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(Clarification: An earlier version on High Point University mischaracterized its use of derivative financial instruments. The derivatives are used only for interest-rate hedging, not for investment purposes. )
As our little electric train pulls away from the admissions building, it’s already clear that High Point University looks like no campus any of us has ever seen. Piped-in classical music drifts across freshly planted flower beds as a student guide, steering a golf-cart-style “engine,” tows our group of six parents and teens past statues of Aristotle, Galileo, and Jefferson. She parks in front of the Plato S. Wilson School of Commerce, and we clamber out to tour the building. Opened in 2009, it’s outfitted with marble floors, a full-size replica of a financial trading floor, and a classroom with row upon row of computer-assisted design consoles. The kids’ eyes pop as the tour continues, with visits to a first-run movie theater, a steakhouse, and dorms with plasma-screen TVs and outdoor hot tubs.
Nothing like this existed here seven years ago, when Nido Qubein, a motivational speaker and multimillionaire, became president of what was then a sleepy little Methodist college. It was Qubein who launched the effort to transform the 88-year-old school into a nationally recognized institution. Some $700 million has already been spent to refurbish and expand the campus. Enrollment is up 50 percent, to 3,700, even as tuition and room and board have soared 60 percent, to $37,800 annually. Students’ average SAT scores have ticked up almost 10 percent.
Photograph by Mark Mahaney“The world is marveling at how High Point University has grown so successfully in the midst of the worst economic times in 54 years,” Qubein says. Since becoming president in January 2005, he’s raised about $159 million in gifts and pledges, and has promised to kick in $11 million of his own money. There’s more to come: new dorms, a health-sciences school, a college of pharmacy, a sports arena—all told, a planned $2.1 billion in improvements by 2020. All this in the middle of a depressed North Carolina mill town.
John Nelson, head of the higher education ratings group at Moody’s Investors Service (MCO), says that in 20 years as an analyst he’s never seen an institution like High Point. “It looks more like a growth company,” he says. Moody’s downgraded the university’s debt rating to junk status in 2009 as it ran up some $165 million in debt to become one of the most highly leveraged schools in the country. “The rate at which they borrowed and the aggressiveness of investment in facilities and marketing of the campus,” Nelson says, all set High Point apart.
Along with its improbable neoclassical campus, a Restoration Hardware version of Yale, High Point is marketing the story of Nido Qubein. Raised in Jordan, he emigrated to the U.S. in 1966 as a teenager with, as his official biography puts it, “little knowledge of English, no contacts, and only $50 in his pocket.” He graduated from High Point and got rich as a speaker, consultant, and investor.
Sitting in his office beneath an American flag and an oversize campus map, Qubein talks of creating a “paradigm shift” in higher education. The campus improvements are intended “to create an environment in which [students] aspire to become extraordinary,” he says. “High Point can no longer swim in an ocean of sameness.” Qubein believes students will be more inspired by the comforts of a resort and sees High Point’s luxuries as a way of preparing them for a life of success. “I want my children to be exposed to the finer things,” he says. “Most parents do.”
Photograph by Mark MahaneyThere are about 1,600 private colleges and universities in the U.S. Fewer than 100 are considered “medallion” institutions, with rich endowments, highly selective admissions, and superstar faculties. Most of the rest—including High Point—lack many, if not all, of these attributes and struggle to distinguish themselves academically. Only a rare few break from the pack to achieve elite status, and the effort usually takes decades, says Kent Chabotar, president of Guilford College in Greensboro, N.C., and an expert on higher education finance. “Reputations,” Chabotar says, “take forever to change.”
Qubein wants to push High Point to greatness in just a few years. The details of his plan resemble some of the high-risk behavior that blew up investment banks in 2008. He’s following an approach that is known in higher ed circles as the “residence hall” or “field of dreams” strategy. He’s borrowed tens of millions to build upscale dorms, used the new facilities to attract more students, and then used their fees to pay interest on the debt and underwrite more construction.
As debt ballooned, he got waivers to avoid breaching loan covenants, according to Moody’s and Standard & Poor’s. He raided the school’s meager $46 million endowment to buy real estate; among other things, the university now owns a half-empty shopping mall and a former Methodist retirement community that’s been converted to student housing. The university’s former leadership “was hung up on money,” he says. “That’s not how it is in business. The money follows the idea.”
To make the numbers add up, High Point needs thousands of kids from affluent families who require minimal financial aid and can pay top dollar for the swanky accommodations. The make-or-break element of Qubein’s 21st century university, in other words, is cash flow.
Qubein is a compact, white-haired 63-year-old who favors dark suits and vividly colored silk ties. In front of an audience, he moves with a dancer’s grace, gliding across the stage, pivoting on the balls of his feet, lunging forward with palms outstretched. With the rise and fall of his lightly accented voice, the effect can be captivating.
On this late winter morning, he has the attention of an auditorium full of parents. To induce their kids to enroll, High Point is offering a chance to compete for scholarships ranging from $700 to $20,000 a year. To enter the competition, though, the kids and their parents had to come to High Point for a weekend.
Photograph by Mark MahaneyAs images of the campus flash on a screen behind him, Qubein explains that the luxurious facilities keep kids on campus and out of trouble. The campus is “an extension of your own home,” he says. Qubein himself teaches a required freshman seminar on “life skills” such as dressing for a job interview and writing a business letter. “Choosing a college for your child is not just a decision,” he says, clutching a fist to his chest. “It’s a commitment, and commitments are made with the heart and soul, not the brain.”
It’s more sermon than speech, which makes sense, since Qubein was introduced to public speaking in the Baptist churches of eastern North Carolina. In 1966 he enrolled in Mount Olive College, a two-year Baptist school a couple hours’ drive east of High Point. Former classmates recall that he spoke broken English and arrived with no possessions, since his luggage had been lost en route from Jordan. His Horatio Alger story has some holes in it, though. He comes from a prominent Jordanian Christian family—his uncle was the country’s Anglican bishop—and both of his older brothers graduated from Duke University in nearby Durham. One was in graduate school at the University of North Carolina in Chapel Hill when Qubein arrived at Mount Olive at age 17.
Mount Olive’s then-president, W. Burkette Raper, took a shine to Qubein and took him to hear sermons at local Baptist churches. He helped him earn money by giving talks about growing up in the Middle East. Raper also lined up an anonymous local donor to help pay his tuition, a gesture that Qubein says inspired him to become a philanthropist who has donated millions to civic organizations and scholarship funds. After finishing Mount Olive’s two-year program, Qubein moved to High Point, graduating in 1970.
He began traveling widely as a freelance speaker, delivering a talk called “America’s Youth: A Sleeping Giant” at civic clubs and trade group meetings. “I had one tuxedo. They would pay me $200,” he recalls. Corporate executives heard his talks and offered better-paid gigs at company events. His speeches now command $20,000 and up.
When he settled in High Point, Qubein bought real estate and invested in a bank being set up by local businessmen. It was absorbed in 1995 by BB&T (BBT) in Winston-Salem, one of the Southeast’s biggest banks, and Qubein was invited to join the board. “Nido stood out as a visionary person. He asks the right questions on strategic direction, and he is a world-class teacher,” says John Allison, BB&T’s former chairman. In addition to his director’s fee, Qubein got a contract to teach at BB&T’s in-house training program, earning about $400,000 annually since 1993. The bank says he continues to teach.
BB&T has become the university’s key source of financing, underwriting four bond issues since 2006 and providing tens of millions in loans and lines of credit. Christopher Henson, a High Point alumnus who is BB&T’s chief operating officer, serves on the university’s board of trustees. Qubein joined the High Point board of trustees in 1993. When the university’s longtime president announced plans to step down in 2004, an alumnus suggested Qubein as his replacement.
Even as he has raised High Point’s profile, Qubein and his family have benefited from the school’s rapid growth. His base pay of $598,000 puts him in the top 10 percent of 519 private institution presidents surveyed by the Chronicle of Higher Education last year. In 2010, according to High Point’s annual IRS filing, he received a deferred compensation package that boosted his pay to $1.38 million. IRS filings show the university pays almost $1 million annually to his family’s public-relations and consulting business, now headed by Qubein’s 28-year-old daughter, Deena Qubein Samuel. Qubein says the school maintains an arm’s-length relationship with the company, and that his salary reflects the “market price” for the improvements he is delivering.
High Point is hardly the first university to try to buy its way to greatness. A century ago, John D. Rockefeller vaulted his new University of Chicago to elite status by spending big to poach academic talent from competitors. In the 1980s and ’90s, Emory University significantly enhanced its profile by using a $105 million gift of Coca-Cola (KO) stock to pay for endowed professorships, scholarships, and research programs. Yet no school in history has made such a leap by spending so much only on dorms and classrooms, says Richard Staisloff, a Baltimore-based consultant in higher education management. “There has to be a package of academic quality,” he says.
Qubein’s plan for the university is as much about urban renewal as about academics. The city of High Point—once a center for furniture manufacturing and hosiery making—suffered an economic collapse in the mid-1990s when those industries decamped to Asia, leaving hollowed-out industrial parks and neighborhoods of bungalows and ranch houses sinking into disrepair. Qubein and High Point’s civic leaders are betting the university can become the anchor tenant of a revitalized local economy.
“We needed something in High Point to get this city up and kicking again,” says Mark Norcross, a former furniture company owner who has given the university $2 million and recently pledged $10 million more. Like most of the donors, he didn’t attend the university. Norcross says Qubein sat down with him in 2005 and sketched out his plans for the campus on a piece of paper. “He said, ‘This university needs a face-lift, or we’re not going to be able to get the right kind of client’”—”client,” meaning, student family.
The school’s new look—part corporate campus, part theme park—was inspired by Qubein’s travels as a consultant and speaker. “I have been exposed to some of the finest facilities in the world: corporate offices, convention centers, even airports,” he says.
The university has acquired about 700 homes, mainly shabby rental houses, in the surrounding neighborhood, and has demolished most of them, though there are no immediate plans to build on the property. “I call it urban cleansing,” Qubein says. Many of these homes used to rent to students; now the university encourages students to live in dorms by forbidding them to rent housing in surrounding neighborhoods.
The campus makeover includes the $20 million Nido R. Qubein School of Communication, which houses a television studio, a glass-walled suite for video-game design, and a sumptuously furnished reading room, its shelves stocked with multiple copies of the president’s books (he has written more than a dozen) and motivational tapes. Glass cases display trophies he’s won.
There’s still some wealth in High Point, and Qubein has been adept at finding it. Some mill owners reaped millions by selling out before the exodus began; others moved their factories abroad. High Point’s Bentley dealership—the only one between Washington, D.C., and Atlanta—is still in business.
Donors also have given some $12 million worth of property, ranging from abandoned warehouses to a 300-piece set of Villeroy & Boch china and Riedel crystal that the university said would be used “to ensure our students are exposed to high-end crockery.” One woman donated her country house; the university built a ropes course on the grounds.
Still, gifts have covered less than 15 percent of the $700 million spent so far, with the rest financed by borrowing and student fees. Tens of millions in promised donations are still outstanding, with some earmarked for future projects such as the graduate pharmacy school.
Economic hard times have given High Point University a marketing advantage. The pristine campus outshines those of schools that cut back on maintenance and improvements during the downturn. Many public institutions have jacked up tuition and limited admissions because of state budget cuts.
Qubein has seized the opportunity. He’s more than doubled the admissions staff, run a $500,000 print and TV ad campaign in North Carolina, and sent admissions officers to hundreds of high schools in the Northeast and mid-Atlantic states, which now account for more than half of students.
High Point advertises a $37,800 flat fee for tuition and room and board, on a par with nearby private colleges. But most dorm rooms require surcharges that can push the total to almost $43,000, with room and board fees as much as 40 percent above the national average for private colleges.
Qubein and the university trustees agreed last year to cap debt at $165 million and to convert variable-rate loans to fixed-rate debt. Still, trustees say they were never concerned that the school was getting in over its head. “I’m a firm believer that you have to spend money to make money, and that’s what we did,” says Bob Stout, a retired local businessman who serves on the board. “As a provider of credit, we obviously feel comfortable,” says Henson, the BB&T COO and High Point trustee.
Nor have the payments to Qubein’s family business raised eyebrows. Former board chairwoman Marsha Slane says bids were sought from competitors, and the proposal from Qubein’s daughter “was the best offer.”
The family business consists of a consulting firm that Qubein founded in the 1990s and a public-relations company where he previously served as chairman. The two businesses have been combined and are now owned by his three adult children, with his eldest daughter serving as CEO. Qubein is still listed by the North Carolina Secretary of State as the registered agent for the business; a university spokesman says that is a “reporting error.”
Jack Siegel, a Chicago-based lawyer specializing in nonprofit governance, says he advises nonprofit clients against doing business with for-profit companies associated with their directors. While not illegal, he says, they can draw scrutiny from the IRS, which in some cases has determined that they amount to extra compensation for the officers of nonprofits. “Unless the services really are unique, you’d be better off not using family members,” Siegel says.
The interlocking directorships with BB&T are “problematic” as well, Siegel says. Should the university run into trouble on loan repayments, “you’ve got an incredible conflict of fiduciary duty,” with Qubein sitting on the bank’s board and Henson on the university’s.
Qubein and Henson say that BB&T’s lending to the university is handled by its North Carolina subsidiary. Neither Henson nor the corporate board on which Qubein serves is involved in the subsidiary’s dealings with clients, they claim.
How much the university’s revival has helped the city of High Point is unclear. While it’s added hundreds of employees, ranging from professor to groundskeeper, and the construction boom created additional temporary jobs, research suggests the local economic benefits of colleges and universities are often greatly exaggerated, in part because the institutions pay no taxes. The High Point Economic Development Corp., a local business promotion group, says the university pumps $418 million annually into the local economy—although the school’s annual operating budget is only $77 million.
City leaders don’t seem to entertain the notion that Qubein’s plan could fail. “He would never let that happen,” Mayor Rebecca Smothers says. “He might take risks, but he won’t take foolish risks.”
Inside the gorgeous new buildings, High Point seems to do pretty much what it did before: educate kids with generally middling academic records in small classes with teachers who are usually good and sometimes great.
The curriculum has expanded, including new majors in mathematical economics and international relations and courses in Russian and Arabic. Instructors can apply for grants to buy equipment or hire research assistants; no such funds were available before Qubein took over. “I came here because of the culture,” says Daniel Erb, who recently was recruited from Duke as dean of the new health sciences school. “There’s a can-do attitude.”
“My professors always take time to meet with students outside class,” says Alan Albergaria, a junior from Rhode Island, lounging in an outdoor hot tub at the $19 million Greek Village fraternity and sorority complex that opened last year. “With all the amenities, the school can’t be beat.”
Even so, High Point is slipping by some traditional academic measures. The percentage of faculty with a Ph.D. or other terminal degree is down three points, to 69 percent, while the student-to-faculty ratio has crept up from 15 to 1 to 16 to 1 since 2005. Faculty pay raises have not kept pace with those at top North Carolina schools. Administrators say the rush to hire new teachers for fast-growing enrollment accounts for some of the slippage.
What about those SAT scores, which jumped to an average 1,100 total for reading and math, up from 1,023 in 2005? One possible factor is a steep decline in black enrollment, from 24 percent in 2005 to only 5.8 percent in the current freshman class. Nationwide, blacks score an average 200 points lower than whites on the SAT. (A High Point spokesman says the decline in black enrollment “doesn’t explain the increase in our SAT scores,” which he said resulted from enrolling more students with higher scores, and fewer with low scores.)
The student body is not only whiter, it’s richer. Scholarship aid has been slashed and now covers only an average 15.9 percent of tuition—less than half the figure for private colleges nationwide. “Yes, we probably have more students than many schools who are not in need of financial aid,” Qubein says. “Should we apologize for that? No. The more learned the parent, the more financially astute, the more discerning they are.”
The university is popular with parents who favor its preppy decorum. Although not enforced, there is a tacit dress code. Students are well groomed, with no body piercings or weird hair colors in evidence. “If you went to class in sweatpants, you’d feel out of place,” says Alexa Crawford, a sophomore from California. High Point may be the only campus in America without a single piece of paper stuck on a wall anywhere announcing a protest or a movie or used books for sale. They’re forbidden.
Some of Qubein’s most ambitious projects may not materialize. With enrollment forecast to grow to 5,000 over the next three years, there’s likely to be ample cash flow to cover debt payments of about $77 million during the period. But there may not be enough left to pay for big-ticket items such as a previously announced $70 million building for the health sciences school. Instead, it could end up in renovated space in the shopping mall. Qubein says the “state-of-the-art, NBA-type athletic arena” once planned for 2014 has been postponed indefinitely.
Even if Qubein avoids financial calamity, he may be left selling High Point as it is today—a school with OK academics, packaged in a dazzling campus with pricey extras and clean-cut rich kids. Qubein tacitly acknowledges this as he wraps up his pitch to parents. Moving to the edge of the stage, he picks up a bag of Hershey’s (HSY) Kisses and a box of Godiva chocolates. The Hershey candy cost about $4, he informs the audience; the Godiva, $40. “Both are good,” he says, “but only one resides in the extraordinary. It presents itself in a way that people find compellingly good.” He leans toward the audience, the Godiva box in the palm of his right hand. “Isn’t that what you want for your child?”