A Matter of Degrees

May 3, 2004

Over the past 10 years there’s been a stealth revolution in American higher education. While high-school students, parents and media pundits agonize over soaring tuition fees and labyrinthine admissions policies, a different breed of student is attending a new kind of university. Adults decades beyond their prom years are racking up advanced skills and degrees at unprecedented rates.

    Denied the luxury of taking a sabbatical from their salaries, they’re increasingly matriculating at institutions of higher learning with names like Capella, Phoenix, Strayer and DeVry. Operated as for-profit businesses, these schools are open to everyone, and their courses and schedules are tailored specifically to the needs of ambitious and/or recession-spooked workers. Their total enrollment passed one million a couple of years ago. Many such schools are watching their bank accounts bulge and their stock prices soar. One example is Career Education Corp., a Chicago company with an enrollment of more than 80,000. In 2003, it earned $119 million, up 77 percent from the year before. Its IPO price in 1998 was $16 and after adjustments for three two-for-one stock splits, it currently trades around $60.

    At $800 to $1,500 per course, these for-profit colleges are more expensive than their nonprofit taxpayer-supported counterparts, but convenience, time and relevance usually shift the balance in their favor. Many corporate reimbursement plans are capped at $5,250 per year, above which tuition reimbursement may be counted as taxable income. This amount is just enough to finance slow progress toward a degree. Some employees add their own money to make the journey faster.

    What many people, including workforce managers, don’t realize is that for-profits are fully accredited as degree-granting institutions by the same regional accrediting agencies that oversee nonprofit universities like Harvard and UCLA. However, for-profit universities advertise heavily and employ "educational counselors" who may or may not have the educational needs of prospective students and their employers in mind.

    "Would you go to a Chevrolet dealer to ask what kind of car you should buy?" asks Faith Ivery, a former academic advisor who is president of Educational Advisory Services, a company in Scottsdale, Arizona, that works with companies to maximize the positive effect of each tuition-assistance dollar. To do that, Ivery says, a company should at least try to link its employees’ educational ambitions to the organization’s own training, employee-development, retention and diversity needs.

    "But most are clueless, which is a sad story," Ivery says. "They don’t have any real knowledge or expertise about higher education, so they don’t see tuition aid as something they can manage. They keep track of it administratively. They track and pay."

    Eduventures, a private research and consulting firm in Boston, estimates that in 2003, corporate tuition-reimbursement programs paid out more than $10 billion. The firm also surveyed 500 U.S. companies, granting anonymity to encourage candor. Approximately 45 percent reported only "a fair amount" of or "not very good" control over their distribution of tuition-reimbursement funds. One major high-tech company reported that it spent $25 million per year on tuition reimbursement. A subsequent audit revealed that the actual figure was more than $50 million. Asked whether they viewed tuition reimbursement as a strategic investment, 23 percent of the companies surveyed answered "always." Thirty-one percent replied "sometimes," 12 percent "occasionally," 15 percent "rarely" and 19 percent "not sure." When asked if they calculated the ROI of supporting their employees’ continuing education, only 2 percent answered that they did.

One major high-tech company reported that it spent $25 million per year on tuition reimbursement. A subsequent audit revealed that the actual figure was more than $50 million.

Open enrollment
    The notion that ROI can’t be tracked annoys John Sullivan, professor of management at San Francisco State University and a specialist in human resources metrics.

    "Of course you can measure it," he says. "You follow the people whose degrees you’ve paid for and follow them for five years. How well do they do compared to their colleagues? Do they get promoted more often? Do they stay longer?" What’s odd is that companies don’t know what they’re spending and, furthermore, don’t seem to care, he says. "It’s the dumbest thing I’ve ever heard of." That is Sullivan’s opinion, and he admits that it has fallen on deaf ears. In an era when benefits like health care, profit sharing and pensions are examined microscopically, haggled over and periodically put through the wringer to reduce costs, tuition reimbursement remains a placid vestige of unexamined corporate benevolence.

    This island of educational largess came into existence in the 1970s and 1980s as a low-cost miscellaneous perk to attract and retain employees. Then, adult learners had to scrape together degree programs from the offerings of local two- and four-year colleges because large colleges were focused almost entirely on full-time students, and "business colleges" taught low-level skills like typing and shorthand. Inflexible course schedules kept students anchored in one place. The recession and layoffs of the early 1990s, coupled with the nascent tech boom, gave middle managers their first wake-up call about the necessity of updating their skills.

    Around that time a federal crackdown on fraudulent mail-order diploma mills gave legitimate for-profit schools room to grow. By the late 1990s the mushrooming number of online courses enabled adult learners to attend class whenever they liked. In the past few years, accredited for-profits have gained grudging respect from traditional academics and corporate talent hunters.

    "There was a lot of hoo-ha when these schools got started, but on balance I’m pretty sanguine [about them]," says David Breneman, dean of the Curry School of Education at the University of Virginia, who has extensively researched the subject of schools such as the University of Phoenix, which was founded in 1976 by John G. Sperling, now 83. As a history professor at San Jose State University, Sperling not only figured out how to make college education convenient and useful for adults, but how to make it profitable for his university. Phoenix and its kindred for-profits "fill a niche by educating working adults, a population we don’t serve very well," Breneman says.

    Underwriting that niche is corporate America. About 60 percent of attendees at for-profit universities receive at least some financial support from their employers. And because those companies have only a fair or not very good idea of where their tuition reimbursement dollars are going, and a weak handle on whether their investment is a good one, it leaves the planning and budgeting, for the most part, to the hundreds of thousands of American workers who are learning on the company dime.

    To students, for-profit schools are increasingly desirable. The curriculum focuses on business, health sciences and IT. Classroom courses are taught at night in local office buildings and run on accelerated schedules as short as five weeks. Online courses are in session around the clock and, with teacher-student and student-student interaction possible via modem, can be completed just as quickly. Courses are taught by non-tenured part-time practitioners, experts in their fields with advanced degrees and instruction in teaching methods who also have day jobs. Teachers and students bring their own experiences to classroom discussions, case studies and other required projects.

    For students five years past their graduation, the kind of degree they hold and where they got it don’t matter much in the business world, says Dave Opton, CEO of online job board Execunet. "They’re judged by their track record," Opton says. "If anything, the fact that they’ve gone on and gotten their degree can only be seen as a plus."

    The students embody a wide range of ambition and purposefulness. At one end of the spectrum, say Ivery and other experts, are independent high-achievers. These are people like Ron Beach. In 2002, Beach, a 51-year-old Vietnam veteran, earned his master’s of science in organization and management from Capella University, headquartered in Minnesota. His online courses were partially subsidized, to the tune of $5,400, by Hitachi, where he worked as a manufacturing manager at the company’s Phoenix facility.

    By taking student loans and studying nights and weekends, he got the business degree in 26 months. He recently got a better job as director of manufacturing at LSI Logic Inc., a computer chip and memory storage device maker in Wichita, Kansas, a position that required a graduate degree. Another reason why he made the leap, Beach says, is that LSI’s tuition-assistance program is generously capped at $10,000 per year. He is now earning a Ph.D. from Capella.

Internal training and development is viewed as a strategic imperative, while tuition reimbursement is considered a miscellaneous employee benefit.

    Other students are less successful strivers, struggling to carve out extra time and money for a degree while trying to find the best intersection of their talents and their employer’s future needs. If they’re lucky, company reimbursement guidelines or a kindly soul in human resources will let them know whether their studies will have any effect on their prospects for promotion.

    Then there are the thousands of subsidized dabblers and serial degree-earners. "About 7 percent of the population is spending 20 percent of the dollars," says Lance Ross, a marketing executive at Edcor, a company in Detroit that helps 70 corporations outsource their tuition-reimbursement programs. Epitomizing this group, Ross says, is an employee of a client he once met. The man said that he planned to get his pilot’s license with his employer’s help. When Ross asked him how that figured into his career plans, he said he wanted a job flying the company’s jet.

Independent studies
    In most midsize or large companies, internal training and development is viewed as a strategic imperative, while tuition reimbursement is considered a miscellaneous employee benefit much like a credit union or company gym. Those in charge of these programs are in the main very happy with this.

    "I’m all for the renaissance person," says Lee Dailey, director of executive and management development at United Technology Corp. Dailey heads the Hartford, Connecticut, conglomerate’s Employee Scholar Program, a legendarily generous plan under which every one of UTC’s 200,000-plus employees is eligible for 100 percent reimbursement of all educational costs, including tuition, registration fees and books. Courses do not have to be directly related to the participant’s job. "If you’re an engineer for our Pratt & Whitney division and you want to study Middle Eastern religion, go ahead," Dailey says. In addition, employees are given three hours off each week to work at their studies or attend class. If a worker gets laid off because his job is relocated, he can participate in the program for four more years. When employees earn a degree, they are awarded $10,000 worth of company stock. Currently, 15 percent of UTC’s workforce is enrolled. Last year the company paid out $60 million, and it has spent $400 million since 1996, when the scholar program was instituted in its current form. The program, Dailey says, has never been evaluated for ROI. "Inherently, people understand that a better-educated workforce is a more productive workforce." This is the philosophy of longtime UTC CEO George David, Dailey adds. "He wants the best-educated workforce on the planet."

    Training and continuing education are tracked at General Motors, says Jeff Johnson, director of benefit operations worldwide for the auto company. Under the firm’s Salaried Employees’ Tuition Assistance Plan, managers must get approval from their supervisors before enrolling in courses that will earn them a desired undergraduate degree or advance their technical or managerial skills. "They’re very rarely turned down," Johnson says, adding that few employees want to waste their time or GM’s money on irrelevant courses.

    The yearly limit at GM is $6,400 per individual for undergraduate education and $10,000 for postgraduate courses. Johnson declined to reveal how much tuition reimbursement his company paid to its managers last year, but says that between 5,000 and 6,000 employees got "millions and millions."

    A similar program, administered jointly by GM and the United Auto Workers, is available to the company’s hourly workers. Johnson says that the company tracks which for-profit and nonprofit schools the employees are attending, and even the number of degree-earners who leave for better jobs, but adds that they haven’t yet uncovered anything to worry about.

Even a leader of a for-profit school is at a loss to explain its corporate clients’ tuition-assistance philosophy.

    Generally, large companies are the most generous with tuition dollars, but small and medium-sized companies do their best to keep up. Washington Trust Company, a 16-branch bank in Westerly, Rhode Island, gives tuition assistance to 70 of its 450 employees. Undergraduates must obtain a grade of at least C in their courses, and graduate students a B. Last year the company spent $73,000, and Kristen DiSanto, vice president for human resources, considers it money well spent.

    The company does not attempt to calculate ROI. "Whatever type of educational assistance we give them will benefit employees," DiSanto says. "Personal advancement will make them smarter, and it’s going to make them feel good about the job they’re doing and themselves." Washington Trust caps its assistance at $5,000 per year per employee.

Credit watch
    Even a leader of a for-profit school is at a loss to explain its corporate clients’ tuition-assistance philosophy. "My perception is that employers have all of these ongoing learning needs, and not enough time and money to accomplish them," says Stephen Shank, founder and chancellor of Capella University. "Then companies have another major pocket of money and time, [for employees’ continuing education] but they don’t attempt to use it for strategic purposes."

    Not that Shank or anyone else at Capella is complaining. The privately held university, whose students and alumni include tens of thousands of company-reimbursed American white-collar workers, is one of the first business colleges to operate exclusively online. It offers courses in subjects such as customer psychology, succession planning and leveraging workplace diversity, and awards fully accredited MBA degrees. Since its founding in 1993, Capella has expanded from three full-time employees to 550. Its annual revenue passed $80 million this year. And it is but one of a half dozen or so financial success stories in the industry.

    Industry leader Apollo Group Inc. is the publicly traded parent company of the University of Phoenix. This near-ubiquitous institution has an enrollment of more than 200,000 students at 192 locations in North America. It has an online subsidiary with its own tracking stock. In 2003, Apollo earned $247 million on revenue of $1.3 billion. Strayer Education Inc. of Washington, D.C., has an enrollment of more than 20,000 adult college students, primarily at facilities on the East Coast. Its profit increased 23 percent from $41 million in 2002 to $51 million last year. Kaplan College, owned by the test-prep company, has grown from 14 online students in 2000 to more than 14,000 today. Even DeVry Inc., parent of IT specialist DeVry University, has bounced back from the dot-com bust to earn $61 million in 2003.

    At last count there were more than 1,700 for-profit schools in the United States. Most are much more focused on the bottom-line results of educating adult employees than are the corporations that help foot the bill. Jeffery Silber, an analyst for the New York investment firm Harris Nesbitt, has been covering the education industry since 1999. He marvels at how the companies he follows have outmaneuvered traditional nonprofit colleges, which are weighed down by bureaucracy and costs for things like research labs, to attract the booming adult-education market. He also admires the way they’ve grabbed such a big chunk of corporate tuition-assistance dollars. "They can move much faster than traditional universities," he says. "And they went where the money is."

Workforce Management, May 2004, pp. 32-38 -- Subscribe Now!