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As 74 million Gen Ys reach college age and beyond, surging demand for higher education forces state universities and community colleges to cap enrollment. For-profit institutions have stepped in to fill the need.

Approximately 2,500 for-profit colleges and universities enroll about 1.5 million students in their classes, adding up to a $13.2 billion market in 2003. This fast-growing niche accounts for 7 percent of the total higher education market.

For-profit higher education first appeared in the 1800s as trade schools offering vocational training. DeVry, which now offers undergrad programs in bio medical infomatics, began as an electronics training school in the 1930s. Since the 1970s, large national for-profits with a network of campuses have emerged. Some teach as many as 80,000 students, rivaling large state universities. While many schools still offer training in HVAC repair, criminal justice or administrative work, the larger for-profits have begun to diversify, even offering doctoral level degrees in subjects like psychology, education and health where demand is high.

“What's changing is that consumers' mental maps are expanding to include new types of institutions when they think about education,� says Sean Gallagher, senior analyst with Eduventures, a consulting firm in Boston that serves the education industry. American Demographics' Sandra Yin recently checked in with him to learn more about where for-profit higher education is headed.

AD: How much will for-profit higher education grow over the next five years?

SG: We forecast total growth from 2003 to 2008 will be about 91 percent. It would essentially double five years from now, based on growth in enrollment and increases in pricing.

AD: What factors will contribute to this continued growth?

SG: The growth drivers are varied. Overall, higher education is experiencing growth due to the demographic bulge of Gen Y. As people recognize the economic value of a degree, more are going to college. Also, what formerly could be learned through on-the-job training may now require a degree. You might need an associate degree to do specific kinds of health-care work. Vocational disciplines like auto repair have become more technical than ever, because of the automation and computers involved.

AD: What distinguishes for-profit schools from the nonprofits?

SG: They are managed as businesses. All of their profits come from tuition. They align their offerings with the demand and employers' needs. Convenience, accessibility and flexible scheduling are also a part of the mix. The education is a different kind of product, highly differentiated from traditional education. For-profits will often centralize the development of their curriculum and syndicate it throughout their campuses.

AD: What are some fast-growing areas in the for-profit higher education market?

SG: The health sciences fields are experiencing strong growth, including, nursing, pharmacy and medical assisting.

AD: Who are the for-profits' students?

SG: There are two distinct segments: working adults or nontraditional students who attend part time and the traditional students [ages 18 to 22] who study full time. The economy has forced people in the former group to update skills or get certification. They typically take continuing ed offerings in business, health or IT. They are usually married with children, pressed for time and have a higher income than the rest of the population. The younger students in the latter group might have been underachievers in high school or may be interested in something like culinary school or the arts. They tend not to depend on parents for financing. They also are more racially and ethnically mixed.

AD: How good is the education?

SG: Many of the national for-profit colleges are fully accredited by the same bodies that accredit nonprofit institutions. But many law and professional accrediting bodies refuse to accredit them. Traditionally, the accrediting process focuses on the inputs such as the number of volumes in the library or the number of professors who have PhDs, rather than the outcomes such as the test scores and loan default rates, which are the focus of for-profits.

AD: How will the role of for-profit higher education companies evolve?

SG: U.S. education is perceived worldwide as the gold standard in higher education. We'll definitely see more companies branching out internationally. Online education will likely become 20 percent of the market over the next two years. In countries with huge infrastructure issues like China, they'll probably leapfrog over campus education to online. There will also be more blurring of lines between corporate training and education. We'll also see more for-profits customizing their programs for large corporations.

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