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Hedgefund Education

New technology, entrepreneurship, and growing demand mean that traditional universities face greater competition from nontraditional players.
Douglas L. Becker, chairman and CEO of Laureate Education, at the Latin America Clinton Global Initiative in Rio de Janeiro. Photo: Dado Galdieri/Bloomberg/Getty. Homepage photo: Melanie Stetson Freeman/The Christian Science Monitor/Getty.

In both the U.S. and Latin America, the forces of technology and entrepreneurship are on the cusp of fundamentally reshaping the higher education sector.  Increased demand and the changing nature of the labor market have led to new players and new models entering the higher ed market. The combination of sustained economic growth, a region-wide expansion of the middle class, and a newly competitive business environment has boosted the demand for quality education and stoked desires for more alternatives.

A more dynamic and globalized job market means that professionals change positions—and often, entire careers—repeatedly over the course of their lives. In this context, learning has become a life-long necessity, and vocational training is in higher demand than ever. In the midst of such demand-side changes, the education sector is being buffeted simultaneously by new technologies, as well as rising costs and increased competition.

Yet the sector is on the verge of an even more profound transformation. Universities produce a number of valuable things: not only education, but also accreditation and certification, research and publishing, and the space—both physical and virtual—for students to network and build lasting friendships.

All of these “deliverables” are now facing competition from nontraditional players.

When it comes to coursework, there are a slew of new and lower-cost online providers offering programs. More and more research and on-the-job training is taking place internally at private companies, think tanks, consulting firms, and government agencies. And in many ways, Facebook, LinkedIn and Twitter—with their real-time access to millions of other professionals—are increasingly more fruitful places to network than physical campuses.

None of this means that universities are becoming irrelevant, but simply that their role must inevitably evolve.

This evolution has been the goal of a wave of private investment in Latin American education over the past decade. There is Laureate Education, for example, led by Douglas Becker, who also founded Sylvan Learning Systems. Laureate has been rapidly expanding, and now owns 29 institutions in the region. In fact, Latin America is Laureate’s largest market, and just one of its universities—the Universidad del Valle de Mexico—educates 120,000 students on 37 campuses.

Then there is the Whitney International University System, founded by Randy Best, and worth $400 million in revenue—with schools in Argentina, Brazil, Chile, Colombia, Costa Rica, Panama, and Paraguay. In 2009, the publicly traded for-profit DeVry, Inc. acquired 69 percent (and eventually 89 percent) of Fanor, a university in northeastern Brazil with some 10,000 students. And among private equity investors, Linzor Capital—which operates in Chile, Argentina, Mexico, and Colombia—entered the education market in 2009 by acquiring a majority stake in the Universidad Santo Tomás de Aquino, the oldest private higher education institute in Chile.

Apart from the major firms, a new wave of entrepreneurs is also getting involved at the ground floor of education in Latin America. David Stofenmacher—the founder of UTEL, an online university in Mexico with more than 9,000 students—is one of them. Dionisio Garza of Mexico, who took control of the Universidad Regiomontana in 2012, is another. Peruvian Julio Noriega is leading investors into the technical and vocational institute sector with the Instituto Peruano Alemán (now known as “Avansys”). And Brazilian businessman Carlos Souza has replicated the Massive Open Online Course (MOOC) model that has seen growing popularity in the U.S. with Veduca, a Brazilian platform that had three million visits and had secured $1.3 million in outside investment as of January 2014.

The question is, will this movement raise the quality of higher education in the region? Latin America has over 100 million students in hundreds of thousands of schools, spread across highly fragmented systems. Across the region, less than 20 percent of adults over 25 had any university education, and less than 10 percent had completed higher studies as of 2007. Chile leads the region, enrolling over half of its youth (ages 19 to 24) in higher education as of 2010—although the graduation rate was only 19 percent.

The regional powerhouses fare even worse. Mexico has a higher education enrollment rate of just 32.8 percent as of 2011-12, although that is up dramatically from 15 percent in 1991. And in 2012, only 11 percent of working-age Brazilians had completed a higher ed degree–with more than half of enrolled students dropping out before finishing.

For the influx of private capital to significantly improve this situation, “the traditional college model needs to change,” says Gustavo Herrero, former executive director of the Harvard Business School’s Latin America Research Center, and now vice chairman of Argentina’s Universidad Austral. “We need universities that can adapt to the changes in the labor market,” he says, arguing that basic reforms to the structure of learning itself are also needed.

Many from the new generation of education entrepreneurs are working to do just that. Unfortunately, innovative pedagogy faces a number of obstacles.  

A key issue is the high barrier to entry for new competition—including the outdated approach to accreditation.  Accreditation in Latin America is extremely complex, generally dominated by established universities, and tied to traditional measures of educational infrastructure—making the approval of new entrants unnecessarily difficult.

Here, too, Herrero sees the status quo as inadequate. “The number of buildings on a campus, or how many research papers are produced at one institution—these kinds of things are now much less relevant in assessing educational quality,” he argues. “Local regulators, regional certification agencies, and ranking agencies, like América Economa, should adapt their procedures to these new realities.”

Indeed, technology is outpacing the need for traditional infrastructure and other fixed investments that have, for many years, been the cornerstone of the brick and mortar university system. Digital libraries are just one example—as the marginal cost of hosting books, videos, and other resources online falls dramatically, new providers have an opportunity to enter the market. MOOCs reach millions without the need for as much as a single dormitory.

Thus, the old ways of evaluating educational institutions have become obsolete, and higher education has become a tradable good. Teaching and learning can now easily be exported and imported, a trend embraced by leading universities like Mexico’s Tecnológico de Monterrey, which now has more than 50,000 students outside of the country taking its courses.

Platforms based in the U.S. and Europe, too, are seeing new success in the Latin American education market. EdX, based in Boston and co-founded by MIT, is expanding rapidly in countries from Brazil to Haiti—a full 10 percent of the 1.3 million people accessing edX MOOCs are now based in the region. In the UK, there is the Open University, which caters to students across Europe, the Middle East, and Asia, and which is expanding its marketing to Latin America.

This rise of education entrepreneurs and the expansion of online learning are both responses to a sector that is in the midst of a profound, and long-overdue, disruption.

Regional businesses—the so-called “multilatinas” or Latin American multinationals, as well as small and medium size firms—are increasingly basing their hiring on specific skill sets or basic competencies, rather than titles or credentials from prestigious schools. (Not unlike Google in the U.S.) At the same time, a burgeoning but underprepared young work force is clamoring for more and better education, pushing the price of traditional universities ever upward and straining their infrastructure—trends which are only exacerbated by the need for lifelong learning and job retraining.

Thus, even while the right education is more valuable than ever, the public perception that traditional schools are overpriced, overcrowded, and irrelevant to the modern workplace has contributed to an atmosphere of crisis. Students are increasingly graduating with overwhelming debt and few job prospects, leading to explosive discontent in places like Chile and Colombia, not to mention the United States.

In this context, private, lower-cost, largely online options are well positioned to reshape education more fundamentally. Concepts like lifelong learning and twenty-first century skills are no longer simply trendy buzzwords, but on-the-ground reality.

“For colleges to prove the lifetime value of their expensive style of education in a world of increasing options,” argues Chronicle editor and professor Jeffrey Selingo, “they need to start extending different styles of learning to different segments of students beyond commencement day.”

This is far from easy, and in reality, the work has just begun. A recent Economist report on the future of the labor market illustrated the scope of the challenge by comparing it to the original Industrial Revolution: “Boosting the skills and earning power of the children of nineteenth-century farmers and laborers took little more than offering schools where they could learn to read, write and do algebra,” they wrote. “Pushing a large proportion of college graduates to complete graduate work successfully will be harder and more expensive.”

But it must be done. Higher education will be a key piece of the puzzle, if Latin America is to build on its decade of growth, continue to expand its middle class, and upgrade to higher value-added economies based on entrepreneurship and innovation.

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: higher education, Latin America, For-profit education


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