The World: For Profit and People

November 3, 2013

edl-03unow-t_CA0-popupIn his 2011 TED talk, Gene Wade thus shared his vision of an ultra low-cost college degree for working adults. As of today, he has raised $42 million in venture capital for his new company, UniversityNow, and its two for-profit universities, Patten and New Charter. The first students started in the spring. Around the same time, Forbes magazine named Mr. Wade the most disruptive figure in education.

UniversityNow’s downtown San Francisco offices have the same vibe as any bustling tech company close to its start date, with whiteboards full of lists and walls decorated with the company’s values (“Responsive/Agile,” “Students First,” “Ownership/Empowerment”). The online programs are delivered on a custom-built software platform that guides students to the next, most relevant text, video or assignment, much like Amazon suggests what you should read based on past activity. Enrollment has surpassed 1,200 students and is growing, Mr. Wade says, at 20 to 30 percent a month.

“We’re off to the races,” Mr. Wade says. “It’s been quite intense and good. We had a person call us the other day. They got that email from their employer about our program. They were about to sign up for $28K in debt at the University of Phoenix. Now they’ll be doing our M.B.A. for $1,000 a year” — $4,000 before employer subsidies. “That’s a game changer. She’d be paying that the rest of her life.”

Patten (with online and on-campus programs) and New Charter (online only) are part of a low-cost wave that has emerged in the last year in response to the hue and cry over college affordability. The programs tap many of the trends bubbling up in online education, including adaptive learning, mentoring and self-paced learning that replaces class time with a professor. UniversityNow programs are based on student mastery of competencies, determined by a team of newly hired faculty members with input from employers on course objectives. Students begin with a pretest that pinpoints problem areas, then review suggested material until they are ready to submit assessments, which can be a written report or exam.

For the past five years, Mr. Wade has worked on his plan to build a “socially responsible” for-profit university. He grew up in housing projects in the Roxbury section of Boston and struggled in school before a youth program turned around his life. Burly in a suit and soft-spoken, he has an unshakable confidence and a checkered résumé. And in one way or another, all of this has come to play in the building of this innovative new venture.

MR. WADE, a Harvard law and Wharton business school graduate, is more education entrepreneur than educator. He opened a charter school that failed, then a venture-backed school management company that sold to Edison Schools Inc. for $38 million in 2001. He served as executive vice president at Edison, a money-losing for-profit charter school chain dogged by inconsistent test results.

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Finally, Mr. Wade founded Platform Learning, a company that offered tutoring to “schools in need of improvement” using federal funds newly available under No Child Left Behind. Platform went out of business under a cloud. New York City officials contended it overcharged and had engaged in “questionable business practices” when recruiting students, including promising incentives to schools. Mr. Wade says employees acted properly, and Platform billed only for the number of students it served. Platform, he says, was a victim of “politics” — zealous investigations by school districts jealous of the federal money his company was earning. “The underlying problem was that money that could have been controlled by the school districts was being given to private organizations as a sanction under N.C.L.B.”

Mr. Wade’s struggles with Platform directly contributed to a bold step he is taking in his new venture: opting entirely out of federal student aid programs.

“It is the reason that Patten is structured the way it is,” he says. “If you want to innovate and be successful, your odds go up when you reduce the political friction in your business model.”

Patten and New Charter are among very few accredited colleges that don’t accept federal student aid. Opting out, Mr. Wade says, significantly cuts payroll and lowers administrative overhead. It allows students to be truly self-paced — to take as little as one course at a time, and to hit pause for a few days or weeks rather than having to carry a minimum course load, as required if a school accepts Title IV student aid. Opting out also exempts the colleges from regulations intended to rein in some of the excesses of the for-profit sector, like the one that prevents schools from compensating recruiters based on the number of students they sign up — a practice that has been known to tempt recruiters into enrolling students unable to benefit from college work.

Mr. Wade says UniversityNow recruiters and call-center employees are indeed paid by the number of students they enroll. But, he says, the college monitors students for “satisfactory academic progress” and refunds the money of the 3 to 4 percent who drop out in their first two months. “The idea that I have to take Title IV to do right by people is preposterous,” he says, calling federal money the “perverse incentive” that leads for-profit colleges to recruit aggressively.

In place of federal aid, UniversityNow has embraced private subsidies. It is recruiting students through employers like A.T.& T., taking advantage of tuition reimbursement policies. “Eighty-five percent of employers in America offer tuition reimbursement; 90 percent of employees don’t use it,” says Thomas Stewart, president of Patten. While these subsidies barely pay for one class at most colleges, they can cover the full undergraduate tuition at Patten online, which is $1,316 per four-month term, including learning materials; New Charter is $796.

It is by tapping that source of funds that UniversityNow plans to scale up quickly. Patten began recruitment efforts by announcing the College Works scholarship for the cities of Oakland, San Francisco and Sacramento. Residents of each city with access to employer tuition subsidies are eligible for a discount that covers the gap between the employer subsidy and cost of tuition — that is, they go free.

To date, about four dozen public employees, including police officers in Oakland and firefighters in Sacramento, have signed on. Patten is also developing an early childhood education degree for teachers in Oakland’s Head Start programs.

“The mayors of Sacramento and Oakland endorsed the deal,” Mr. Wade says. “This essentially means that they promoted the program to city workers and gave us a quote for a news release. Once city employees heard about it, word of mouth took care of the rest.”

When asked why city officials would turn to a for-profit company rather than a public college, Desley Brooks, an Oakland City Council member, said the answer is cost: “You can’t even go to a J.C. and get this level of education for that amount of money. The trust comes from the people who are involved.”

Rod Paige, former United States secretary of education, is on Patten’s board of trustees, as is Janet L. Holm-gren, former president of Mills College in Oakland and a longtime acquaintance of Ms. Brooks.

Local ties are important to the future of this venture. Buying a struggling campus (Patten was on probation by the accrediting agency, the Western Association of Schools and Colleges) is an increasingly common way for for-profit institutions to snag a coveted regional accreditation, which can otherwise take years to secure. But the practice has come under fire, and some regional accreditors have rejected the applications.

Patten is the “toe on the ground” that enables UniversityNow’s new competency-based program to secure its regional accreditation. In Patten’s case, says Richard Winn, executive director of WASC, “The commission was satisfied that the college’s original mission of meeting the underserved with an affordable program was being met, both on campus and through the online programs.” New Charter carries only a specialized accreditation for distance learning, and so is less expensive than Patten.

Founded as Oakland Bible Institute, Patten was affiliated with the Pentecostal movement before its takeover by UniversityNow last year. The sleepy campus, still adorned with Christian symbols, occupies less than a full city block. It has about 200 on-campus students, a mix of locals and Chinese students completing their degrees in the United States (among on-ground offerings: a master’s in education and bachelor’s in psychology and in biblical studies). On a recent visit, I saw only two students studying in the learning commons, a space UniversityNow created when renovating the library — adding computers and clearing “out thousands of dusty old books,” says Koel Acedo, director of Student Experience. UniversityNow also disbanded the winning softball team.

ACCREDITATION and flexibility were major issues for Travis DeCampos. At 45, this 14-year veteran of the Sacramento Fire Department had a powerful incentive to finish his bachelor’s degree. It would mean an immediate salary bump of 5 percent. But online colleges had worked out badly for the crew he calls his “second family.” “We’ve had people attending and finding out later their accreditations weren’t up to what we needed for the city to accept as a bachelor’s,” he says. “After you finish your degree it’s horrible to find out the accreditation isn’t solid.”

Sacramento accepts the Patten credential, and the self-paced format suits the unpredictability of firefighting. Captain DeCampos recalls the day he watched Gene Wade’s TEDx talk. It was the first hours of a 72-hour shift, and the alarm went off — go time. He arrived on the scene of a “spectacular” two-alarm fire that spread from a shed to a house to a second house. He was the first inside carrying the nozzle end of the hose. On the all-clear sweep, he rescued a kitten locked in a bathroom and returned it to a family that had been at the beach all day. “We went back to the station,” he says, “we cleaned up and then got a large home where the cars caught on fire in the garage of a two story.”

At the station again, he clicked back on the TED talk to hear Mr. Wade speak movingly about transforming education for students like him. He decided to enroll, and about 25 of his buddies did, too.

Months away from its first graduates, it’s hard to judge the quality of UniversityNow’s programs. Self-paced models are being tested all over the country, and they have many critics. Captain DeCampos, however, is satisfied. He’s out of pocket only $1,500 a year. (Sacramento budget cuts have eliminated tuition subsidies for its firefighters, but Patten is giving them a discount anyway.) And, the captain says, “You can go from, basically, you’re in class one minute, the next minute you’re heading to a structure fire.”

“The big joke we make is that some guys at the firehouse are in school to learn and some are more to get a degree,” he says. “But the way they put this program together, you can’t get through it without learning the information. There’s no shortcuts.”

He says the orientation course, on goal-setting strategies, helped him when he was studying for a promotion exam at work — “so it’s already kind of paid off for some of us.” And that has allayed their initial fears.

“We were like: Can we trust this? Is something bad going to happen?”

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