Universities in the Marketplace: The Commercialization of Higher Education

5 Education

5 EDUCATION In 1998, Meyer Feldberg, dean of the Columbia Business School, received a phone call from an old friend, Michael Milken, impresario of junk bonds, master of the leveraged buy-out, and active again after twenty-two months in a federal prison for securities law violations.1 Milken was calling to urge Feldberg to talk with another mutual friend, Andrew Rosenfield, lawyer, University of Chicago trustee, and currently operating as founder and CEO of an online company interested in distance education. What Milken and Rosenfield wanted was a collaboration that would allow Columbia professors to offer on-line courses in exchange for royalties from fees collected from subscribing students. Signing up Columbia would give the new venture instant credibility and make it easier to enlist other leading universities with the kind of “brand names” that could attract large enrollments of students here and abroad. Feldberg was intrigued. For him, on-line education meant opportunities to expand the range of his faculty. “I want to reach a global audience,” he said. So long as his faculty could only teach within the limited space available on Columbia’s New York City campus, “our opportunities to extend our reach to the student and corporate marketplace [will be] constrained by our physical capacity.” Be- 79 sides, added Rosenfield, “universities don’t have multimedia expertise. For them to spend tens to hundreds of millions of dollars to experiment in a new field would not be prudent. We are prepared to spend tens to hundreds of millions of dollars.” Several months later, Columbia and the on-line company —now called U.Next—signed a contract. According to its terms, Columbia professors would teach on-line and U.Next could identify them using the Columbia name. Columbia would receive royalties based on the size of the audience with a minimum guarantee of $20 million payable after five years. Feldberg, eager to share in what he thought might become a financial bonanza, insisted on a right to convert all royalties into U.Next stock. Negotiated behind closed doors without consultation with faculty or students, the contract drew a mixed response when it finally became public knowledge. An editorial in the Columbia Business School student paper praised it as a bold, forward-looking venture. A dissenting view, published anonymously, referred to Feldberg as a “spreadsheet jockey” and questioned whether he was harming Columbia’s stature at the expense of students and faculty. Controversial or not, the agreement had its intended effect on other leading universities. Fortified by Columbia’s example, such institutions as the University of Chicago, Carnegie Mellon, and the London School of Economics quickly signed on with U.Next under terms similar to those agreed to by Feldberg. The U.Next experience could lead one to believe that higher education is about to enter a new and vastly lucrative era. It is still too early, however, to speak definitively about the benefits and costs that new technology will bring to enterprising universities. But useful clues may be 80 CHAPTER 5 gleaned from the record of earlier attempts to make a profit from educational programs. A BRIEF HISTORY OF EDUCATION FOR PROFIT However novel the U.Next venture may be, there is nothing new about universities trying to earn some extra money from their teaching. Although American universities have traditionally operated on a not-for-profit basis, many of them began long ago to develop educational programs that would yield a surplus they could use for other purposes. As early as 1892, William Rainey Harper, President of the University of Chicago, created a correspondence school for individuals who could not afford to leave their homes and jobs to learn on campus. Other universities followed suit. In an effort to attract more students, institutions such as Columbia and the University of Chicago advertised widely and hired traveling salesmen, who, according to Abraham Flexner, were not above resorting to a “hard sell” to gain and retain customers.2 When students dropped out of the courses after a few lessons, as many did, the university allowed no refund although it incurred no further cost. In this way, institutions could earn a profit they could use for other programs. Observers disagreed about the quality of correspondence education. Some long-time veterans of the correspondence movement argued that most instructors were recruited from the university’s regular faculty and that students performed as well when learning...