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San Diego’s new business wunderkind has been ramping up
everything from profits to sponsorship to political giving, but the
practices at the heart of its success have it in the crosshairs of
politicians, regulators and attorneys.
Signs of Bridgepoint Education’s newfound prominence in San Diego begin as you’re flying into the city’s downtown Lindbergh Field airport. A few seconds before you land, you’ll swoop past its name and logo, displayed in huge white letters at the top of 600 B Street, a downtown high-rise.
Bridgepoint announced its move into that building last spring, the same year the for-profit higher education company put its name on the Holiday Bowl college football game. The same year it began sponsoring the San Diego Symphony’s Summer Pops series. The same year it injected itself into San Diego’s political consciousness by donating to a campaign and lobbying city leaders for the first time.
Four years ago, Bridgepoint was barely a blip in San Diego. Today, it’s made itself impossible to miss. Its operating profits have increased 5,000 percent during that time, to $216 million last year, and it’s now the county’s fifth-largest private employer. The latest phase of Bridgepoint’s extraordinary growth has been putting its indelible stamp on the city it calls home.
“It was just — Boom! They’re here,” said Steve Cushman, a prominent businessman who worked with the company to secure the naming rights for the Holiday Bowl.
But Bridgepoint is undergoing another recent boom: Controversy.
Criticism of the company centers on its remarkable ability to attract students and remarkable failure to graduate them, all while receiving hundreds of millions in federal student aid dollars. The complaint: Bridgepoint has set up a system to use federal dollars to line investors’ pockets rather than enrich students’ minds.
Earlier this month, U.S. Sen. Tom Harkin, an Iowa Democrat, held a Senate committee hearing focused exclusively on Bridgepoint, in which he criticized the company for spending considerably more on selling its services than teaching its students. Bridgepoint shouldn’t make record profits from federal loan programs, Harkin said, while most of its students were dropping out. The company, whose primary university is located in Harkin’s home state, had the highest student withdrawal rates of any for-profit school the senator’s committee studied.
“I think this is a scam, an absolute scam,” Harkin said at the hearing.
Last month, Iowa’s attorney general launched an investigation of the company’s business practices and requested three years’ worth of Bridgepoint documents to inspect. And, in San Diego, former students and employees of Bridgepoint have accused the company of fraud and violating the state labor code in three class action lawsuits filed since the beginning of the year.
The company argues it’s forging new paths in education. By harnessing technology and creating innovative education models, Bridgepoint says on a website it launched after the Senate committee hearing, it’s been able to reach vast swathes of the population who might never before have dreamed of getting a college degree.
Bridgepoint has shown no signs of slowing down. But it’s also made powerful enemies. As such a strong player in the region’s economy, its success or failure in taking on those enemies is likely to resonate throughout the region.
The ‘Potemkin University’
Bridgepoint’s business model depends on one thing: Getting people into college who wouldn’t otherwise go.
That involves paying hundreds of recruiters in San Diego office buildings to call around the country and find tens of thousands of people willing to enroll in a tiny college in rural Iowa. Ninety-nine percent of those students won’t ever have to set foot in Iowa, since they’ll be studying online.
And the bulk of the revenue Bridgepoint receives for educating students — at least 85 percent last year — comes straight from the federal government in the form of student loans.
Bridgepoint CEO Andrew Clark and other company officials declined interview requests through corporate spokespeople. But, as a publicly traded company, Bridgepoint’s financial success story has been well-documented.
More than anything else, two factors have played into Bridgepoint’s extraordinary success. One was the company’s genius business idea; the other was a stroke of good fortune.
The idea? Instead of starting a university from scratch, the company bought one.
In the mid-2000s, Clark, a former executive at for-profit college giant University of Phoenix, spent eight months searching for small liberal arts colleges for sale. He eventually settled on a Catholic university in rural Iowa: The Franciscan University of the Prairies, formerly run by an order of nuns. With backing from a New York private equity firm, Clark’s newly minted company bought the college in 2005.
This allowed Bridgepoint to simplify the accreditation process that’s vital to a university’s legitimacy. Accreditation opens the gates to a college’s eligibility for federal financial aid and makes it easier for students to transfer credits to other schools. The company was able to retain the accreditation of the university it bought, rather than undergo the more lengthy, expensive and rigorous process of accrediting a brand-new school.
Buying a school also allowed Bridgepoint to market a college with a ready-made history, campus and tradition to an online audience. It helped that the school, which Bridgepoint rebranded “Ashford University,” had been around for almost 100 years and had an idyllic leafy campus, replete with red-brick buildings.
The stroke of good fortune? In 2006, a year after Bridgepoint bought the Iowa college, Congress began allowing schools that educate more than 50 percent of their students online to receive federal loans.
That decision played perfectly into Bridgepoint’s business model and Ashford became the physical anchor to an online empire. In 2007, the company bought a second accredited college, in Colorado, which it rebranded the University of the Rockies, allowing it to offer even more courses online.
Bridgepoint’s enrollment soared 517 percent between 2007 and 2010. As of December, 77,892 students were enrolled at one of Bridgepoint’s two schools, but only 859 of them studied on-campus. The company now offers more than 1,345 courses in 71 bachelor’s and post-graduate degree programs, and students can study anything from accounting to journalism to social science.
The disparity of tens of thousands of students enrolling at a small college in Iowa whose campus they’ll likely never see prompted the Huffington Post to dub Ashford, the “Potemkin University.”
While its enrollment swelled online, Bridgepoint made its corporate presence felt in San Diego.
‘They Don’t Have to Be in San Diego’
Two years ago, despite his company’s success, Clark had a major concern.
“Nobody knows us,” he told Julie Meier Wright, a local business leader. He wanted that to change.
Clark asked Meier Wright’s business advocacy organization, the San Diego Regional Economic Development Corp., to study Bridgepoint’s impact on San Diego’s economy, she said.
The resulting study concluded that Bridgepoint added, directly or indirectly, more than $500 million to the local economy. Since that report was written, the company has grown even bigger.
The study kicked off Bridgepoint’s plans to expand its presence in its hometown.
During the next few months in 2010, the company put its name on two major local events: The Holiday Bowl and the San Diego Symphony Summer Pops series. It also handed out thousands of dollars to other causes, including the San Diego County Office of Education and local educational scholarships. (Full disclosure: The company also sponsors San Diego Explained, a joint venture between voiceofsandiego.org and NBC San Diego.)
And Bridgepoint began making campaign contributions, starting a political action committee and giving more than $100,000 to local and state elections over the next few months. Its donations included $25,900 to Republican Meg Whitman’s failed gubernatorial bid and $16,000 to the successful campaign to make the city of San Diego’s “strong mayor” form of government permanent.
Last summer, Bridgepoint expanded its lobbying efforts to local matters. The company hired San Diego lobbyists to speak with city leaders about potential negative effects on its downtown offices from putting a permanent homeless shelter at the nearby World Trade Center building. The City Council approved the shelter earlier this month.
Clark and other Bridgepoint executives now sit on the boards of many of the region’s business advocacy groups, including the San Diego Regional Chamber of Commerce, the Economic Development Corp., the Downtown San Diego Partnership and the San Diego County Taxpayers Association.
Local business leaders were effusive in their acclaim of Bridgepoint, praising Clark and the company not only for its financial success, but also for giving back to San Diego. Ruben Barrales, the Chamber of Commerce’s CEO, called the 45-year-old Clark, “one of the exciting young business leaders in San Diego.”
“They don’t have to be in San Diego,” Barrales said. “They don’t have to be involved in the community. They don’t have to give the amount of money in philanthropy that they do. But they have.”
Under Fire from Washington, Iowa and San Diego
While Bridgepoint has been winning fans in the local business community, it’s faced some severe criticism from government overseers in Washington D.C. and Iowa.
U.S. Sen. Tom Harkin zeroed in on Bridgepoint two weeks ago in the latest in a series of hearings he has been holding about the for-profit education business. In a lengthy denunciation of the company, Harkin lambasted Bridgepoint for duplicity in its marketing, lavish executive compensation and dismal dropout rates.
The senator pointed out that while Bridgepoint was making record profits last year, 84 percent of the students in its two-year programs were dropping out, according to a sampling of students by his committee.
“In the world of for-profit higher education, spectacular business success is possible despite an equally spectacular record of student failure,” Harkin said.
Since the hearing, Harkin has announced that he plans to introduce legislation to tighten the regulation of the for-profit education industry.
Clark declined an invitation to attend the hearing, but the company’s new website devotes a lengthy section to responding to Harkin’s concerns.
Bridgepoint says its education model serves the needs of “diverse, non-traditional students.” Drop-out rates are likely to be higher because Bridgepoint offers education to older students, many of whom work full-time and aren’t supported by their parents, the website states.
The Senate committee hearing was just the latest in a series of high-profile dressings-down for Bridgepoint.
In 2010, the U.S. Department of Education’s Office of Inspector General concluded the company paid recruiting staff based on the number of students they signed up for courses, something prohibited under federal law.
Last month, the company disclosed that Iowa’s attorney general had launched its own investigation into Ashford University’s business practices. It’s not clear yet what the inquiry concerns, but the attorney general’s asked to inspect three years’ worth of company documents.
There are also potential problems in San Diego.
Since Jan. 1, three local law firms have launched class action lawsuits against Bridgepoint.
Bridgepoint students claim in two of those lawsuits that the company lied to them about how much their programs would cost and overcharged the federal government for their education. In the third lawsuit, Bridgepoint employees argued that the company denied them pay for required meal breaks and overtime.
Bridgepoint’s Fate and San Diego’s Future
Bridgepoint chose San Diego.
Exactly why isn’t clear, since the company’s not talking. But whatever its reasoning, that decision has brought hundreds of millions of dollars into the region and put money into the pockets of local people and local causes at a time when San Diego’s reeling from a real estate meltdown and financial crisis.
Bridgepoint’s success has been at least partly due to decisions made by politicians and regulators. And politicians and regulators are now bringing the company into their crosshairs.
Any negative legislation or tightened rules that may result from that scrutiny could, in the future, prove to be a headache for the company, just as friendly regulations were a boon in the past. And it’s a sign of how woven the company has become into San Diego’s economic fabric that any negative fallout could ripple out into the regional economy.
The company is heavily invested in the local commercial real estate market. It’s responsible for employing more people than San Diego mainstays like General Dynamics and SAIC and has promised to continue sponsoring events like the Holiday Bowl for at least the next two years. Bridgepoint’s also made clear that it’s willing to spend on local political races.
Trouble at the company, said Gary London, the local analyst who studied Bridgepoint’s impact in 2009, could become an “economic tsunami in our city.”
“They’ve grown so fast, having to retract so fast will have the converse effect,” he said.
Will Carless and Liam Dillon appreciated the opportunity to work together on this story. You can contact us at email@example.com or firstname.lastname@example.org or call us at the office at 619.325.0525.