3 trends changing the face of for-profit higher ed
The space faces tighter federal regulations and proposals in other postsecondary sectors
Deserved or not, the for-profit sector is perhaps higher ed's most controversial. And in recent years, that reputation has brought on something of a state of upheaval.
Companies operating institutions in the space have seen their survival threatened by tighter federal regulations and proposals to provide free community college. Whether or not they were actually engaging in questionable marketing tactics or producing students with high debt-to-income ratios, efforts such as these have undoubtedly impacted the reputations of for-profit institutions at large and resulted in hits to enrollment and bottom lines.
We combed through recent quarterly earnings reports and call transcripts, as well as news stories, to identify the following three trends to watch in the space.
Enrollment woes to be exacerbated by Obama's community college proposal
One of the biggest threats to the for-profit sector is President Barack Obama's plan to offer two years of community college free of tuition to qualifying students. The University of Phoenix, ITT, DeVry, and their peers have long competed with community colleges for students, and let's face it: It's pretty hard to argue with "free."
This issue is compounded by the fact that many of these companies have already been found to be bleeding students for some time. The Great Recession led to more students returning to school, but an improving economy is seeing more of the crowd that sought a continuing education return to the workforce. In the most recent quarter, Apollo Education Group saw its enrollment numbers fall 15% — and the company reportedly has fewer than half the students it had five years ago.
Apollo isn't alone in falling enrollment. DeVry saw a 20% decline over last year and Bridgepoint Education's enrollment fell around 14%. Career Education Corporation, on the other hand, narrowed its losses and saw online student enrollment grow 1%, while ITT Educational Services failed to file its annual 10-K by the March 16 deadline, receiving a non-compliance notice from the New York Stock Exchange. Beyond the for-profit space, though, higher ed enrollment at large is expected to take a hit due to an overall decline in the number of high school graduates, as Crain's Chicago Business reports. This generation is simply smaller than the one preceding it.
Easing regulatory efforts could still facilitate comebacks for some
With Republicans gaining full control of Congress following November's elections, many posited that efforts for tighter regulation of the for-profit sector would be relaxed. Due to high student loan default rates at those institutions — and, to be fair, likely a few nonprofits, as well — the U.S. Department of Education had sought to implement a "gainful employment" rule that would limit funding to institutions that don't produce graduates in career fields that would make it possible for them to pay off their student loans. Along with the high default rates, the push also stemmed from marketing practices seen as predatory toward groups including military veterans, who receive federal GI Bill funding for higher education.
There was bipartisan opposition in Congress to the move even before November, so it's likely that even if such a rule is in place, it would be in a watered down form. The latest iteration of the rule, presented in November, was answered with a lawsuit from the Association of Private Sector Colleges and Universities — not the organization's first over the matter, either.
Of course, an overall negative 2012 report from the Senate Health, Education, Labor, and Pensions Committee didn't help for-profits' cases, despite a few such institutions — Strayer, Walden, and National American University among them — being highlighted as providing quality educations. The release this week of a list of 556 institutions under financial scrutiny, half of which were for-profits, from the Department of Education isn't likely to help perceptions.
Still, there's plenty of evidence that the feds don't have it in for the sector. Even as it faced a standard federal review that hammered its stocks last year, Apollo's University of Phoenix was also, as CEO Greg Capelli noted in the company's most recent earnings call, selected by the ed department to serve as an experimental site for competency-based education.
While it's likely more for-profits could fall by the wayside before all is said and done, if these partnerships continue and big players keep making strides to improve their reputations, the overall enrollment turnaround predicted for the sector by The Chronicle of Higher Education could still come to pass.
More transitions to non-profit and benefit corporation status
For a number of for-profit institutions, the answer to survival — and escaping the for-profit stigma and efforts to regulate — has been a shift (or sale) to a nonprofit. Among them: Herzing University, Keiser University, Stevens-Henager, CollegeAmerica, California College, and Remington College.
Others haven't been as lucky in their attempts to shift. Arizona's Grand Canyon University, already much more like a traditional university with its physical campus and Division I sports, was unable to convince shareholders to take a 15% premium on a buyout. The publicly traded school is reportedly worth $2 billion, and its president, Brian Mueller, says its massive tax burden makes competing with traditional universities more difficult.
Blurring the lines, meanwhile, is a shift by some institutions, like Rasmussen College, to for-profit "benefit corporations." The idea behind becoming a benefit corporation is that an institution's social mission remains protected and it remains publicly accountable while still taking private funding. At least one non-profit, Alliant International University, has also made the move.
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