffin and Altius by the next fiscal year.

Altius is now in discussions with other nonprofit colleges about forming similar arrangements.

At its basic level, the joint-venture idea is a variation on the outsourcing that many institutions already engage in with companies for 'noncore" services such as facilities management and marketing, and for the curricula and electronic platforms they use to deliver distance-education course materials.

The difference? Instead of paying an outside third party to provide such services and letting it keep the profit it makes, the college and a financial partner establish a joint venture and pay market-rate fees to that entity for providing the services.

"Instead of all the profit being retained by the third party," says Mr. Goldstein, it goes to the joint venture, and then is shared between the college and its partner.

In the case of the College for Working Families, Mr. Goldstein says 51 percent of the profits will go back to the National Labor College, which was founded by the AFL-CIO. Penn Foster, a company that runs for-profit colleges and was recently bought by Princeton Review, will get the rest.

Over time, if a joint venture appreciates in value, the college and the investors have the opportunity to sell off a piece of it to raise additional capital for themselves.

Weighing Opportunities

Mr. Goldstein has now begun promoting the joint-venture model on the college-conference circuit.

At the National Association of Independent Colleges and Universities meeting, an early-morning session where he discussed the idea was sparsely attended, but when he gave the pitch last month in Florida during a meeting of the Council of Independent Colleges, many of whose members are small and tuition dependent, the room was packed.

Mr. Goldstein said joint ventures aren't only for colleges that find themselves in difficult financial straits. Such partnerships are also a way for strong colleges to build their balance sheets and find capital to expand. That's because private investors continue to seek ways to enter the higher-education market. Several investor groups joined the bidding for the right to establish the College for Working Families, he noted, and Penn Foster's bid was twice the size of the required minimum bid.

For the right college with the right brand and market niche, "investors will come forward," said Mr. Goldstein, "This is not philanthropy."

Andrew Sund, president of St. Augustine College, in Chicago, said he could attest to the investor interest. "I've been approached by people with money," said Mr. Sund., who heard Mr. Goldstein's talk in Florida and came to hear what more he had to say in Washington on Tuesday. St. Augustine is looking to expand with distance education and Mr. Sund wants to learn more about the model to see if it is right for the college. "It could be the way for our institution to do online," he said.