By acquiring regional accreditation, trade and online colleges gain a credential usually associated with the traditional academic culture of liberal arts, faculty scholarship and selective admissions. Normally the accreditation process takes about five years and requires evaluations by outside professors.
Enrollment at Grand Canyon University, a Christian college in Phoenix bought by investors in 2004, has soared to 37,700, as of Dec. 31, up from 1,500, said Brian Mueller, chief executive of Grand Canyon Education Inc. Ninety-two percent of students now take classes online, according to the company's most recent 10-K. Bridgepoint Education Inc., based in San Diego, has boosted enrollment of two regionally accredited colleges it bought in 2005 and 2007 to 53,688 students as of Dec. 31, up from 400 combined, according to a company filing. Ninety-nine percent of those students take courses exclusively online.
Daniel Webster "could parallel Grand Canyon or Bridgepoint's growth curve," said Clifford, who was part of the investor group that purchased Grand Canyon.
ITT Educational declined to comment for this story. The company plans to open more Daniel Webster campuses and also expand online offerings, Kevin Modany, ITT Educational's chairman and chief executive officer, said in a Feb. 22 presentation to analysts. The company expects to introduce programs including accounting, education and health sciences, he said.
The U.S. Department of Education, which doled out $129 billion in federal financial aid to students at accredited postsecondary schools in the year ended Sept. 30, is examining whether these kinds of acquisitions circumvent a federal law that new for-profit colleges can't qualify for assistance for two years, Deputy Undersecretary of Education Robert Shireman said in a telephone interview.
Under federal regulations taking effect July 1, accrediting bodies may also have to notify the secretary of education if enrollment at a college with online courses increases more than 50 percent in one year.
Buying accreditation lets the new owners benefit immediately from federal student aid, which provides more than 80 percent of revenue for some for-profit colleges, instead of having to wait at least two years. Traditional colleges are also more inclined to offer transfer credits for courses taken at regionally approved institutions, making it easier to attract students nationwide.
While accrediting bodies treat these purchases as changes of ownership, the acquisitions, in reality, create new colleges that should be required to earn certification from scratch, Kinser said.
For accreditation to continue once the college is sold, the buyer must promise not to change its mission, Steven Crow, former executive director of the Chicago-based Higher Learning Commission, the largest regional body, said in a telephone interview. Once accreditation is maintained, the acquirer seeks permission, which is usually granted, to start branch campuses and online programs, Crow said.
Obama administration officials recently have questioned whether the accreditation system is effective in protecting academic standards. Accrediting decisions lack transparency and take too long, Undersecretary of Education Martha Kanter said in a Jan. 26 speech in Washington to the annual meeting of the Council for Higher Education Accreditation.
Regional accreditation is worth $10 million to a for-profit acquirer, Clifford said in a telephone interview. That's how much it would cost to start a regionally accredited college, a process that can take 10 years and has only a 50-50 chance of success, he said. On top of the $10 million, buyers typically pay $23,000 to $50,000 per enrolled student, making the purchase of Daniel Webster a bargain, Clifford said.
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