What’s Behind the ACT’s For-Profit Pivot?

ACT, the organization which administers its namesake exam, was purchased by the private equity firm Nexus Capital Management this month in a major shake-up for the standardized testing industry.

The acquisition means the nonprofit organization will transition to a for-profit company, raising concerns about transparency and accountability. It also signals significant changes for assessment organizations after years of upheaval in college admissions.

Janet Godwin, ACT’s CEO since 2020, will stay on to steward the organization through its transition. She told Inside Higher Ed that the partnership opens new opportunities outside of college admissions, particularly in credential programs and K-12 curriculum development. But the spirit of the test itself, she said, would remain unchanged—as will the cost of taking it.

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“The only thing that’s changing is our tax ID,” she said. “We are still the same ACT that people know and trust.”

The acquisition comes after the Covid-19 pandemic and subsequent normalization of test-optional policies upended the traditional testing industry. In partnering with Nexus, Godwin hopes to open doors for ACT to expand outside of the college admissions space.

In particular, ACT is interested in assessing what Godwin calls “college and career readiness,” where the results would be useful to a wider variety of stakeholders, mainly employers.

“We’ve been working in the four-year college domain since our inception, but we’re increasingly also helping learners who are going from high school into community college, or the 40 percent of learners going straight to the workforce,” Godwin said. “We want to double down in those areas.”

David Coleman, CEO of the College Board, which owns and designs the SAT—ACT’s largest competitor—believes ACT’s acquisition was primarily a reflection of their inability to adapt to a rapidly changing admissions landscape. While the SAT has undergone some major changes in recent years, including relaunching as a completely digital test in March, Coleman said the ACT has remained the same.

“The most striking difference between us and the ACT is that the ACT is essentially the same test as it was 15 years ago,” Coleman said. “Innovating is hard. We receive criticism every time we innovate … But leaving things unchanged is a perilous position to take as an institution. If there’s one thing to take from this acquisition, it’s that.”

A Nexus of Interests

As faith in the value of four-year degrees diminishes and interest in shorter-term opportunities grows, ACT isn’t the only testing organization to react to shifting headwinds in higher ed. Early this month Educational Testing Services, the nonprofit that administers the SAT, released a report titled “Charting the Future of Assessment,” in which it concludes that opportunities for testing in college admissions are limited and points to skills certification as a fruitful new frontier.

“Skills are the future currency,” the report says. Assessment companies, it goes on to assert, can be trusted to identify those skills and convert them into hard cash on the job market.

Charlie Eaton, a sociology professor at the University of California, Merced and the author of Bankers in the Ivory Tower, said the Nexus acquisition and ACT’s interest in alternative degree pathways is concerning in part because the credential space is ripe for exploitation. He noted that the rise of exploitative for-profit colleges and online program managers—which are now in the crosshairs of regulators for misleading tuition and loan agreements—were both bolstered by private equity. 

“We don’t know a lot about private equity’s plans for the testing industry, but we know how it transformed other education sectors,” he said. “The potential here to take a trusted brand like the ACT and use it to launder more predatory business models is very concerning to me.”

Godwin said she addressed those concerns with Nexus and concluded the firm was uniquely suited to safeguard their educational mission.

“I understand the concerns and distress around private equity, but I think we found a partner who doesn’t have that kind of track record,” she said.

Godwin said the ACT also wants to be more competitive in K-12 curriculum development, adding the new owners have the resources, technology and free-flowing capital to help—and other companies under its umbrella to synergize with. Nexus owns the Savaas Learning Company, formerly Pearson Learning, which offered a slate of materials to help teachers and students prepare for the implementation of the Common Core standards in the early 2010s and was instrumental in their adoption.

Testing for Profit

Godwin took over as CEO of ACT in May of 2020, a few months into a pandemic that would push the vast majority of colleges to adopt test-optional policies. That shift hit the ACT especially hard: the organization recorded net losses for three years in a row, of $60.5 million in 2020, $6 million in 2021 and $12 million in 2022. Last year ,ACT laid off over 100 employees and began selling buildings on its Iowa City campus.

By the end of 2022, Godwin said, ACT had begun searching for partners with the capital and resources they lacked in order to ensure “sustainable financial growth.” While she acknowledged that the organization was “impacted by the pandemic,” she said it wasn’t financial strife that triggered the search but a desire to expand beyond college admissions.

“It’s a real persistent misconception that somehow we’re under financial duress,” she said. “Nothing could be further from the truth.”

Recovering from the impact of the pandemic will be a challenge for the entire industry, however. In 2023, 300,000 fewer students took the SAT than did in 2019, and 400,000 fewer took the ACT. Educational Testing Services laid off hundreds of employees last year amid big shakeups.

Some observers say Nexus’s acquisition of ACT is a sign that there’s market optimism about the value, and potential profitability, of standardized testing despite years of declining test rates and uncertainty.

“The way I see it, people who have profit as a motive are finding some upside on testing and assessments,” said Michael Nettles, a professor of psychometrics at Morgan State University and former chair of policy evaluation and research at ETS.

Through the acquisition, ACT will become a public benefit corporation, a special business designation that combines corporate structure with certain accountability and transparency requirements. It will also retain a nonprofit arm, whose members will have seats on the new corporation’s board. Godwin said she hopes this signals their commitment to remain true to their educational mission.

As a public benefit corporation, the ACT will no longer have certain accountability measures that it had as a nonprofit, according to Coleman. The College Board, a nonprofit, can’t change the cost of the test, for instance, without the approval of its oversight board, and is obligated to take the views of member colleges and educators into account on major decisions, he added.

“As a nonprofit, you must take fuller responsibility for the structural barriers around you,” Coleman said. He pointed to the organization’s fee waiver initiative for low-income SAT-takers, into which the organization has invested over $26 million. “We want to bring in revenue to reinvest, but our first interest is never about money … Sometimes you have to eliminate business opportunities to create access opportunities.”

Harry Feder, executive director of the nonprofit, nonpartisan center for fair and open testing, FairTest, and a longtime critic of standardized testing, said he has no doubt that Nexus and ACT see possibilities for growth. But he believes the acquisition has more to do with the shrinking pool of high school test-takers than the market’s optimism in the resurgence of standardized testing to its former ubiquity.

“The ACT has tended to stay in its college admissions lane, but it realized with the pandemic that it can no longer afford to do so,” Feder said. “To me what this means is, the testing industry will not go gentle into that good night.”