One of the world’s largest owners of for-profit colleges has bought East San Jose’s National Hispanic University, throwing the idealistic but struggling campus into the growing and controversial world of corporate education.
Laureate Education is expected to announce the purchase today from its headquarters in Baltimore. The company, valued at $3.5 billion, owns more than 50 accredited colleges with about 500,000 students around the world.
"At first my thoughts were negative," said Michael Mooney, a professor at the Story Road school that’s graduated hundreds of low-income students and hoped to become the nation’s preeminent Latino university. "We were selling our soul."
But after researching Laureate online, he and others pronounced themselves satisfied and even optimistic about the company’s plans.
Although Laureate is a major player in for-profit education, the vast majority of its students study on campuses unfamiliar to Americans. They range from Les Roches International School of Hotel Management in Switzerland to Kendall College, a culinary school in Chicago. Its few online schools include Walden University in Minnesota, with more than 40,000 students.
By comparison, NHU currently enrolls about 600 students on a budget of $7 million. Laureate plans to add up to 8,000 students online within five years. Beyond that, it may open sister campuses across the country.
While Laureate doesn’t reveal how much it pays for colleges, NHU officials described the deal as unusually favorable because they will retain ownership of the physical campus and have a say in the college’s future.
"This will allow us to become a Latino powerhouse in education," said Provost Juan Necochea.
To his surprise, Laureate executive Paula Singer told him she wants NHU to strengthen its mission of serving Hispanic students. Laureate officials noted the lack of degree programs in Spanish and Mexican-American studies, fields the college couldn’t afford or neglected in favor of computer science and business while hoping to woo Silicon Valley donors.
"We feel it’s a natural fit for us," said Singer, who heads the company’s U.S. operations.
Singer said NHU offered Laureate an opportunity to tap into a large pool of Hispanic youths who can’t afford traditional, campus-based education or don’t have time because they work.
Founded in 1981 in Oakland, NHU quietly catered first to older Latinos seeking vocational degrees. After winning full accreditation, it focused on liberal arts for young people who would be the first in their families to earn a degree. About 70 percent of its students today are Latino.
Like most faculty members, Necochea and Mooney were attracted to NHU by its promise to deliver quality higher education to poor and working-class Latino students. Some had a loftier goal: an elite campus akin to Howard University, one of a handful of historically black colleges that produce much of the nation’s African-American leadership.
"We can still be that," NHU President David Lopez said. "This deal with Laureate will give us the resources we’ve lacked."
Even before the deal was sealed over the weekend, Laureate’s purchase of the Latino campus had come to the attention of the Western Association of Schools and Colleges. One of several organizations that judge colleges for academic quality, the association plans to closely watch what happens at NHU under Laureate.
That’s because for-profit education companies have tripled enrollment to 1.4 million students and revenue to $26 billion in the past decade, according to the Indianapolis Business Journal. The publication in March looked at how some companies were buying accredited, nonprofit colleges, and in some cases, turning them into online "diploma mills" by admitting unqualified students and snagging millions in federal and state financial aid.
The U.S. Department of Education, which granted $129 billion in federal aid to students at accredited colleges last year, is looking into whether for-profit education companies are skirting regulations. The largest online college, University of Phoenix, last year paid $78.5 million to settle a lawsuit alleging its recruiters coaxed thousands of unqualified students into signing up for classes and large government loans.
Singer said Laureate is not on any suspect list. "You won’t find us in those reports," she said.
Initially skeptical, NHU professor Mooney said he was impressed after his Web research. "I now believe the value of a diploma from NHU will skyrocket," he said.
It had become clear to professors, administrators and trustees that NHU desperately needed cash if it were ever to grow significantly and realize its dream.
A $9 million payment on its new main building was due in 2011. NHU’s board had set a goal of raising $2 million a year over 10 years. But two recent fundraising drives aimed at Silicon Valley companies and Latino philanthropies produced only a fraction of that.
The school was getting by largely on the generosity of John Sobrato, a local philanthropist who donated millions.
"We just didn’t enjoy any significant success," said Ed Alvarez, president of the college’s board. Trustees two years ago began looking for a partner or buyer.
What appealed to him about Laureate, Alvarez said, is its ownership of several colleges in Mexico and Latin America that educate working- and middle-class students and its plan for expanding online education for Latinos in the United States.
Under terms of the sale, Alvarez said, Laureate will initially spend about $10 million, mostly to market the little-known university and jump-start its online efforts.
A new, nonprofit foundation made up of the current trustees will own the property and continue to run the college’s charter high school on campus. Laureate will operate the university and pay unspecified rent to the foundation. In addition, the foundation will have three seats on a new NHU board set up by Laureate.
The faculty’s mood on NHU’s campus Monday was best described by one professor as "cautiously optimistic." Students were a bit more apprehensive.
As part of the deal, Laureate agreed to comply with the college’s tuition schedule, which calls for modest increases over five years. Tuition currently stands at $260 per unit, about the same as in the California State University system.
Student body President Gabriel Sanchez said Laureate’s plans to increase enrollment would boost the number of social events and improve student life in general.
"From a student’s perspective," he said, "there are more pros than cons."