Interview: Michael Clifford
- Buying his first university
- Let the market determine what courses are offered
- The value added by for-profits as compared to community colleges
- His deal with Jack Welch
- The pressure from Wall Street
- His newest project
He calls himself an "educational entrepreneur," investing in failing universities, injecting them with large amounts of capital, and when they go public he can make big money. His investments include Grand Canyon University, InterAmerican College, and Chancellor University. This is an edited transcript drawn from interviews conducted in January and March 2010.
Tell me about your early life and your path.
My dad was a musician. I fell in love with music when I was a young age, and I grew up playing trumpet, trombone and fluegelhorn. My dad migrated into business, so I got to learn the business that he was in, which is the radio station business. But I loved playing. And I was working professionally by the time I was 14, playing circuses and Broadway shows in Phoenix. ...
When it came time for college, I had 37 music scholarships to great schools. But every interview I went to with the schools, they would say, "What do you want to do?" And I'd say: "I want to be like Mick Jagger. I want to play music professionally." And they would say, ... "You're going to fail as a musician, so you should have a teacher certificate so you can feed yourself." And at 17 years old that just didn't compute. ...
I formed my own band and went on the road, and we tried to play original music while living in the clubs. And we got too comfortable in the club business. We were making too much money and working too little. By the time I was about 25 or 26, I decided to move out of the music business, went to work. ...
At 25, 26, what happens to you?
I went to work for a chain of restaurants where we were the house band, called the Red Onions in Los Angeles, and I became director of entertainment and public relations. ... I didn't really like the club scene. I was doing a lot of cocaine, drinking a lot, smoking a lot of pot from the music business, then the club scene.
Finally went back to Scottsdale, Ariz., from L.A., and a friend of mine had a really nice recording studio that he needed help with, so I took over the management of the recording studio and built it up. ...
Through that experience somebody introduced me to Jesus Christ as my personal lord and savior by reading me the Bible. He would come in -- he was a piano tuner, and he was a great piano tuner -- and I would say, "How much do I owe you to tune the piano?" And he'd say, "Well, you don't have to pay me if you let me read the Bible to you." And I said, "Well, this is pretty cool."
So I said, "Come on in," and I'd lock all the four locks on my door, and I'd roll a joint. ... I'd light it up, and I'd say, "Preach." ... And the Bible started to make sense to me. And it changed my life. I became a born-again Christian. ...
From there, I migrated from working at the recording studio to a Christian ad agency, which introduced me to the world of Christian media, and worked in that field for a few years, started my own business.
Then my spiritual mentor, a guy named Bill Bright from Campus Crusade for Christ International, sat me down one day and said, "You need to get into postsecondary education." And I said: "Bill, I've never gone to college. I don't know what you're talking about." And Bill said, "That's good." He goes, "Michael, I know your heart; I know you love helping people live better lives," because I do a lot of charity work, and I was doing a lot for him. And he goes, "And you love business."
And he predicted -- and this was 14 years ago -- he predicted that education would be a great business that also helps people. And he believed, as I do, that education is the key to world peace. I mean, in any situation, if people become more educated, they have a better life. ...
Simultaneously with that, I called a business friend of mine, a business mentor in Phoenix who had been on 30 of the Fortune 100 boards, and I said, "Bill Bright told me to get into education." He said: "Well, get your fanny out to Phoenix. Let's have a couple of meetings."
The first meeting was with Roy Herberger, who was president of Thunderbird, the American Graduate [School of International Management], ... because my friend thought I should learn the Rolls-Royce of higher education. Thunderbird, the international graduate school, really was a high, high standard.
Then the next day, my friend said, "I'm going to have you have lunch with a guy." … My friend thought this gentleman had a super business potential with what he was doing. And I found myself at the table with John Sperling.
The founder of the University of Phoenix. And John Sperling created the paradigm of online education and created all this opportunity that all the schools are profiting from, whether you're nonprofit or for profit.
John changed the paradigm of education. ... He introduced me to [University of Phoenix CEO] Brian Mueller, who at the time was a sales guy at the University of Phoenix and building his reputation. Brian is the one that really took the embryonic idea of online education with John and led a team of [Chancellor University CEO and former executive vice president of University of Phoenix] Bob Barker and [University of Phoenix Online president] Tony DiGiovanni under [University of Phoenix parent company Apollo Group CEO] Todd Nelson's leadership, to build the whole online revolution.
I want to come back to those days. But I want to back up and pick up a couple of spots on your career that are interesting. You crossed paths with Oliver North, [retired Marine Corps officer best known for his role in Iran-Contra,] at one point. What was that about?
I met Ollie North through a group called the Council for National Policy when it was very small and very elite. No one knew who Ollie North was. I had been working in charitable fund raising and had met quite a few major donors, and Ollie was meeting major donors to help support the freedom fighters around the world. I was just fascinated by what he was doing, and anything I could do to help him and some of the other people that were involved I did, by introducing people to him.
What did you do to help Ollie North?
Introduced him to wealthy people who shared the same values and the same philosophies. I wasn't really privy to everything that was going on, but I liked what I heard. And I was a Reaganite. I loved Ronald Reagan, so anything I could do to help him. It was fun to watch it all transpire. ...
And then you got involved in politics as well during this period of time.
Correct. ... I had led teams that raised a lot of money for charities like World Vision, Habitat for Humanity, University of Steubenville, the 700 Club, Campus Crusade for Christ International. And we raised a lot of money for Pat Robertson's 700 Club, and Pat called me up one day and said: "I want to have dinner with you. I'm coming to Phoenix."
By this time, you're a known entity in the fund-raising and the --
Getting there, slowly, slowly.
But enough so that Pat Robertson calls you up.
Yes. We had created a new way to raise money using video conferencing. Video conferencing was unheard of at the time. I got the idea from watching heavyweight -- I used to love heavyweight boxing championships, and I sat in the Arizona Coliseum one day, [thinking if boxing promoter] Don King can sell us 13,000 tickets at $30 apiece, why can't [evangelists] Billy Graham or Pat Roberson speak to their constituency? So we pioneered that in 1981.
I thought I was getting fired by Pat when he called, because usually you go see the big man; the big man doesn't come out to you. And I had great respect for Pat and what he was doing. He sat me down at dinner, said, "I want to run for president, and I want you to help me run the campaign." I said: "Are you kidding me? We're going to get slaughtered. We're going to get killed."
And we talked through, and he really believed he could win. I mean, Pat really, really believed it. He sold me over dinner. And I processed it and thought to myself, it's a good thing for Christians and moral people, whether they're Jews or Christians or Catholics or Mormons, to get involved in the political process.
My hope was that if Pat ran, other people would get motivated to run for dogcatcher or school boards or city council. The effect of that campaign, to me, the benefit was bringing more people into the system that were traditionally told by their pastors: "We don't do politics. Stay out of it. It's a dirty business. Stay out of it. Don't do that." I felt that went a long way to helping broaden the political spectrum. ...
Tell me about John Sperling and how you hooked up with him.
The first meeting was at lunch, and he brought the president of the University of Phoenix with him, Dr. Jorge Klor de Alva, who's a fantastic guy, just a great guy. Jorge started hammering me. I had an idea for a company, and it was called TeleUniversity, and I pitched this idea to John to be an investor. The idea was to go to cable companies and provide education over cable companies with accreditation.
Jorge was really hammering me during lunch, saying, "This is a horrible idea." He was just beating the heck out of me, and John was just quietly eating. Finally John held his hand up to Jorge and said: "Jorge, be quiet. If we don't listen to young entrepreneurs, no matter how stupid their ideas are, like Michael's idea, we're going to get our butt kicked in the future. Keep your mouth shut, and listen to young entrepreneurs."
I was just amazed that John put Jorge in his place. Then John told me it would never work, and it was a stupid idea. That company morphed into a very successful public company, called Bridgepoint Education, which I had very little to do with, except, I mean, the predecessor.
... At that point, what did you say? What did you ask for?
I said: "I want to learn. Would you teach me? Would you let me work for free? Can I be a volunteer? I'll pay all my own expenses." I was living in Florida at the time. I moved West in order to take advantage of the opportunity. And he said, "Yes." And he goes, "I believe the future is teaching on the Internet."
John really believed that the Internet was the game changer. That was about 14 years ago. He had been working on it for 10 years prior to that, and he had fought all the battles with accreditation and with the academy and with the technology. And I had an opportunity to meet some of the true academic entrepreneurs that helped create the online learning models.
What kind of leader was Sperling?
Sperling is extremely inspirational. First of all, no one works harder than he does. He's up earlier, and he works the longest and the hardest. He's a true entrepreneur, where the bigger the problem, the more enthusiastic he is about overcoming it. One time I said: "Well, how do you accomplish all this? How did you create all this?" And he goes, "I outlived all my adversaries." (Laughs.) So his message of perseverance inspired me.
So you do the TeleUniversity. It eventually becomes Bridgepoint. When does that become Bridgepoint?
I'm not sure of the exact date, Martin. ... I had very little to do with it.
OK. ... You must have smelled real opportunity in seeing what they were doing and knowing that you, with your business instincts, could do this.
... I liked the fact of helping people. I liked the fact of taking someone from this point in their life to this point in their life with a college degree where they could get a better job and provide for their family. I really liked that a lot. And I tend to gravitate toward the inner city and toward the poor. ...
But you also saw business opportunity here. Otherwise it wouldn't fly.
Yes. I like to give money away. And in order to give money away, you have to make money, OK? I've spent a lot of time with what I call compassionate capitalists in the fund-raising world, in the charitable world, people like [Amway co-founder] Rich DeVos, people like [Nelson] Bunker Hunt, Joe Coors, Jack Carey -- some people that had used their businesses in order to become philanthropic. And that really inspired me.
I was a musician. I grew up not caring about money. I traveled for 10 years with a pair a jeans and a T-shirt and three horns. It wasn't the motivating factor. But when I was able to say, "Gee whiz, I might be able to make money in order to do good with it," that got me kind of excited. And that drives me today.
I saw a huge demand in America that John articulated to me. ... We have somewhere between 30 and 50 million working American adults who have not finished their college degree, and America needs to become a knowledge-based country. And those people, if they have an opportunity to finish their degree, can improve their lifestyle for their families.
John made it convenient for people to go to school that had a full-time job. So if you're a Verizon Wireless manager in Tucson, Ariz., and you're a 35-year-old female, and you have three kids, and you're working hard and taking care of your family, but you know you can get your bachelor's degree, you'll get a pay increase, and you have a chance to provide for your family. ...
Then he added the convenience of online. ... The Internet has changed every business it's touched, whether it's banking, book sales, newspaper, television -- it completely disrupts it.
And John was the catalyst. His vision was the catalyst to disrupt education. ... The average cost of a traditional ground-based instructional cost is about 74, 75 percent of tuition. Online is about 15 percent of tuition. So you have this huge margin where you can make mistakes, you can reinvest in student services. You can do a lot of things that a traditional school can't do. ...
Was there a moment in time when Sperling was talking to you ... that the light bulb went on, that you can remember and recall?
Yes. I remember over lunch his example of instructional cost. He goes: "This is why we can do a better job for the student. We're convenient. We have 50 percentage points more to build a better academic model and to provide better student services. We have a huge demand."
And we have a great resource of faculty that he called adjunct faculty. We have a huge, untapped resource of faculty in America who would like to work part-time, and, working adults who are, let's say, an MBA-level CPA who would love to teach for a reduced cost, just like you see in traditional schools. A lot of people will go teach as an adjunct just for the fun of it, because it's mentally stimulating. So that clicked for me. ...
Let's talk just a little bit about that 50 percent. You talked about [that] 50-point difference. I'm not sure if that comes across to people, what you're talking about there.
Sure. What opened my eyes to the online model was the ability to have more capital left over from tuition to do a couple things with. You could lower tuition dramatically. I've lowered tuition about 50 percent at every school I've ever invested in. That's been a mandate of mine, is to lower tuition and eliminate fees.
A traditional college, ground campus, instructional cost is about 74 percent of the tuition, so whatever dollar comes in, 74 percent of it goes to actual teaching. In online, it's about 15 percent. The difference between 15 percent and 74 percent gives you the ability to lower tuition or to provide more student services or to provide more scholarships. ...
... You had your own ideas about what you might do and what niche you would carve in this space. What was that?
I developed from talking to John my own philosophy, and I call it the "four gospels of higher education": ... lowering tuition and fees; providing access to every American; graduating faster with less debt; and the most important one to me is education with a purpose. Don't just become an MBA to go out and make a lot of money. I got very tired of the Wall Street bankers I dealt with trying to raise money over the last 10 years that would sell their grandmother for half a point of commission. You've got to have education with a purpose. You have to link it to doing something to help humanity. ...
A lot of people have gone out and started up schools from scratch. You came at it a little bit differently.
I did. I realized that the regulators in our industry -- which are primarily the six regional accrediting bodies and a couple of large national accrediting bodies and the Department of Education -- were critical to anything I wanted to go accomplish in helping change the system.
Unlike a lot of people now that view the accrediting bodies and the regulators as the enemy, I've always felt they were there to be our friends and to help us improve the process and improve the systems, so I became friends with a lot of regulators. I was asking for help, and I was volunteering. I volunteer wherever possible with the accrediting bodies to be on panels or to do visits or do whatever I can to help. ...
I started getting leads of schools that were in trouble from the regulators. One regulator said to me, accrediting leader said: "Michael, I got into this business to help improve my schools. I don't want to preside over funerals. I don't want to help put them out of business. Can you help use your knowledge and your energy to help save some of these schools?" And that's what got me into it. And one of the first was Grand Canyon University.
Got you into what?
Into the mind-set of buying a university. When I came home and told a couple of my friends that I was going to buy a university, they all said, "Are you back on crack or something?" I mean, no one buys a college. And I said: "No, no. I think it can be done."
And the way it happened was Grand Canyon University was going out of business. It was closing its doors. I met with the board of directors, and ... we put together a wonderful plan where we actually purchased a university from the foundation. The foundation received the compensation. The guys running the school have kept the mission the same as it was when the founders started the school 70 years ago.
But it's fundamentally changed in that it is now a for-profit university?
Correct. It is a for-profit, proprietary, publicly traded company. But the mission hasn't changed. And I don't see the big difference between a donor giving a million dollars and saying, "Here's my million dollars. Here are the strings attached to my million dollars: I want this, this, this, this, this as my return on investment for my charitable gift," versus my mom saying, "I want to buy $10,000 worth of stock, and I would like some sort of return on my investment," and take that risk.
I don't see the difference. Grand Canyon's mission has not changed. I know some of the original board members that were involved in it. They're absolutely thrilled. It went from 700 students to 35,000 students. It lowered its tuition 50 percent across the board.
It is now the only private institution in the state of Arizona, and its room and board and tuition is cheaper than Arizona State University's in-state tuition. Hey, and guess what? It has more Ph.D.s working there. It has fantastic outcomes. So to me, ... whether it's for-profit or nonprofit, it's the academic leadership and the management team and the board of trustees that ensure the significance of the school. It's not where the money came from.
How do you describe what you do?
I describe myself as an education entrepreneur who is a catalyst for creating opportunity. ...
OK, but you buy schools?
We do. We form strategic alliances. A school is, in my opinion, part of the public trust. And I think this is where Wall Street and the regulators are slowly starting to reconcile each other. Wall Street says: "Hey, we put our money up; we own this business. It's ours, and we're going to run it." The regulation community says: "These are entities that are part of the public trust. They were nonprofit, you've converted them to for-profit, but they still have a public mission to educate our society." And that's where the big tug-of-war has been in the last five or six years, and it's starting to work its way out to where people are understanding that.
But there are people who would say, look, this guy, Michael Clifford, he never went to college, he was a musician, he sort of drifted around, he had a born-again experience. What is he doing determining the future of colleges around the country?
I look at market demand, and I back academics who are very sincere and passionate about what they do.
But do you have the credibility, do you have the bona fides to be doing that?
No, I don't, but I'm doing it, and I think that's the great thing. Only in America. I mean, my new book is called How to Run a College by a Guy That Never Went to One. I don't think somebody can't improve the health care system because they're not a doctor. Now, would I perform brain surgery? Absolutely not. Do I teach in the classroom? Absolutely not. I back people with integrity that have passion for what they're doing that share my values and my mission in helping students be successful. And I've learned how to find other sources of capital other than just charitable donations or taxpayers' property taxes to help facilitate that model.
So with GCU, you come along and you see this place; it's fallen apart. You see opportunity in this?
How did you go forward from there?
First of all, for me to get involved in a school, I have to fall in love with the mission statement. ... Grand Canyon was very unique. It was a 57-year-old Southern Baptist college that was an outpost for the Southern Baptists in the West Coast. It was turning out some of the finest teachers and finest nurses west of the Mississippi. It had a fantastic heritage of academic excellence in those particular disciplines.
Its business school was a disaster. ... We fixed that. It had about 700 or 800 students. I can't remember all the exact numbers. It was about $40 million in debt. It had 22 lawsuits it was going to lose. The kids called the swimming pool "the science project." It was filled in, and 1,000 dorms with no air conditioning working, no Internet access. In Phoenix, Ariz., no air conditioning. ...
So you saw a fixer-upper?
Yes, a turnaround situation. ...
What's hard about it?
It's a very simple business model that is very complex to execute. A university is like a small city. You're dealing with software, plumbing, real estate, finance, different regulatory, security, food services, telecom services, academics, curriculum. ... You're taking over a city that's failing, and you've got to fix all these different components while people are still using the services.
So it takes a unique kind of manager, like Brent Richardson. Brent Richardson was the fellow I recruited to be CEO and our partner, and Brent turned the school around and got it ready for its next level of growth. So the key to my job is to find the right talent, the people that are passionate about what they do and have the right skill sets. You have to think out of the box to fix these schools, because they're bogged down in their legacy problems, whether it's legacy technology, legacy governance issues, legacy advertising. You need to retool everything simultaneously.
... You look down the budget and say, well, they're spending X on this, X on this. Where are the big changes?
... For example, Grand Canyon had 700, 800, 900 students on the ground, going to school on the ground. It had no online operations, yet it was supporting 3,500 programs.
Now, what that meant was there were degree programs where you'd have a faculty member, a teacher's assistant, a secretary, three offices, a classroom, and three students in the class. Now, the demand was not there for that particular degree program, but because that faculty member was tenured and that faculty member had taught that course for 25 years, it was just a given that it was going to stay in the catalog.
So trimming programs down based on market demand and adding new programs based on what the marketplace needs is a key to the turnaround process, and facilitating the turnaround.
So what kind of programs were let go?
I couldn't quote those off the top of my head.
But the kind of things that you look at, stuff that has been there a long time, where there's a professor committed --
Sixteenth-century Irish Philosophy and Literature, OK -- you know, very low demand, very passionate faculty member who had taught it for many, many years. ...
A university is like an airplane with X number of empty seats. It costs the same amount of fuel; it costs the same amount to keep the expenses covered. You've got to fill those seats.
And I think many schools are not meeting the market demand that their community has trusted them with, the public trust that I spoke about, of a university. You can't cut it to where you're not meeting everyone's needs, but you've got to make it financially viable, and there's so many degrees and so many jobs available today in America that are not being taught by our education system.
You cut the number of courses and programs by how much?
I couldn't give you the exact number that was cut, because I'm not management. I don't do that work. I have the philosophy, but the people running the school that we invest in, that we support, do the detailed data.
But I can tell you, for probably every two or three courses that were cut, one or two were added that there was a big market demand for.
I'll give you an example: In Cleveland, we met with the Cleveland Clinic for our school, Chancellor University, with [former GE CEO] Jack Welch. We asked the leadership at the Cleveland Clinic, "What degrees are you going to need two or three years from now that we're not offering?" And they said, "We need legal nursing." I'd never heard of legal nursing. Now, the hospitals need to have nurses who have paralegal training to document what prescriptions are being handed out.
So we had a paralegal program; we didn't have a nursing program. But we quickly retooled the paralegal program to create a legal nursing degree in partnership with some other nursing schools in the area to help meet the market demand of many first-generation college students in Cleveland who needed a degree that is linked to a paycheck.
Is that right?
I believe that. I believe it's terribly haughty of an academic community to say to a 17-year-old or an 18-year-old at that demographic, "Here's what you should learn for the next four or five years, and you need to do this, this, this and this." I think it's equally wrong for a degree to be taught because we've always taught it here, and that's what that faculty member knows the best. ...
But you're saying let the market decide what should be offered? What about the idea that the school should be a place where you're free to go and explore and learn as you wish?
What you may be trying to say -- and I'm not trying to put words in your mouth -- is what's the importance of liberal arts? Because I think liberal arts is where people feel you go and you learn a lot of different things about a lot of different areas.
Including 16th-century Irish philosophy if you want.
Exactly. If you want. And if the taxpayers are willing to pay for it, for a small group of people to learn that, that's fine.
The Internet has changed all of that. I have four children ranging from 25 to 12. I'm absolutely amazed at the younger ones, how if they have an interest in something, they go learn it as fast as they possibly can. And they're learning so much more from the Internet and from media around them than they are in their classrooms right now.
I think there needs to be a reconciliation that the education system that was created hundreds of years ago and was modified during the Industrial Revolution to create more of a baby-sitting situation needs to change. ...
GCU, in the fall of 2008, you have an IPO [initial public offering]. It's very successful.
It was very successful, and I probably, for matter of family, would rather not get into the amount of money, but it was an incredibly life-changing experience. ...
Make no mistake about it: These are very high-risk ventures. ... A lot of capital goes at risk. The early investors in Grand Canyon made a lot of money, but they took huge risks. And Grand Canyon was a week-to-week enterprise for two years. It could have gone out of business at anytime from week to week.
Great question. We had to do appraisals on what regional accreditation is worth for Wall Street, and the independent appraisers came up with a number that a school was worth $10 million, because it costs $10 million, 10 years, and a 50/50 chance of success to obtain regional accreditation.
Regional accreditation is the highest form of academic accreditation in the country. There are only about 2,800 regionally accredited schools in America. Those are the Harvards and the Princetons and the Stanfords and the University of Floridas and Arizona State University.
So what I spent seven or eight years doing was talking to regulators around the country, trying to find a school that was having troubles that had the right regulatory requirements.
So that accreditation is a very valuable thing?
It is, and it's valuable for a number of reasons, primarily because employers in America prefer hiring somebody with a regionally accredited degree. That is not to say, in my mind, it's the most valuable accreditation. We have invested in nationally accredited schools which are more vocationally oriented. ...
But what makes you interesting is that you have this idea that you can go shopping for these failed school that have these accreditations?
Yes. And we won't work with a school unless the regulatory authorities want us to work with the school. There have been several schools that have contacted us, and I've gone to the regulators and said, "What do you think?" And they'd say, "Michael, you know, we don't know if that's fixable, and we trust you, but there's a lot of history there you don't know."
Because you don't want to see that accreditation get pulled when you're halfway down the road?
Correct. But we want to be people that help everybody, help the regulators, help the students, help the faculty. Life's too short -- (laughs) -- to be at war with everybody. And I don't believe the regulators are our enemies. ...
Why is accreditation so valuable?
Accreditation is a stamp of academic approval, and ... once you have accreditation, you qualify for the student loan program. Without student loans, our education system would not work. There's no way a 17-, 18-, 19-year-old could go to a bank or any other lending source and borrow $20,000, $30,000, $40,000 per year for four or five years with no credit rating and no job and be able to pay for school.
So you need that accreditation in order for your students to be able to successfully get student loans?
Yes, because I want to see the student succeed, and it's what drives our system. There are several regionally accredited schools that do not have a student loan program, and because of their market demand, because their degrees are so in demand, people will pay cash for them, because they're linked directly to a job.
But that's the exception, not the rule?
It is the exception.
And your schools, like, a GCU, or Bridgepoint or Chancellor, you're looking at what percentage of your student body is getting student loans?
It really depends, and I don't have the numbers on Grand Canyon. I don't run Grand Canyon, and I don't run Bridgepoint. But my guess is the schools are running probably 60 percent, is my guess. The more graduate programs you have, like MBA programs and doctoral programs, the more the student is inclined not to take out a loan and pay for it with cash.
Or corporate America reimburses up to 30 to 60 percent for all employees. So if you're working at a big company like Verizon Wireless or Intel and you want to finish your bachelor's degree, the chances are very good that there's a strong amount of corporate reimbursement.
Right. But if these schools had no access to Title IV funding, they wouldn't survive?
They wouldn't function. The whole education system would not work in the United States. That's why we're so far ahead of India, we're so far ahead of China, we're so far ahead of Brazil, is we have a student loan program that allows every American, no matter who they are, to get to go to college.
Now, the problem has been, we're pricing ourselves faster on tuition being raised than the subsidies can keep up with. ... We see the government raised the Pell [Grant], and then all the state institutions raised their tuition to match Pell, where we should be lowering tuition every step of the way.
When you made the deal for Grand Canyon University, how many students were there?
I want to say there were 700 to 900 students, and of those, maybe 500 or 600 were actually paying, and the rest were scholarships. There was a very convoluted scholarship system --
And how many do you have now?
I'm not sure of the exact number. It's public information. I believe on the ground there's probably 2,800 to 3,000. I think it's at capacity on the ground. ...
But a large part of this was to go online?
Correct. The online is probably in the 25,000-to-30,000 [range] right now, and the ground's probably about 3,000. ...
You had to get from 700 students to 3,000 students to break even?
So how do you do that?
The entrepreneurs kept putting money in. And how did we do it? We had to get the word out that number one, the school was not closing its doors, because there had been three faculty-pay reductions. The staff had had their pay cut two or three times. The staff had been laid off. Vendors in the community had not been paid for two years, a year and a half, two years. People had supplied them milk in the kitchen, you know.
So we had to get the word out locally that the school was not closing, and that takes advertising, and it takes public relations, and it takes hiring people to go knock on doors at the high schools and at community colleges and at employers and say, "Hey, we're in business." ...
It took an injection of technology. Grand Canyon had no technology. There was no Internet service for the students in the student union or in the dorms, where you couldn't even go online and do anything, anything at all. So big investment in technology, big investment in infrastructure. ...
Some people look at the for-profit sector, and they say: "God, these guys are spending a lot on sales and marketing. Why?" It is true that many of them spend more on marketing and sales than they do on faculty?
No, I don't think that's true.
Well, I think in a few cases that's true.
I don't know how you'd qualify that exactly. But it is true that proprietary schools spend a lot of money on advertising. And one of the reasons for that is they haven't been around very long. They've only been in business seven, eight, nine, 10 years. They don't have huge alumni organizations to get referrals from, so they do have to spend money.
But remember, they're run so efficiently that their tuition is lower, and yet they have a margin that they can work with to invest in technology, in faculty and marketing.
When you say their tuitions are lower, you mean they're lower compared to what?
Most of the state schools, in state.
But not the community colleges?
Not community colleges, correct. But that's not apples and apples. The community colleges are supplying A.A. [associate's] degrees. If you look at A.A. degrees being supplied by some of the proprietary schools, I think you'll see the pricing is similar. ...
Across the board, isn't it cheaper to go to a community college to get a degree than it is to go to a for-profit?
Where the community colleges need to improve, and if the community colleges are going to fulfill what President Obama wants them to fulfill, they're going to have to add student advisers and career counselors, because unless you have a lock-step plan toward your degree, you get lost in the shuffle. There's nobody really there helping guide the students to an endgame, in other words. ...
The other big difference is, if you go into a community college system, you will find such varying age groups in the classrooms that I think it's very difficult to get a good education. If you're an 18-year-old, 19-year-old coming out of high school and you're geared to doing homework, and you're geared to an academic rigor, you may be sitting in a classroom with a bunch of 40-year-olds who haven't been in school in 20 years and don't really care and are doing it for fun, and blah, blah, blah. ...
So you occupy this space in terms of pricing that is between the big state universities and private nonprofit schools and the community colleges?
... The proprietary schools are priced on market demand. What will the customer pay for the value they receive? People say, "Oh, the University of Phoenix is a big diploma mill." You cannot consistently enroll 20,000 Americans every month and pull the wool over their eyes for 15 years. Nobody's that good of a con man to be able to do that.
So the customer must be getting something that they're not getting at the community college level and they're not getting at the state schools, they're not getting at the private nonprofits. And it's a combination of student services, a combination of relevancy of what you're learning and how it leads to a job.
This is all about jobs. What drives proprietary education is placing people in jobs, helping people find jobs.
And getting that message out through effective marketing and sales is an important part of that, right?
Correct. And where the proprietary schools need to help out and give back more is in the whole area of research and development. The proprietary schools that are doing well now need to start helping out the state schools and the other research schools with some of the profits that they have. And I think that will happen. ...
How much [do] the Title IV and Pell, other funds available, dictate that price point where you set your tuition?
For me, personally, in the schools I have any influence over, one of my four gospels is to graduate faster with less debt. Creating relevant, real-world curriculum that moves a student through a lock-step process faster to get to the degree and graduate with less debt is one of our overriding objectives. The way to do that is to price it in such a way where the student can get the maximum amount of grants and money that they don't have to be burdened with as far as a debt. I think the Department of Education should step in at some point and say, "OK, if you're running a more efficient model, you get rewarded here." ...
One point that was made by a president of a community college was, "Look, we're charging $3,150." And basically that money gets granted, and that student goes to school. But these for-profits down the street are taking advantage of other programs and taking out of what she describes as a finite pool of money, up to $10,000 or $12,000. The for-profits have looked at the money available and geared their tuition according to that and how they can pull down the maximum amount of money. Is that right? Is that fair?
That's absolutely true in that, but it's not just the proprietary for-profit schools; the state schools do exactly the same thing. They price to what they can get, not price to the efficiencies. Now, the proprietary schools are lowering their tuition. They're running more efficient models. They're paying their faculty more money. They're paying their staff more money. They're injecting more into colleges.
But they're still way higher than the community colleges?
No. Well, yeah, but that's apples and oranges. That's not the same degree.
Is it? Isn't it the same population in many cases? If I want to go get a nursing degree, I have a choice between a community college and a for-profit?
No, because the majority of the students that are in the proprietary schools are older, and they're transferring in those low-cost credits from the community college. It's very rare to find someone who will walk into a University of Phoenix and say: "I don't have any credits whatsoever. I'm going to start with my first credit of 120 bachelor's credits." That's very, very rare. I counsel people constantly: "Go get your general education done at the community college level. That's what they do really, really well. But make sure when you do it, somebody advises you to take the right courses in the right order to get to where you want to be."
Why wouldn't I just stay in the community college system? It's a lot cheaper.
Because you would only end up with an associate's degree, and that may not be what you want.
But that may be all I need.
Then do it. Go for it. Exactly. And I think there's a big need for associate's degrees. And I think, depending on what you end up with as a skill set, the problem with the community college is they have not done a really great job of advising the student as to what job they can get when they graduate with a community college degree. ...
[There are a number of big state schools -- University of Illinois as an example -- who have tried for-profit and failed.] Why?
Because they have allowed faculty to make the decisions that the business people should make. And I'm not marking faculty down, but faculty should teach and businesspeople should run the business. When you put the faculty in charge of the business, the priorities constantly shift.
That's the dynamic tension in a proprietary school, is academic rigor, academic quality, balanced by good financial disciplines, and being able to say, "No, we're not going to teach that program because there's not enough students that want to pay for it."
That means throwing out the tenure system?
I think it means upgrading the tenure system. ... We have always said: "Look, we don't have to honor tenure. We are now the new owners. We are now in charge. However, give us a chance to show you how we can put together a compensation package for you as a faculty member that's far superior [to] anything you've had with your labor union or with your tenure system."
I've formed committees, compensation committees made of faculty and the businesspeople. I remember one instance where I asked one faculty member, "What do you want?" And he was 64 years old; he said: "I've got all the money I need. I want to take three months off [this] year to go to Italy and take students and write papers." To him, that sabbatical was more important than anything.
Right next to him was a 27-year-old young man with five kids, and he said: "I need cash, man. I need tennis shoes. I need bicycles. I need cash."
In the proprietary world, we're able to build all kinds of different compensation levels to meet the needs of different faculty members. And that can be cash bonuses, stock options, profit sharing, professional development, research time, sabbatical time, all calibrated to what the needs of the faculty are.
Generally what's the attitude of tenured faculty to Michael Clifford's offers to these schools? ...
When we usually show up, there's an enormous amount of animosity and fear. Fear is the biggest factor: "What does this mean to me?" It always amazes me that an institution is declining and sinking, and everybody in the room is worried about what's going to happen to them, not what's going to happen to the institution. ...
Once we get a chance to start to talk, and whenever we form a strategic alliance with a school, the first thing I say is, "Everybody's guaranteed a job for a year," even though my investors go crazy and say: "What? You need to fire half of these people because we're losing money here, and we're losing money here, and this person doesn't show up for work, and that one."
No, but you've got to set a stage for a chance for people to figure out what they want to do. And after a year, people decide whether they want to do business with us. The faculty members have enough time to think about whether they want to work with us.
Do you have tenure at any of the colleges that you've turned around?
To the best of my knowledge, no. But I'm not that involved in some of them on a day-to-day basis.
But the deals involved breaking tenure?
Correct. Correct. To the best of my knowledge, there are no unions, and there are no tenures at the schools. ...
What is tenure? Tenure basically said if you work for peanuts for 25 years helping serve the public trust as an academician, we will guarantee you those same peanuts for the rest of your life, and you don't have to work.
Now, it's gotten out of whack. ... My daughter went to UCSB in Santa Barbara, and I went up there to start paying for the state school, $2,700 a year for a parking place. ... I walked up to the administration building and where the main faculty buildings were, and I saw hundreds of reserved parking places that were empty, hundreds of them.
I asked the provost, I said, "Who's reserving all those?" "That's for tenured faculty." I said, "Do they ever get used?" "No. Most of the people that are tenured haven't been here in five or six years." Why? Because we're living longer, a tenured faculty retires at 55 or 60, has a parking place for 20 years or 30 years. ...
Tell me about that.
Again, I can't get involved in a school unless I become passionate about the mission, and I was looking at the demand set in the marketplace and realizing that business degrees occupied the biggest slice of what people wanted. It was also the most cluttered. In other words, it had the most amount of degrees offered. ...
[Chancellor] was called Myers before we took it over, Myers University. It had had about seven or eight name changes in 157 years. I was attracted to it because [of its] rich history … in business and teaching, not only first-generation college students in Cleveland, [Ohio,] but MBA students at the executive level.
What did you say to [investors] was going to be your formula for turning this thing around?
The school had all the right elements. One key factor was that the faculty had stayed with the school in a very declining area. I won't do these deals unless the faculty are pretty much supportive of what we want to do. And so I spent a lot of time with faculty, and I was very impressed with their commitment to the school and to the students.
The school had a broad program offering. It had associate's degrees. It had bachelor's degrees, and it had M.B.A. programs. So we were able to offer to the community a broad scope of programs.
It had been teaching online for 11 years, which was something that we knew we had to do to subsidize the ground-based operations in the turnaround, because online allows you to market nationwide or on a global basis versus just --
At a much better profit margin.
At a good margin, which helps offset the losses of a first-generation college student on the campus.
And then the history of business. I felt from a marketing standpoint, we could carve out a unique image based on the history of the people who went to the school. If I'm asking you to go to a school, and I say, "John D. Rockefeller went to school here," you're going to go, "Wow, that's kind of interesting." So from a marketing standpoint, I thought it gave us credibility. ...
I was looking to build on that brand by changing the name to Chancellor because Myers had a questionable reputation in its community and no national stature or brand. And I was looking for somebody like Jack Welch that would catch the vision of rebuilding the school and creating sort of a new paradigm for an M.B.A. program. ...
Then what's the next step? ...
Getting the right people in, the right leadership in that understood how to turn it around and how to fix it, and working very closely with the Higher Learning Commission and the Department of Education and the Ohio Board of Regents and the Ohio Board of Proprietary Schools to prove to them that we could instill the academic rigor and quality of education for the students that the school had not been delivering for many, many years. And that takes capital. That takes money for technology, money for curriculum, money for more personnel and more staff. So that's what we embarked on with the school.
But you've got a balance sheet that's not looking too healthy.
You've got to figure out how to generate tuition in such a way that you can turn that thing around. So how do you do that?
You have to start providing a quality academic product.
It had that. It had good teachers.
It was OK. But the teachers didn't have chalk; they didn't have updated computers. There had been no professional development for the faculty for three, four, five years where they were able to be paid to go learn something new and update their notes.
There was a general upgrading of outcomes and assessments, understanding that if the student took a course, did they really learn what we promised them they would learn? So all of those investments in academic quality which are outcomes, assessments required, technology, personnel and so general upgrading. Once the product is good, the demand is always there. Yes, do we have to market? Yes, we had to hire people who could create brochures, create Web sites, create radio ads and say: "Come and see us. We're here. We're not going out of business."
What role did expanding the online presence have with getting to success?
Very little right now. I mean, the focus has been on making sure that the ground operation shows a surplus and that it's high quality. Once you have the ground operation running smoothly, the online is an extension.
The online growth at Chancellor will be twofold. It will be primarily what we call a flex program, where the students will come in the classroom for part of the time and take part of it for convenience's sake online.
And the Jack Welch M.B.A., which really raised the bar academically [to] where we were able to, because of Jack, recruit academics that would never consider going to work at a small, broken-down college -- but because of Jack's prestige and Jack's brand, we were able to upgrade the entire institution. That's what's been taking place. ...
What's in this for Jack Welch?
Legacy. Jack I think was very open to the vision of creating a legacy of his learnings, the "Welch Way" learnings. Jack doesn't need the money. And Jack had invitations to do this at Harvard, MIT, lots of different places. He could go anywhere he wants in the world.
But what we offered him was an opportunity to be very hands-on. Jack and Suzy [Welch] have literally collaborated with the faculty to create every line and sentence of the curriculum. It has been very, very hands-on. ...
Is he getting a piece of the action financially?
Jack is an investor in the company. He's definitely an investor. He put his money where his mouth is. And by the way, he has endowed schools that are in direct competition with what we're doing at Chancellor. He has actually endowed and made large contributions to those other schools. So for him this is a legacy deal.
It's a legacy deal, but he is also making money out of it?
Not yet. (Laughs.) And he may or may not. There's a higher risk involved in it. ...
But this is something that people look at and say, "Well, this is a change." ... We used to have wealthy industrialists, whether it was the Carnegie Mellons or the Rockefellers, the Fords, endowing chairs at universities. And now we have Jack Welch, very different, investing in a for-profit enterprise where he gets a piece of the action.
Correct. It's a new paradigm. …
Talk about the long-term sustainability and the importance of online.
Sure. Let's talk about state schools -- Cal State. Cal State schools have announced they're going to turn away 70,000 students in September because they don't have enough seats. They don't have enough buildings. They just finished one campus that cost a billion dollars. Online is the only solution to satisfy the market demand of students that want to go to school in California. ...
Because ground operations are losers.
They're not losers. The costs continue to go up, and you can't --
Well, they're not generating the kind of money that keeps the school afloat.
They generate a lot of money, but their expenses are continually going up, and you can only raise tuition so much. I know of a very, very prestigious school. I was at a board meeting two weeks ago. They said, "We're now charging $38,000 a year for room and board, and our mission is diversity, by the way."
Their mission is diversity. At $38,000 a year, we're going to have to raise our tuition 4 percent a year for the next 10 years to keep up with the property expenses of running these campuses, faculty increases, power, energy, all the things that it takes to run a campus. The study showed in seven years with those price increases, there are going to be 99 percent upper-middle-class white females going to school there because they're the only ones whose dads are going to be able to write the check. ...
I think Wall Street is looking for stability. Wall Street would rather see a school like Strayer [University], for example, who has had very calculated, conservative growth over a 15-year period. I think Wall Street likes to see predictability. They like to take all the risk out of a situation more than they like to see rapid growth or fluctuations up or down.
I think Wall Street is very interested in public-private partnerships. They're trying to figure that out right now. And I would not be surprised if we didn't see a state school form some sort of a strategic alliance with a Wall Street firm to privatize a public asset for the public good.
There's a number of criticisms, though, that say that the numbers that Wall Street is looking for are forcing a lot of the for-profit schools or some of the for-profit schools to push for steady outgrowth.
Absolutely true. Absolutely true. That is a dynamic tension that the academic community in the nonprofit and for-profit sectors are going to have to reconcile.
Tell me what's happening, from the beginning.
The greed factor on Wall Street pushes some of the for-profit schools for growth. But what has happened, since essentially a new industry -- but publicly traded schools are so new that the CEOs have matured very quickly and said: "Hey, we're not going to give you the kind of growth you want. We're going to cap our growth. We're going to be very measured." ...
So I think Wall Street is going to have to come to terms with the fact that the good operators, the people at DeVry [University], at University of Phoenix, at Strayer, they're slowing down their growth. They're focusing on quality. And this is a long-term business. This is not an Internet boom. This is not something that, boom, you make a ton of money and go home. These people are in it for the long haul.
But we've seen enormous growth over the last 10 years.
What was happening?
The Internet. That same growth is taking place in the state schools as well. You just don't hear about it because it doesn't have the headline factor. But you're seeing the University of Maryland is up to hundreds of thousands of students online. Rio Salado Communication College, Maricopa Community College[s] went from no online students to 80,000 online students -- with no marketing, by the way, no marketing budget. So the convenience factor and the high-quality delivery systems combined with younger academics, the acceptance level of the Internet, the acceptance level of distance learning with a younger faculty is propelling us. ...
What about the retention rates of these online enrollees, online students?
I think it's too early to do accurate studies on it. I think that we're going to find that the proprietary schools do a better job at retention because all of their metrics and their cost structures are based on getting a student to graduation. ...
The state schools, on the other hand, have a mission where they have to teach everybody no matter what, so they're operating at a little bit of a disadvantage where they really can't say no to too many students because their mission is to educate everyone. So their retention rates, their completion rates are going to be worse than a school that can be a little more selective on what kind of students come in and how much money can be spent on the student services.
Recently the University of Phoenix enrolled 100,000 students in the recent quarter and [reported] that 50,000 of them have dropped out by the end of the quarter.
I think it's unfair to state those metrics in that manner, shape or form. And when I said the industry is so young, it's hard to tell. These are working adults, and there's a lot of life factors to take into effect. ...
I think over a 20-, 30-, 40-year period when we have the data and we have the research, we're going to find there's a lot of these adult students that are transferring in and out of a school. ...
I think you're seeing a lot of students hopping from online school to online school, which makes one school maybe look like its retention amount is good. But we just don't have enough data yet.
Patten University is a great little school serving a Christian community in the inner city in Oakland, [Calif.,] about a 60-year-old school. It was formed by a woman named Bebe Patten who was a Bible teacher and evangelist who wanted to bring quality education combined with Bible study.
I heard about the school about a year and a half, two years ago from one of the regional accrediting executives who said: "We really like this school. We're very concerned about its future financially. Would you go talk to them, Michael?" And I said, "Sure." Next thing I knew the president, Gary [Moncher], called me and said: "Help save our school. Help us."
In all these situations the boards would rather shut the schools down than change the mission, because they signed up for a specific mission. So I spent a lot of time with Gary on the phone, and I liked him as a person. I liked the mission a lot, but I didn't see it fit.
Simultaneously to that, a big part of my life has been a place called the Dream Center in Los Angeles. I was a volunteer. ... It's some very young pastors -- 19-, 20-year-old zealots went in there, and they built a phenomenal church that doesn't sleep.
I thought, we've always wanted to have education as a part of the Dream Center mission, because if we take a prostitute off the street or an ex-Crips or Blood member, we bring them into our programs and we start an education process which is, you know, off of drugs, Bible study, learning how to balance a checkbook, understanding life skills, so we start a whole education process.
But then I saw we had 7,000 or 8,000 young people that come and volunteer throughout the year. I call it the Christian Peace Corps crowd. There is a huge group of young Americans who ... want to change the world. They want to do good. They want to do something for their fellow mankind, and they want to do it within their Judeo-Christian values. And their parents are saying, "Well, you've got to get a degree."
So we did a lot of market research, and we believe that there's a gigantic market for us in Los Angeles of the 19- to 25-year-olds who would like to get a degree but would like to help people hands-on. ...
I kept looking at Patten going, "What can I do with this school?" I kept working on it, and then it hit me like a ton of bricks that it was the perfect fit for the Dream Center because it was in California. It was regionally accredited. It had certificate programs in the prisons for very remedial entry-level education at San Quentin Prison. It had a campus near the Dream Center, very close by. From a regulatory standpoint, it was not difficult to move into the Dream Center, and it shared the values from an evangelical history. ...
We have just finalized a letter of intent to work with Patten and the Dream Center to provide this very unique two-tiered educational program. One tier is for remedial -- men and women out of prison, homeless people. So it's very basic certificate programs to begin the education process.
The top side of it is your 24-year-old who wants to get a degree in psychology, and rather than go to Pepperdine for $40,000 a year, ... we priced our program at $11,000 a year -- room, board and tuition for a regionally accredited degree in psychology. But you know what? You're going to work with homeless people. You're going to work hands-on with ex-gang members.
So you're going to be able to connect both the people that are providing the social workers with a loan and get them on a degree path at this "Dream Center University," and you're going to be able to take some of their clients, former gang members and prostitutes, and get them a college loan.
Exactly. ... I'm very excited about the Dream Center concept, and I think it's a concept that will roll across the country with or without me, because I believe there are a huge amount of young Americans that really want to help people, and they need an environment and an academic structure. You're getting a degree and help[ing] people simultaneously.
Let me make sure I understand. So the former gang member or prostitute or whoever it is that comes to you -- a homeless person can get a college degree.
Absolutely. Now, they're going to start with reading and writing. Depends on where they are. I've hung out with some of the ex-drug dealers, and ... those guys can add, subtract so fast in their heads. But we're going to have to start at entry level, remedial. And some of them have already 40, 50, 60 credits from previous education that are transferable in.
So that's our goal. We have a K-12 home for adolescents. These are kids that nobody wants. The court system doesn't want them. But every single one of them we're able to give a dream. We're able to help them develop their destiny. ...
And teaming up with Patten gave you a regional accreditation.
Exactly -- a regionally accredited school that was located in the right region. We have the support of the regulators in the region. And Patten has been doing this type of inner-city work for a long time, so it wasn't like taking a school that wasn't used to getting their hands dirty in the inner city. It was a school that was used to this. And also, we have shared values as far as the mission statement of the church and Patten. So it's an evangelical partnership.
It was important to you ... that they agree that this could be a for-profit school. Why?
We're keeping everything nonprofit at this point. But in the event we are jointly with Patten, Dream Center and my charity called Ministry.com, if we are unable to raise the donations from donors to fuel this vision, a fallback for me is Wall Street. I could always go to the investment community, because our business model will be the same. It will be the same, and it will be very attractive to the investment community to invest in this. So we have a fallback plan, but we're proceeding with the hope that the community will support it from a nonprofit standpoint.
Why not just go to the for-profit model?
Because when you do move into the for-profit model, you have to select investors who will buy into a longer-term vision. This particular project is going to take a long time, and it's going to be slow to be able to get it to where it's sustainable. ...
When we were [filming], there was an incredible moment. It seemed that Gary was coming to you looking for maybe 3/4 of a million dollars to keep themselves, and you looked at him and you said, "This is a $5 to $10 million deal." What were you thinking? ...
... They're well intentioned. They really do believe they can turn it around for that amount of money. I've been through it enough to know that there's just no way.
We've analyzed the financials very carefully, and these are all $5 to $10 million investments over a three- to four-year period to get them just to break even. Then if you want to start adding new programs or add faculty or add technology, it's probably another $10 to $14 million. So to really turn these institutions around properly, it takes $15 to $25 million to get them very, very stable.
You didn't blink?
I didn't blink? No, no.
You didn't seem very happy. But as you sat there, the millions of dollars kept mounting.
I'm used to that. I'm used to things always costing a lot more than what an executive says it's going to cost.
And where will you get $14 million to turn Patten around?
The structure we put in place is a complete nonprofit structure, and if people that make charitable gifts catch the vision for the mission of what we're trying to do, then I think the money will be there.
We don't need all $14 million [on] day one. That's over a three- to five-year period. My family foundation is willing to commit ... with very specific milestones that Patten needs to perform on, Dream Center College needs to perform on. And as sort of a hedge so that the reputation of the Dream Center and the reputation of Patten and my reputation don't go in the toilet, that people aren't willing to donate, then we can always convert the whole operation to more of a for-profit entity and bring in professional money. ...
You talk about unless we have subsidies, we're not going to be able to provide the wide variety of courses that are provided at state schools today. But aren't you subsidized in the for-profit sector? I mean, your sector would not exist?
No, no. What I'm saying is whether you're a state school or a for-profit school or a nonprofit, you've got to have enough people that want your product or you can't stay in business. It's like you're a TV show. It doesn't matter how much your TV show gets subsidized. If no one's watching it, it's not going to continue to get subsidized. People are only going to subsidize something if there's a demand for it. The reason people make charitable donations is somebody wants to see it. ...
Now, the other question I have here is whether the education in these schools is across the board on a par with what you get at a state university.
Good question. I think whether it's a state university or a private nonprofit university or a for-profit, if the product is not good, if the students aren't getting jobs, if the alumni are not communicating back to their networks that they got their money's worth, the schools will suffer. ...
How are you evaluating the relative worth of the degrees that you're giving out?
We work primarily with the adult learner, and the adult learner looks to a student loan for part of their tuition. Usually their employer is paying 40 to 60 percent, so the employer's got to be behind it and feel that it's a good investment in the employee. Then basically, are they going to be able to get a increase in pay? Are they going to be able to move up in the corporate ladder or move laterally out of a job that's in decline? Let's say it's a manufacturing job in Michigan.
But how do you measure all that?
I think the market determines it. I mean, the students are going to determine it. And default rates -- the government has very, very strict rules on 90-10, on default rates for the school. The regulators will take away the school's ability to participate in the student loan program if the students are defaulting on their student loans.
One of the things I like about what Obama has done -- traditionally it's just been the proprietary schools under pressure for career placement. Now he's putting the whole academy under pressure to be placed. I just don't think it's right that someone can flounder around a state school, spend $150,000 and end up with a degree in business and not know anything [about] what they're going to do, or [have] no career path whatsoever. A whole injection of career planning and personal responsibility and career guidance and academic guidance is something that Obama is saying he wants to invest in.
The for-profit universities take anybody who wants to enroll, for the most part.
That's simply not true. They have the same --
I'm sorry. You have to have a high school degree.
But a lot of these schools, do they have much of a barrier for entry beyond that?
For InterAmerican College, for instance, what do you have to have to get in?
... It depends on which degree you're coming into. In order to get a bachelor's degree, you're going to have to graduate with 120 credits. If you come in with 40 credits from Rosemont Community College down the street, then we are a regionally accredited school that is licensed to accept credits and transfers from other regionally accredited schools.
You have to have an English proficiency at InterAmerican, even though [for] most of our students English is a second language. There has to be the financial wherewithal to show a plan where the person could complete the degree. And we look for other factors, too.
More and more in the schools I am involved with, what we are trying to do is not just have somebody enroll, like a state school, and then they flounder around. We want a personal budget. We want to manage your time. Do you have 20 hours a week in your schedule? Let's sit down with your academic adviser, and let's see, do you really have 20 hours a week to dedicate to school? You won't get that in the state schools. We're trying to more and more fine-tune this enrollment process for success so the student can actually complete and be successful in their degree.
And compared to the state school, your enrollment barriers are the same?
From a regulatory standpoint, they're the same. But what we're seeing is a focus on graduation. You're seeing in the proprietary market a much bigger emphasis, which is market-driven, on enrolling students that have a higher chance of graduating. And why is that? Because that drives the metrics of the business.
Because you want to get all the government loan money you can per student? I mean, that's just good business.
Yes. It's not all the government money. It's more those students that drop out are going to default on their student loans, so they're going to become a problem for the schools. So if you're enrolling just anybody and you have a low graduation rate, it's going to hurt you in the regulatory environment. It also hurts you from a recruiting cost and the cost to recruit a student. All the different metrics are now shifting toward making sure we're enrolling students that can graduate. ...
So what's next for Michael Clifford?
Right now, working with the academics at the schools that I have a high level of control, which is Freedom College in Memphis, [Tenn.,] formerly Crichton College, and InterAmerican College. We're really working on our ground operations to make them more stable and higher quality. I'm spending a lot of my time looking at the future of online education and the Internet. There's some very exciting things happening in that area.
You've got a deal coming with [the former governor of Arkansas and candidate for the Republican presidential nomination] Mike Huckabee?
Yes. Michael has been a friend for quite a while, and we share the same Judeo-Christian values. We helped form a strategic alliance with a school in Memphis, Crichton, which we're rebranding. By the time of this broadcast, it will be called Freedom College. I asked Michael to provide leadership as a chancellor of the university to help inject some of his philosophies in the teacher education program, the psychology program, the political science program, the performing arts programs and the journalism programs.
Will it be a for-profit school?
It is, yes. It is for-profit.
Will he be an investor in it?
No. We haven't even talked about that at this point. We've just finalized an agreement for him to be chancellor, and we'll see if he is interested in doing that.
So he'll help you in branding the school?
Yeah, and more importantly, provide leadership. Schools need vision. They need leadership; they need philosophies. So Michael's involvement will be very, very helpful in that area.
Do you understand why some people have a hard time thinking of universities as businesses?
So what do you say to them?
I think I would say some people look at a lot of nonprofit businesses as not businesses, and they all have to show a surplus. They all have to show a profit. Whether you're a state school or a hospital, you have to have profit.
I think people understand that, though. I think what people aren't quite settled with, aren't comfortable with, is the idea that we talk about a university education as a "product" or talk about students as "customers" and talk about these things in terms of shareholder value. That's what makes people uncomfortable.
I can understand that. But I think we're seeing a lot of changes brought on by the Internet. ... This is a whole different generation, this younger generation. They're so demand-oriented, and they're not going to fit in this 100-year-old system that we have, of K-12, the box. They're not going to sit in a classroom for six hours, in a chair, looking straight ahead at a talking head, when they can find that information like that on the Internet. They can learn whatever they want.
I think we're going to see a big change in the future, where larger businesses are going to get involved in education. I think we're going to see bigger private-public partnerships. I wouldn't be surprised if you saw a gigantic global brands like Google get into education, or Microsoft or those types of companies coming in, because it's such a gigantic industry on a global basis.
So it's an exciting time for you?
I'm having a blast. And I would be doing this -- this is all I do. I don't do real estate. I don't do manufacturing. I love going to graduations and seeing people graduate, and I don't care if it's for-profit or nonprofit. ...
And for Michael Clifford, it's a win-win situation? I mean, this guy gets an education, and you make money?
I think so. We've set a lifestyle for ourselves, and then we're giving away the rest. I think that's where it gets to be a lot of fun. And whether you're investing or whether you're donating, you want a return on your energy. That money represents blood, sweat and tears. Whether it's a donation or whether it's an investment, it represents a piece of my life, so I want to see a return on investment, whether I give to my church or a college or whether I invest.
In the future, are we going to have four-year traditional residential colleges like we've had?
I would predict 15 to 20 years from now, if ... you and I are still healthy enough to have a conversation, that we will look back at those campuses with reverence, and we'll say, "Gee whiz, I remember when most of education was done in a box, in a campus."
Will they go away? No. ... Nothing really goes away. It diminishes. But the power of the Internet, the proliferation of diodes in our living environment, the elimination of a dependency on a display screen on a Blackberry or on an iPod, when we can display and communicate and have a community in the clouds, we're going to see this next generation want to roll their own degrees. They're going to want to take business from a professor in India, and then they're going to want to take history from a professor in England, and they're going to want to take a course in Detroit from somebody that knows math.
We're going to see this cloud-created degree apparatus that will be fueled by innovation by younger faculty members who get it, who understand that not all people learn at the same pace and not everybody wants to be forced [into] a certain degree structure. And I think it's going to be a very exciting time.