College Meets Wall Street

For-profit institutions try a new corporate model

Michael Aston/Flickr
Michael Aston/Flickr


Investor-owned colleges such as the unaccredited, defunct Trump University and now-bankrupt Corinthian College are often denounced as “dropout factories” that burden students with unreasonable debt while collecting billions in federal and state support. Now backers of for-profit education hope that a new corporate model might help improve their image by making them accountable to stockholders.

In the past three years, six for-profit colleges have reorganized as “benefit corporations.” This corporate form, which emerged in 2010, requires a company’s board of directors to pursue a social benefit while also making a profit for shareholders. Colleges reorganize into benefit corporations to attract private investors who they hope will behave like donors, upholding the college’s educational mission.

So far, 30 states, Puerto Rico, and the District of Columbia allow benefit corporations. Most of them require an independent audit of the school’s social performance every year or two. If shareholders find that it is not fulfilling its social mission, they can sue to force it to comply.

“People say that for-profit colleges cannot keep students at the center of their operations, but the benefit corporation structure requires that they do,” says Dan Osusky, a manager at B Lab, which helped develop the benefit corporation law and has conducted social audits of two such schools. “The key to making this succeed is getting privately owned colleges to publish measures of accountability and performance.”

Two deals are testing this new idea in higher education. Alliant International University, a not-for-profit health sciences college based in San Diego, became a benefit corporation last year when it was sold to Bertelsmann, the massive German media conglomerate. Bertelsmann launched an education division in 2014 to invest long term in campus-based and online learning companies in the United States. Alliant is its first move.

The second deal: a public stock offer from Baltimore-based Laureate Education, which operates institutions that enroll more than a million students, 95 percent of whom live outside the United States. Last October, Laureate announced its new charter as a benefit corporation on the same day it registered for an IPO.

The Laureate IPO, which likely will take place later this year, will be a big moment for B Lab, says Rick Alexander, its legal adviser. “The Laureate IPO could convince a lot of people that benefit corporations are a safe investment.”

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Brad Edmondson is a writer and business consultant in Ithaca, New York. He was the founding vice president of and editor-in-chief of American Demographics magazine.


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