and make money.

story

By Leslie Spencer

RONALD TAYLOR recalls the day in September 1973 when he and his partner. Dennis Keller, opened the Keller Graduate School of Manage ment in a Chicago office building. "Dennis and my wife and I had to carry a 12-foot chalkboard up 21 floors because it wouldn't fit in the clevator." Taylor says. "We had seven students, one of them our secretar

Kelier and Tavlor are entrepreneurs in, of all businesses, education. Their for-profit management school offers a good-quality M.B.A. for $5.600 a vear, about a third of the cost of an M.B.A. at places like the University of

Chicago and Stanford, where Keller and Tavlor respective earned

theirs in the late 1960s

Taylor graduated from Harvard :: 1966. Keller earned a B... tron: Princeton in 1963. Arter business school, and for Tavlor a stint in Vie: nam. they both went to work for the DeVry Insutute of Technolog propnetary school then owned r Bell & Howeli tnat ofered associat and bachelor programs in electronics At DeVry, the pair learned something not often taught at the presuge pus: ness schools: the economics of tor profit education.

DeVry

In 1973 Keller and Taylor raised $150.000 from parents and friends to fund their management school. For two years Keller and Taylor operated their business as a full-time, nonaccredited day school offering a oneyear certificate in business administra tion. They did most of the workteaching and administration-themselves, sometimes without pay. By the end of 1974 they had a staff of tive teachers, about 25 students, still no accreditation and a bank account that was near the vanishing point.

Even though they kept costs and tuitions low, they still couldn't com pete with charitable subsidies and tax advantages of established, nonprofit

schools. Many prospective students could not afford to enroll: As the school was unaccredited and still didn't offer degrees (as opposed to certificates. they were ineligible for federal loans.

Tavior and Keiler decided to switch emphasis to an evening program for working adults. The new formula worked. They were offering M.B.A.S by 1976 and were fully accredited the following year. By 1987 they were grossing $5 million a year from an enroliment of 1.300.

It was time to branch out. Their old employer, Bell & Howell, wanted to unload its 85% stake in DeVn. A venture capital group led by Chicagobased Frontenac Co. provided the Keller management school with S24 million in equity to buy DeVry for

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S182 million. It was a highly leveraged transaction, but since then the company has paid down $58 million of the acquisition debt while a pending public offering of DeVry Inc. should bring in enough to pay down another S++ million.

The Keller management school is still cranking out would-be execu tives, but it is now overshadowed by the rest of the company. The DeVry Institutes enroll 24,000 students on 11 U.S. and Canadian campuses, accounting for all but a sliver of DeVry Inc.'s June 1990 fiscal year revenues of S156 million. Popular majors are electronics, data processing and ac counting.

Students a Devr. electronics ac To them, this looks like a better buy than a state school at half the price.

Education can be a profitable line of work. DeVry's operating income (profits before interest, depreciation and taxes ran to $21 million on sales of S122 million in the last nine months.

How have the education authorities reacted to the invasion of capitalism on their turf? Without enthusiasm. Until recently, New Jersey, for instance, did not have legislation allowing for-profit schools to offer bachelor's degrees. DeVr's degreegranting status is now being considered by New Jersey. But the educational authorities see another fatal tlaw in the operation: The teachers work too hard, putting in 20 classroom hours a week. Steven Brown, dean of administration at DeVry's Woodbridge, N.J. campus, says the

state wants him to limit his teachers to 15 hours a week.

New Jersey, groaning under a huge state budget and higher taxes, might be better off taking a leaf from De Vry's book. For now, the school copes as best it can: Each year it packs off about 100 degree students to sister schools in Atlanta or Chicago for two semesters, allowing them to earn their degrees in Georgia or Iiiinois before returning.

Despite the hurdies set up by laws in some states, Keller and Taylor easily overcame the other obstacle: accreditation, controlled by regional associations. Keller Graduate School was the first for-profit school the North Cen tral Association of Colleges & Schoois ever accepted for membership. Of course, its unconventional approach to the M.B.A. curriculum worried the educational establishment. But today the president of the Council on Postsecondary Accreditation. Thurston Manning, is on DeVry Inc.'s board. and Keller and Tavior have become active accrediting consultants.

At a DeVry Institute campus in Lombard. Ill., just off the beltway that circles Chicago, one of the classrooms in a concrete block building is stuffed with tense-looking students taking exams. What they've retained or applied calculus and cost accounting is being tested. Most of these kids have parents who never went near college. and they are relying on federal loan programs to help manage the S4,750 in tuition and fees for an academic year at DeVry. That rigure is almost twice the $2,500 a DeVry student would pay to go to nearby Northern Illinois University. But Taylor says that students are willing to pay the difference because they think that a degree from DeVry pays off in the job market.

Taylor and Keller have big dreams for the DeVry Institutes. For one. down the road they are interested in offering management contracts to. public schools (kindergarten through grade 12). If this works, both students and taxpayers could be better off, but the bureaucrats and teachers' unions will probably do everything possible to stop it.

"Education is hurting deeply," says Keller with a grin. "We can help." Is anybody listening?

Forbes May 27, 1991