For-profit schools offering university degrees online have performed well on Wall Street. Since 2000, shares of DeVry, for example, have nearly tripled in price, while Apollo Group shares are up more than sevenfold. Strayer Education shot up tenfold over the same period.

But are these schools good investments for their students?

Unlike distance-learning options offered by traditional colleges and universities, for-profits, whose primary presence is not a tree-lined campus but a Web site, have had some difficulty gaining credibility. In a recent survey by career information provider Vault, most employers consider online degrees acceptable, but not as credible as traditional degrees. Nearly two-thirds of survey respondents said they would prefer job applicants who graduated from a traditional college over those with online degrees.

But experts say that’s changing. While they may not always be best for those who aspire to a doctorate in philosophy or a dramatic career change, the evidence suggests online schools accredited by reputable agencies can be a practical alternative for working adults who want to complete a degree or update career skills.

Online schools
For-profit colleges offer another delivery method for ye olde correspondence schools, but tuition and fees run high relative to traditional public universities.
Higher education at a high price
  1. Can they deliver quality?
  2. Accreditation an indicator
  3. Cost of an online education
  4. Problems of credit, credibility

Testimony from a student

Andres Llanos, for one, found online studies to be a perfect fit. He wanted to go back to school for a degree in accounting, but had a family to support, he says. After making sure the degree he got would be valid not only in his home state of Florida but anywhere in the country, he opted to take online courses at DeVry University, one of the larger for-profit schools whose programs are offered primarily over the Internet.

“I liked the flexibility they could offer someone like me who needed to work full-time,” Llanos says. “It gave me the opportunity to study after work and family time.”

He says the experience was so positive that he went on to earn a master’s degree online — this time at Keller Graduate School of Management.

Like Llanos, most students enrolled in online schools have historically been employed adults between the ages of 23 and 40, says Andrew Gansler, president of the Prospecting Services Division at EducationDynamics headquartered in Hoboken, N.J.

“A lot of the early growth was driven by MBA programs for working professionals and people looking for career-oriented skills,” he says. “More recently, though, bachelor completion programs have emerged for people who want to complete their degrees without having to put their lives on hold.”

In the U.S., about two million students — or close to 10 percent of all those enrolled in higher education — “are taking courses in fully online programs at accredited degree colleges, and never set foot on a campus,” says Sean Robert Gallagher, program director and senior analyst at EduVentures, a higher education research and consulting firm based in Boston.

“That’s up from just a few hundred thousand a few years ago,” he says. “So there’s been great growth.”

Their rapid evolution made for-profit schools a growth industry on Wall Street, says David W. Breneman, dean of the Curry School of Education at the University of Virginia in Charlottesville.

“Now that they’re quite a mature industry, they can’t keep producing 30 percent growth year-over-year,” he says. “But anybody who bought when they first went public would be a millionaire by now.”

That may be an exaggeration, but education investors certainly enjoyed good returns over the past ten years.

Can they deliver a quality education?

Gansler points out that any business has to offer a competitive product to stay afloat. “Online universities like DeVry or the University of Phoenix are by now some of the largest universities in the country,” he says. “If they were turning out inferior students, it would be bad business. None of them are getting any smaller.”

In fact, he says, the for-profits are growing faster than their nonprofit counterparts.

“If you look at the numbers of accredited online colleges,” Gansler says, “about 80 percent are nonprofits. But if you look at demand and consumption, the students we are connecting to schools through elearners.com are heavily biased toward for-profits. That’s partly because those schools are far more aggressive, but also because they have the ability to produce new curricula and offer new programs quickly. They’re better at adjusting to the demands of the marketplace.”

Conscious of the need to overcome perceptions of inferiority, some for-profits are quantifying performance standards and outcomes to better entice students. For example, “The University of Phoenix has a new academic quality board to ensure their academic outcomes are equal to or greater than their traditional cohorts,” says Gansler.

According to Breneman, studies suggest that the education someone gets from learning online “is about the same as sitting in a classroom. Lots of very reputable institutions have online components. So the delivery method in and of itself is not suspect.”

Accreditation an indicator

For online schools and their brick-and-mortar counterparts, the ultimate indicator of quality is accreditation, but this can be a complex issue. While most countries have government organizations regulating academic standards, the U.S. relies on independent agencies — and there’s a confusing proliferation of them. A bogus university is likely to advertise accreditation by a bogus accrediting body.

Three kinds of accreditation — national, regional and programmatic — are recognized by the U.S. Department of Education, says Michael Lambert, executive director of the Distance Education & Training Council, or DETC, a nonprofit specializing in the accreditation of higher education institutions whose programs are offered primarily by distance. DETC, which is a national accrediting body, got its start accrediting correspondence schools in the 1920s.

Regional accreditors, of which there are six across the country, are generally seen as the gold standard of accreditation, a perception Lambert says is largely a result of their much longer history. “The federal government does not make any distinction between national accreditors like us and regionals,” he says — though some users, such as potential employers, might.

Regional accreditors are broader in scope, Lambert says, since they evaluate both distance education and traditional colleges and universities. Nationals focus on specific types of institutions, he says, “but the U.S. Department of Education’s recognition criteria are the same for national and regional accrediting agencies.”

The third type — programmatic — is specialized accreditation bestowed upon programs in their field by specific professions.

The best way to sort through the accreditation morass, says Dr. Breneman, is to check the Council for Higher Education’s database at www.CHEA.org, which lists all recognized accrediting bodies.

Accreditation is voluntary, and many for-profit institutions accredited by a regional body opt to apply for national accreditation as well, says Lambert.

“We take a very precise, hard-hitting look at the financial condition of a school,” he says, “beyond what regionals do. Stockholders and board members like that second look, so they see it as a good investment to get a second accreditation.”

Cost of an online education

Getting educated by a for-profit online isn’t cheap, but evidently it’s not more expensive than the market will bear.

According to the College Board, the average sticker price for tuition and fees for in-state students at public four-year schools in the 2007-2008 academic year was $6,185; for private four-year colleges and universities, average cost was $23,712. Tuition and fees at for-profit institutions fell between the two extremes: $12,089.

“Tuition costs tend to be more expensive than at public, nonprofit institutions,” says EduVentures’ Gallagher, “but less expensive than at private nonprofit schools. But there is value in that students may be paying a premium for an accelerated program. They might be able to complete a degree within half the time it would take at a traditional university.”

Because a school without a physical campus doesn’t have to support sports venues and student centers, a much higher percentage of their resources are dedicated to instruction, he adds.

“A faculty member doesn’t have to be located where the college is based,” Gallagher says, “so they can use a national or even international pool. They tend to rely largely on adjunct faculty, so in the majority of cases the instructors have other jobs. The vast majority have degrees from a nonprofit school and have taught at a nonprofit.”

Problems of credit and credibility

One of the biggest difficulties for online students is getting their credits transferred to another school — a problem for many community college students, too, Gansler says.

“Credit transfer is such a subjective thing that there’s never a guarantee,” he says. “If someone attends a university that has national accreditation and wants to transfer to a regionally accredited school, sometimes there will be a problem.”

But for the working adults who make up the majority of the online student body, Gansler says it’s not an issue. “They’re getting a degree to advance their career, not to be a professional student. So the notion of transferring credits would only occur if they went on for an M.A. or a Ph.D.”

There’s a similar dynamic at work in getting credibility in the job market, Dr. Breneman says. He finds that for most online graduates, their degree “helps them in their jobs internally, but they don’t use them to launch a new career. That is true of most adult programs. In many cases, their employers pay the tuition, and they’re not expecting they will go work for somebody else. It’s almost like a fringe benefit of employment.”

The challenge of using an online degree in the job market is greater for entry-level positions, says EduVentures’ Gallagher. They are more commonly accepted for continuing education credits, though it varies by industry, he adds.

But beyond entry level, says Gansler, “Life experience is what counts, not the school you went to, which is a very rough proxy for whether you will be able to perform in a work environment.”

Online education doesn’t suit everyone, Gallagher says. “It’s widely accepted among educators that online courses are more difficult in most cases because you need to be a self-directed student. We estimate that it’s a good fit for between 33 percent and 50 percent of students.”

“This is a niche market that largely focuses on adults,” says Breneman. “They don’t kid anybody that they are doing general education or liberal arts studies. What they offer is closer to training than education. So they’re not going to take over from traditional universities, but they are substantial players. They’re here to stay.”

Promoted Stories