President Obama's proposal to make community college free was another blow to for-profit higher education providers, according to a recent Forbes article that analyzed the for-profit sector's deep troubles, and a further decline in stock prices after the announcement. In Minnesota, the state Senate's DFL majority leadership also recently proposed free tuition for community college.
There is no other way to say it; reconciling return-on-shareholder investment with providing affordable, cost-effective education to middle- and low-income students challenges the for-profit business model. As educational institutions, for-profit education providers will always be subject to criticism when held up against their public and nonprofit brethren. How can a profit-making endeavor hold its head high against either a land grant state-funded college or a university founded by nuns or priests? This challenge becomes even harder given that for-profit schools tend to serve a population less able to access elite nonprofit higher education providers.
Here's a possible solution. Recently Rasmussen College -- a regionally accredited private college (a for-profit enterprise owned by private investors) -- issued a press release celebrating its first anniversary as a Public Benefit Corporation. Rasmussen is one of the largest for-profit colleges operating in Minnesota. And by the way, a recent report from the state's Office of Higher Education suggests that Minnesota's for-profit colleges compare favorably on some key outcomes to their public competitors.
It remains to be seen whether the Public Benefit Corporation banner will enable Rasmussen and other Minnesota for-profits to survive and prosper, but we congratulate Rasmussen for taking this innovative course. The chartered benefit corporation model allows a for-profit school to legitimately say that student outcomes and success are at least as important as shareholder return on investment.
The Public Benefit Corporation form is a relatively new form of organizational structure that allows a for-profit enterprise to legally embrace and pursue a social purpose that is at least co-equal with shareholder return on investment. Twenty-seven states, including Minnesota, whose law took effect January 1, 2015, have adopted legislation permitting benefit corporations, which have been embraced as part of a new wave of social entrepreneurship both in Minnesota and across the country.
As proponents who helped draft this legislation, and as explainers of it, we encourage other colleges and entrepreneurs with ideas for socially beneficial enterprises to consider the advantages of public benefit corporation status and to check out other sources on the subject.
Kim Lowe, a shareholder at Fredrikson & Byron P.A., chairs the ABA Business Law Section’s Task Force on Social Ventures, leads Fredrikson’s nonprofit organizations practice group, Start Up and Rapid Growth Enterprises practice group and the newly formed Social Entrepreneur practice group. Ms. Lowe chaired the Minnesota Public Benefit Corporation Act Drafting Committee.
Matt Norris, J.D., is a graduate of the University of Minnesota Law School and was a member of the Minnesota Public Benefit Corporation Act Drafting Committee. Lowe also is a member of the Growth & Justice Board of Directors.