TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, April 29, 2018

NY Times: How Liberty University Built A Billion-Dollar Empire Online

Liberty 3Following up on my previous post, An Online Kingdom: How Liberty U. Became a Model for the Future of Higher Education With Pervasive Christian Faith and Marketing, No Faculty Tenure:  New York Times Magazine, How Liberty University Built a Billion-Dollar Empire Online:

Liberty is spread out on more than 7,000 acres overlooking Lynchburg, a former railroad-and-tobacco town on the James River below the Blue Ridge Mountains. The student body on campus is 15,500 strong, and the university employs more than 7,500 people locally. Throughout the university grounds, there is evidence of a billion-dollar capital expansion: mountains of dirt and clusters of construction equipment marking the site of the new business school; the $40 million football-stadium upgrade, to accommodate Liberty’s move into the highest level of N.C.A.A. competition; and the Freedom Tower, which at 275 feet will be the tallest structure in Lynchburg, capped by a replica of the Liberty Bell.

Jerry Falwell Jr., who has led the university since 2007, lacks the charisma and high profile of his father, who helped lead the rise of the religious right within the Republican Party. Yet what the soft-spoken Falwell, 55, lacks in personal aura, he has more than made up for in institutional ambition. As Liberty has expanded over the past two decades, it has become a powerful force in the conservative movement. The Liberty campus is now a requisite stop for Republican candidates for president — with George W. Bush, John McCain and Mitt Romney all making the pilgrimage — and many of Liberty graduates end up working in Republican congressional offices and conservative think tanks.

Liberty has also played a significant role in the rise of Donald Trump. Falwell was an early supporter of the reality-TV-star candidate, staying loyal through the release of the “Access Hollywood” tape and giving Trump a crucial imprimatur with white evangelical voters, who widely supported him at the polls. “The evangelicals were so great to me,” Trump said in an interview last year. The first commencement speech he gave as president, last spring, was at Liberty. And in August, Falwell stood by Trump following his much-criticized remarks on the violent rally by white supremacists in Charlottesville, declaring on “Fox & Friends” that “President Donald Trump does not have a racist bone in his body.”

Such steadfast allyship has prompted ridicule even from some fellow evangelical Republicans. But it makes more sense in light of an overlooked aspect of Liberty: its extraordinary success as a moneymaking venture. Like Trump, Falwell recognized the money to be made in selling success — in this case, through the booming and lightly regulated realm of online higher education. Falwell’s university has achieved the scale and stature it has because he identified a market opportunity and exploited it.

The real driver of growth at Liberty, it turns out, is not the students who attend classes in Lynchburg but the far greater number of students who are paying for credentials and classes that are delivered remotely, as many as 95,000 in a given year. By 2015, Liberty had quietly become the second-largest provider of online education in the United States, according to The Chronicle of Higher Education, its student population surpassed only by that of University of Phoenix, as it tapped into the same hunger for self-advancement that Trump had with his own pricey Trump University seminars. Yet there was a crucial distinction: Trump’s university was a for-profit venture. (This month, a judge finalized a $25 million settlement for fraud claims against the defunct operation.) Liberty, in contrast, is classified as a nonprofit, which means it faces less regulatory scrutiny even as it enjoys greater access to various federal handouts.

By 2017, Liberty students were receiving more than $772 million in total aid from the U.S. Department of Education — nearly $100 million of it in the form of Pell grants and the rest in federal student loans. Among universities nationwide, it ranked sixth in federal aid. Liberty students also received Department of Veterans Affairs benefits, some $42 million in 2016, the most recent year for which figures are available. Although some of that money went to textbooks and nontuition expenses, a vast majority of Liberty’s total revenue that year, which was just above $1 billion, came from taxpayer-funded sources.

And it was no secret which part of the university was generating most of that revenue, said Chris Gaumer, a Liberty graduate and former professor of English there. “When I was there, at faculty meetings the commentary was that online was funding the school, while they were trying to just break even on the residential side,” he said. “It was understood that on the online side, they were making a killing.” ...

In 2010, undercover investigators from the Government Accountability Office scrutinized 15 for-profit colleges, finding that every one of them had misled applicants and that four had encouraged them to lie on their federal student-aid forms. The Obama administration seized on the findings as it began a yearslong clampdown on for-profit education, which by 2013 was gobbling up a fifth of all federal student aid, more than $25 billion, despite enrolling only 10 percent of students — and also producing about a third of all federal student-loan defaults.

Liberty, too, was hugely reliant on federal money, in the form of Pell grants, Department of Veterans Affairs benefits and federally subsidized loans. By 2010, it had more than 50,000 students enrolled and was pulling in more than $420 million annually. But because Liberty was technically not for-profit, it was spared many of the administration’s new regulations, including its requirement that a certain threshold of graduates be able to attain “gainful employment,” which was designed to hit for-profit colleges much harder. It was also spared from the pre-existing rule that for-profit colleges could get no more than 90 percent of their revenue from federal sources.

If anything, Liberty benefited from the crackdown. The Obama administration’s actions helped put out of business large for-profit chains like Corinthian and ITT Technical Institute, clearing formidable competition from the field. Though there were other nonprofit institutions with online offerings — Arizona State, Southern New Hampshire and Western Governors, as well as premium players like Stanford and Duke — none were operating at Liberty’s scale. The university now touts itself on its website as “the largest private nonprofit university in the nation.” In a sense, said Ben Miller, who served as a senior policy adviser in Obama’s Department of Education, the crackdown on for-profits offered Liberty a “marketing advantage.”

Falwell was candid about the benefits of the nonprofit status. “It insulated us from the attack on the for-profits,” he told me. And it put him on the same footing with other, more established universities. “There’s no way that an Obama federal government that probably doesn’t care much for schools like Liberty can treat us different than Harvard or Yale or Indiana Wesleyan or the University of Maryland.”

Liberty’s ability to distance itself from for-profit colleges was especially notable given that, by several key metrics, it resembled them more closely than the private nonprofits it was grouped with. The rate of Liberty graduates who default on their loans within three years of graduating is 9.9 percent, several points higher than the average for nonprofit colleges, though still below that for for-profit colleges. Most striking, though, is how little the university spends on actual instruction. It does not report separate figures for spending on the online school and the traditional college. But according to its most recent figures, from 2016, the university reports spending only $2,609 on instruction per full-time equivalent student across both categories. That is a fraction of what traditional private universities spend (Notre Dame’s equivalent figure is $27,391) but also well behind even University of Phoenix, which spends more than $4,000 per student in many states. It is also behind other hybrid online-traditional nonprofit religious colleges like Ohio Christian University, which spends about $4,500. In 2013, according to an audited financial statement I obtained, Liberty received $749 million in tuition and fees but spent only $260 million on instruction, academic support and student services. ...

Students at Liberty often quote a favorite line of Falwell Sr.’s: “If it’s Christian, it ought to be better.” Even those who have misgivings about the university’s conservative culture are quick to defend the education they’ve received on campus. Yet despite its ambitions to become the “evangelical Notre Dame” that Falwell envisioned, Liberty is still ranked well behind that university and other religious-based institutions like Brigham Young and Pepperdine; U.S. News and World Report clumps Liberty in the lowest quartile of institutions in its “national universities” category. Some of its programs have strong reputations, among them nursing, engineering and flight school. But the college is limited in its ability to compete for premier faculty, not only because its politics are out of step with the greater academic community, but also because none of its programs, with the exception of its law school, offer tenure.

In his autobiography, Falwell made virtually no distinction between these students on the Lynchburg campus and those receiving their instruction remotely. All of them, in his telling, were being prepared for the same goal, to be “Champions for Christ,” as the Liberty motto had it. But many students on campus, at least, are openly dismissive of the online experience. They take some classes online, for the convenience of not having to drag themselves to class — and, they readily admit, for the ease of not having to study much. “People know it’s kind of a joke and don’t learn that much from it,” Dustin Wahl, a senior from South Dakota, told me. “You use Google when you take your quiz and don’t have to work as hard. It’s pretty obvious.” (Liberty says using Google during quizzes or exams is cheating.) ...

Chris Gaumer taught English courses both on campus and online at Liberty after getting his bachelor’s degree on campus in 2006. The difference between the two forms of teaching was startling, he told me. As an online instructor, he said, he was not expected to engage in the delivery of any actual educational content. That was all prepared separately by L.U.O.’s team of course designers and editors, who assemble curriculums and videotaped lectures by other Liberty professors. This leaves little for the instructor to do in the courses, which typically run eight weeks. “As professor, you show up and your job is to handle emails and grade,” Gaumer said. This helps explain why the instructors — the roughly 2,400 adjuncts scattered around the country, plus the Liberty professors who agree to teach online courses on the side — are willing to take on the task for what’s long been the going rate for the job: $2,100 per course. (Falwell Jr. said it will soon go up to $2,700.) ...

Falwell acknowledged that Liberty’s faculty initially resisted the rise of the online program, fearing the degradation of academic standards. “The big victory was finding a way to tame the faculty,” he said. But he disputed that there was any great difference in quality. For one thing, he said, the university made sure that all of its online instructors “adhere to the fundamentals of the Christian faith, our doctrinal statement.” Physical distance was a challenge, he said, but online instructors overcame it by making an extra effort to reach out. “They spend a lot more time taking a personal interest in the students,” he said.

http://taxprof.typepad.com/taxprof_blog/2018/04/ny-times-how-liberty-university-built-a-billion-dollar-empire-online.html

Legal Education | Permalink

Comments