A For-Profit College Tries The Charter School Market

Starting this past spring, parents in Indianapolis; Troy, Mich.; Jacksonville and Tampa, Fla.; and Houston, Texas, heard about a new option for their children's last two years of high school.

In each city, a charter school called Early Career Academy planned to offer students the chance to earn associate degrees, either in network systems administration or software development, alongside their high school diplomas. Students were offered laptops to work on and ebooks to use. All for free.

But the schools are meeting opposition, largely because of the organization behind them: ITT Technical Institute, a for-profit college with tens of thousands of students, 145 physical locations and a checkered reputation. Like the rest of the for-profit college sector, the value of ITT's educational offerings is coming under increased federal scrutiny.

This fall, the Indianapolis Early Career Academy postponed its opening for a year, citing governance issues. Enrolled students had to find spots elsewhere. The Tampa opening was postponed too, and the Duval County school board rejected the Jacksonville school for similar reasons as in Indianapolis. A public hearing for the proposed Houston location is set for this week.

The school in Troy, an outer suburb of Detroit, is currently up and running with about 40 students, and four faculty members listed on its website. Executive director Amy Boyles declined to speak with NPR Ed, saying that ITT Tech handles all communications for the school.

The story of ITT and Early Career Academy illustrates the intersection of two trends: the changing business models of some for-profit education companies and the changing governance of charter public schools.

Experts say this is the first time a proprietary college has sought to get into the charter school business.

In an interview with NPR Ed, the CEO of ITT Technical Institute, Kevin Modany, characterized the new venture as an experiment. He said it could prove to be a logical extension of his company's educational mission: "an opportunity to be part of the solution to access, affordability, and completion rates."

The motivation is equal parts corporate social responsibility and brand building, he said.

"We're, like most of higher education, looking at ways in which we can lower the cost for students, and increase the percentage of people who obtain a postsecondary credential, especially from high-risk communities," Modany added. "And this could be — I do not want to oversell this — a way to address many of these issues."

Indeed, the concept of early-college technical high schools as a path to greater educational attainment has gained favor in high places. President Obama has repeatedly endorsed an effort called Pathways in Technology Early College High School.

This group of public schools in New York and Chicago has corporate partners including IBM. And, like Early Career Academy, they offer students the chance to earn technical associate's degrees for free. But it's a six-year, not a two-year, program. And the degrees are accredited by local public institutions.

By contrast, ITT Tech warns all prospective students that its credits are unlikely to transfer to any other institution.

That means ECA graduates who want to complete a bachelor's degree would have to either enroll at ITT Tech for a total cost of about $22,000 a year, or start over as freshmen somewhere else.

"I see no reason why ITT couldn't serve these students, but it does seem outside their wheelhouse," says Kevin Kinser, an expert on proprietary schools who teaches at the State University of New York, Albany. "Teaching high school students is not just teaching littler versions of college students," he added, especially since ITT Tech's students tend to be older adults.

"There are different requirements for curriculum, faculty credentials, parent involvement — a whole host of areas that ITT has little organizational experience with."

For-Profit Charter Schools

In the charter school world in general, for-profit management organizations "have plateaued" while nonprofits are growing, according to Gary Miron at Western Michigan University. He compiles an annual report on charter school governance.

Miron says his research has shown that for-profits are typically less likely to meet state quality markers for student achievement. "They're losing so many contracts that the growth is slow."

Michigan, where the only ECA school has opened, is the outlier. Fully 79 percent of charter schools there were run by for-profits as of 2011-2012.

"We're learning as we go," says Modany of the Troy school. "We haven't run into any major surprises or issues."

ITT Technical Institute doesn't run these schools, not officially. Early Career Academy subcontracts to ITT as an educational provider. Classes are held at ITT's campus in Troy, but the teenagers are kept separate from ITT's mostly adult students. The curricula, the materials, many of the instructors — they come from ITT. And ITT is supporting these charter schools financially, at least initially.

The closeness of the partnership seems to be what tripped the project up in Indianapolis.

According to a report last week in The Indianapolis Star, the Indiana Charter School Board raised concerns about Early Career Academy's financials and the independence of its board.

Modany says, of course ITT recommended associates to serve on the charter schools' boards.

"We're looking for passionate, interested, committed people. If we can find people, we'll offer up those names, and I don't think there's anything wrong with that. They're not getting any economic benefit, so to criticize that is a little bit misplaced."

The Star reported that "two men who do business with ITT resigned from the Early Career Academy board after they were asked to submit letters confirming their businesses wouldn't profit from school operations."

Business Models

Kinser says the charter school venture makes sense for ITT Tech from a business point of view.

"It fits the pattern of big, for-profit companies looking to diversify beyond that Title IV-based revenue model," says Kevin Kinser. Title IV refers to federal student aid such as loans and Pell Grants, which are the primary source of income for most large for-profit colleges.

About one in five for-profit borrowers default on their federal student loans within three years, compared to 13 percent at public institutions. The federal government has recently sought to regulate for-profits based on this measure. The regulatory pressure, combined with bad press, has added up to a decline in enrollment and revenue.

ITT is a case in point. Its stock price has fallen from $100 a share in 2010 to a little over $8 a share today. It has battled a series of legal challenges in the last decade from the government and private citizens alleging various forms of fraud. In the most recent quarter, ITT reported a 9.5 percent year-to-year decline in enrollment of new students.

The trend holds true across the sector. Hence, Kinser says, this exploration into new markets.

"As their traditional higher education provider business has declined, they need to find other avenues to make up the revenue lost," he explained. "They also want to avoid the regulatory burden that running a college entails. So you see ITT look to the charter schools. You see Apollo [University of Phoenix] look to invest capital in start-ups. Kaplan has international plans. All of these strike me as strategies to offset the declining prospects of growing enrollment ... and the regulatory and financial problems that they have been facing."

Most recently, in February of this year, ITT became the first for-profit college to be sued by the Consumer Financial Protection Bureau, a federal agency. The complaint says ITT used "aggressive" tactics to market a high-interest private loan to students between July and December 2011 and that as a practice, ITT overcharges students and misrepresents their job prospects.

Modany declined to comment on the suit, citing ongoing legal proceedings. But ITT Tech has filed a motion to dismiss, calling the suit unfounded, and has questioned the CFPB's jurisdiction.

Some may find it troubling that an organization with financial and legal issues might be put in charge of public schools. On the other hand, the roadblocks thrown up against ITT and the ECA could equally well be viewed as an example of charter school oversight working exactly as it should.