Enrollment falling at for-profit colleges
When the University of Phoenix, the country's largest university, announced this week it's closing 115 campuses and satellite locations, it signaled more than a sudden availability of commercial real estate near highway interchanges, where for-profit colleges like to set up shop as a student convenience.
After years of explosive growth that really caught fire when the economy collapsed four years ago, for-profit higher education is shrinking fast.
That's not a good thing for providers like Phoenix, at least in the short run. Whether it's good for them, for students, and for the economy in the long run -- well, that depends whom you ask.
New data throw the trend into relief. First, government figures released last week showed that total enrollment in higher education shrunk nationally in the fall of 2011 for the first time in at least 15 years. The overall decline was just 0.2 percent, but it was driven by a 2.9 percent drop in the for-profit sector, which offset an increase at 4-year non-profit colleges (for-profit colleges enroll about 11 percent of students overall).
Then came Tuesday's announcement by Apollo Group Inc., the University of Phoenix's parent company, that it would shutter roughly half its physical locations, though current students will be able to continue in their programs. The company couched the move in terms of growing interest from students taking online courses, and emphasized just 4 percent of students were affected (most of its students are online). But there's no hiding its decline in enrollment -- it currently enrolls about 328,000 students in degree programs, down from 381,000 a year ago and a peak of more than 475,000 in 2010.
On a yearly basis, enrollment is down 15 percent compared to a year ago at The Washington Post Co.'s Kaplan, which is also closing nine campuses; down 21 percent at Career Education Corp. (which operates Le Cordon Bleu cooking schools among others); and down 16 percent at ITT Educational Services, according to data provided by BMO Capital Markets. (An exception is military-focused American Public Education, Inc. which is booming on the heels of the Post 9/11 G.I. Bill).
BMO managing director Jeff Silber cites a range of explanations: the economy, negative publicity, and more aggressive marketing from traditional universities (Is anybody cheering the Detroit Tigers' run to the World Series more loudly than the nearby University of Toledo, whose large ad just over Comerica Park's left field wall is visible on TV with nearly every Miguel Cabrera home run?).
But Silber says the Obama administration's regulatory pressure has also been a major factor, particularly its aggressive of enforcement of rules preventing colleges of any kind from paying recruiters based on the number of students they enroll -- once a common practice by for-profits.
``Historically this had been a sector where it was a pretty hard sell,'' Silber said. After the crackdown, ``they're not doing it anymore because the folks that were selling hard have moved on to selling something else.''
For-profit colleges, though still annoyed by the regulations, say they are refocusing their efforts on enrolling students who can finish a degree and helping them find work when they graduate. An orientation program now gives Phoenix students three weeks to see if their program is a good fit before paying tuition. About 20 percent of participants decide not to enroll.
Phoenix also froze tuition, and this week announced a more substantial assessment and monitoring system to make sure students are getting the skills they want and need, but also to keep them on tracks toward jobs, particularly with about 2,000 corporate partners it's been assembling.
``It's really about the back end,'' Phoenix president Bill Pepicello said in a phone interview. The career services that students typically tap as they approach graduation, ``we're moving that forward.''
A report released last summer by Sen. Tom Harkin, D-Iowa., who has led the criticism of for-profits from Capitol Hill, concluded for-profit colleges have been taking in upwards of $32 billion annually from taxpayers even though most students don't graduate; those who departed lasted just four months on average. In 2010, the report found, leading companies employed nearly 10 times as many recruiters as career-services advisers, and spent more on marketing than on instruction.
The latest government figures show for-profits still have twice the federal student loan default rate of public colleges (23 percent of borrowers at for-profits have defaulted within three years).
For now, so-called ``gainful employment'' regulations that could cut off aid to colleges with poor job replacement rates are on hold, struck down by a federal judge in June (the Republican presidential candidate, former Massachusetts Gov. Mitt Romney, has criticized the rule and the Obama administration's ``ill-advised'' regulation of the sector).
Silber says the broader initiative to crack down on schools that aggressively recruit students, cash their government financial aid checks, then leave students and taxpayers on the hook when they fail to graduate, is changing the business.
``They're going to measure outputs, not inputs any more. Many schools have restructured their program offerings, made them shorter, made them less expensive,'' Silber said. ``This is very painful right now, but in the long run I think it's very helpful for this industry.''
Whether you think it's good news that fewer students are attending for-profits depends what you think is happening to those who don't enroll. The sector often notes it serves disproportionately low-income, first-generation students who don't find what they need elsewhere in higher education. So are those students now thinking twice about whether they really need to take out large student loans to attend non-profits, and asking whether they can get what they need at cheaper non-profit institutions? Or are they just dropping out of higher education entirely?
Steve Gunderson, president and CEO of APSCU, which represents the for-profit sector, says it's the latter.
``You look at California, there's almost 400,000 on the waiting list of the community college system,'' Gunderson said. ``So they're not going there. The community colleges are loaded to the brim.''
Gunderson says that by forcing for-profits to end their open-enrollment practices, Washington is jeopardizing the president's goal for the United States to regain its status as the world leader in higher education attainment. Once the economy recovers and students are more confident an investment in education will pay off with a job, he predicts enrollment will grow again.
Robert Shireman,- a former Department of Education official whose reputation as a foe of the for-profit sector was so fierce that the leading companies' stock prices all surged the day he announced his departure in 2010- isn't quite persuaded for-profit colleges have changed their stripes.
``We still need to watch the sector carefully because there are such strong incentives to over-promise and under-deliver,'' Shireman said. But he's glad to see students apparently more aware of the risks, and to see the shift in focus at for-profits, whom he agrees have a role to play in the system.
``I would much rather see the University of Phoenix improve its quality than shut down,'' he said.