Opening a University - What You Need To Know Before You Start

Starting a university in the United States can be an incredibly rewarding endeavor, offering the opportunity to shape the lives of countless students and contribute to the advancement of knowledge. However, the process of establishing a new institution of higher learning is complex and requires a thorough understanding of the regulatory landscape, financial considerations, and educational requirements. In this comprehensive guide, we'll walk you through the essential steps to turn your dream of opening a university into a reality.

The US Higher Education Regulatory Landscape

One of the first things to understand when considering how to open a university in the US is that there is no central regulatory agency overseeing all institutions of higher education. Unlike many other countries that have a Ministry of Higher Education or similar body, the United States leaves the regulation of universities to individual states. This means that there are 50 different regulatory agencies to navigate when establishing your university, each with its own set of requirements and processes.

Step 1 - Choosing the Right State for Your University

Selecting the right state for your university is a critical decision that can significantly impact your institution's success. When evaluating potential locations, consider the following factors:

1. State regulations and costs: Research the state regulations governing private businesses and the associated costs of operating in each state. For example, California has a higher tax rate (an additional 8-10%) compared to states like Florida, Texas, or Nevada, which have no income tax. Some states also charge extra fees for operating within their borders.

2. Business-friendly laws: Study the laws governing private corporations in each state to find the most business-friendly environment. Recent changes in some states, like California, have mandated hiring all staff as employees with limitations on hiring independent contractors, resulting in higher costs and additional regulations.

3. Real estate prices: The cost of commercial real estate, whether you plan to purchase or lease, varies significantly from state to state. New York has the highest office rates at $77/sq ft/year, while states like Arizona and Utah offer much lower lease prices.

‍Examples of state differences

To illustrate the stark differences between states, consider the following examples:

1. Tax rates and fees:

• California has a high tax rate, with an additional 8-10% state income tax, and charges an extra $800 annual fee for businesses operating within the state.
• In contrast, Florida, Texas, and Nevada have no state income tax, making them more attractive for businesses looking to minimize their tax burden.

2. Office rental rates:

• New York has the highest office rental rates in the country, averaging $77 per square foot per month.
• On the other hand, states like Arizona and Utah offer much more affordable lease prices, with rates as low as $25 per square foot per month.

The importance of thorough research

Given the significant variations between states, it is crucial to conduct thorough research before deciding where to establish your university. Take the time to evaluate each state's regulatory environment, business climate, and real estate market to find the location that best aligns with your goals and budget.

The University Approval Process

Accreditation requirements

Another critical aspect of starting a university is understanding the approval process for a new degree-granting institution in each state. There are 29 states that do not allow non-accredited universities to obtain a license to operate, requiring accreditation before applying for state authorization: Alaska, Arkansas, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Mississippi, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Washington, West Virginia, and Wyoming. This means that you must open your university in another state first, secure your license then your accreditation and after that you will be allowed to apply for a license in these states.

Processing time and costs

Among the remaining 21 states that do not require accreditation before state authorization, the approval process can vary greatly. Some states, like New York, California, Virginia, Colorado, and Nevada, can take up to 2-3 years to grant a license, while others, such as Arizona, Florida, Tennessee, Wisconsin, and Illinois, have more streamlined processes. Keep in mind that longer approval times can result in higher costs and delayed revenue generation.

Unique state requirements

Be aware of unique requirements in certain states. For example, Texas requires submitting two separate applications to different agencies for degree programs, which can lengthen the process and increase costs. Research the specific requirements for each state you are considering to avoid surprises and ensure a smoother approval process.

Step 2 - Selecting the Appropriate Business Structure

When establishing your university, selecting the appropriate business structure is crucial for liability protection, taxation, and governance. The most common options include:

Sole Proprietorship

If you are the sole owner, a sole proprietorship is the simplest structure. However, it does not provide personal asset protection, meaning your personal assets could be at risk in case of legal issues or debts related to the university.

Limited Liability Company (LLC)

An LLC offers limited liability protection, separating personal assets from the university's liabilities. This structure can be owned by one or more individuals and offers flexibility in management and taxation.

S-Corporation (S-Corp) and C-Corporation (C-Corp)

These structures are suitable for multiple shareholders and provide limited liability protection. The main difference between the two is taxation: an S-Corp is a pass-through entity, meaning the company's income and losses are passed through to the shareholders' personal tax returns, while a C-Corp is taxed as a separate entity.

Considerations for non-US residents

For non-US residents, a C-Corp is the best option when establishing a university in the United States, as it allows for foreign ownership and provides liability protection.

Step 3 - Selecting Your Educational Programs

Understanding regulations and demand

Once you've chosen your state and business structure, it's time to focus on developing your educational programs. Before deciding on your program offerings, research the regulations surrounding your chosen fields of study and focus on those that are in high demand and can be approved quickly.

Focusing on high-demand, quickly approvable programs

Consider offering programs in areas such as business, technology, and healthcare, which are consistently in high demand. Be sure to research the approval process for each program and prioritize those that can be launched quickly to generate revenue and establish your university's reputation.

Considerations for licensed professions

Many professions in the United States require a license, including physicians, nurses, pharmacists, dentists, dental hygienists, psychologists, therapists, counselors, social workers, teachers (preschool through high school), school administrators, librarians (in some states), postsecondary teachers (depending on the subject and state), lawyers, judges, accountants, auditors, architects, engineers, land surveyors, real estate agents, brokers, insurance agents, financial advisors, stockbrokers, barbers, cosmetologists, estheticians, nail technicians, massage therapists, physical therapists, occupational therapists, speech-language pathologists, audiologists, veterinarians, chiropractors, optometrists, podiatrists, acupuncturists, midwives, funeral directors, embalmers, pilots, air traffic controllers, commercial drivers, taxi drivers, private investigators, security guards, firefighters, police officers, emergency medical technicians (EMTs), paramedics, electricians, plumbers, HVAC technicians, general contractors, and many other professionals working in fields that impact public health, safety, and welfare. If you plan to offer programs in one of the licensed professions you'll need to obtain licenses from both the state and the relevant professional regulatory agency. This can add significant time and cost to the approval process, so be sure to factor this into your planning.

Step 4 - Securing Adequate Funding

The importance of financial stability

Before embarking on your university venture, it's crucial to secure adequate funding. States require proof of financial stability to ensure that your institution can sustain itself and avoid sudden closures that can negatively impact students.

Minimum funding requirements

1. You should have at least $250,000 readily available to cover your expenses for the first two years of operation. This amount may vary depending on the state and the specific requirements of the regulatory agencies involved.
2. Demonstrating a strong financial foundation will not only increase your chances of obtaining state approval but also provide a buffer against unexpected expenses and challenges during the early stages of your university's development.
3. One of the key factors state regulatory agencies will consider when reviewing your application is your financial standing and ability to sustain the university in the long term. They will carefully examine your financial resources, including liquid assets, investments, and potential revenue streams.
4. State authorities want to ensure that you have sufficient funds to cover the university's expenses for a significant period, typically at least two years, without relying on student tuition or fees. This requirement is in place to protect students and ensure that they can complete their education even if the university faces financial challenges.

The consequences of insufficient funding

Insufficient funding can lead to severe consequences, as illustrated by the numerous examples of university closures in recent years. Institutions such as Corinthian Colleges, Argosy University, and ITT Technical Institute closed abruptly due to financial difficulties, leaving thousands of students with incomplete degrees and significant debt.

The parable of the unfinished house

Just as the man in the parable who began building a house without proper planning and ran out of money before completion, aspiring university founders must be financially prepared. Lack of foresight and financial planning can lead to an unfinished dream and public ridicule. By having a solid financial foundation, creating a detailed budget, securing necessary funding, and having a contingency plan, you can avoid the embarrassment and disappointment of an incomplete venture.

Closing Thoughts

Opening a university in the United States is a significant undertaking that requires substantial financial resources, meticulous planning, and a keen understanding of the regulatory environment. By carefully considering the factors outlined in this guide, such as choosing the right state, selecting an appropriate business structure, developing high-demand educational programs, and securing adequate funding, you can lay a solid foundation for your new institution.

It's essential to recognize that the journey to establishing a university is not a simple or short-term endeavor. It requires unwavering commitment, resilience, and the ability to adapt to the ever-changing landscape of higher education. However, with the right preparation, support, and determination, you can overcome the challenges and create an institution that makes a lasting impact on the lives of your students and the wider community.

As you embark on this exciting venture, remember to stay focused on your mission, seek guidance from experienced professionals, and remain adaptable in the face of obstacles. By doing so, you can turn your vision of opening a university into a reality and leave a lasting legacy in the world of higher education.

For those seeking expert guidance and support throughout the process of establishing a university, consider reaching out to a consultant who specializes in assisting with the establishment of new universities. Their knowledge and experience can help you navigate the complexities of the regulatory landscape, develop effective strategies, and avoid costly mistakes.

For personalized guidance, feel free to reach out to Expert Education Consultants via email at info@experteduconsult.com with any questions you may have. This service is complimentary.

To explore customized solutions tailored to your specific needs, schedule a personalized one-on-one paid consultation with Dr. Sandra Norderhaug here.