Enrollment at many for-profit colleges has fallen sharply in recent months, a reflection of a weak economy and increased scrutiny of the sector.
New-student enrollment declined an average of 14.1 percent this quarter at 10 of the biggest for-profit educators, according to company financial disclosures and analysts’ reports. The slide has come as some of those institutions curbed their aggressive recruiting practices amid growing pressure from federal and state lawmakers.
Total enrollments are also dropping as students and families weigh the value of for-profit degrees. A surge in lawsuits against companies in the sector has created negative publicity that has made consumers wary. For-profits have been criticized for not adequately preparing students for jobs that will allow them to repay their loans at a time when the affordability of college is being questioned more generally.
Industry leaders say the enrollment dip is part of a natural readjustment after a long stretch of double-digit increases, and they remain optimistic about expanding, given their relatively small market share in higher education. They foresee a period of tempered growth in coming years.
But some analysts say that with heightened competition from nonprofit colleges that also offer online courses and unsustainably high tuition, for-profits could continue to experience rough times.
“It is our view the landscape has changed,” said Bradley Safalow, chief executive of PAA Research, an independent stock-research firm. “The notion that enrollment will continue to grow at high single-digit rates is based on flawed assumptions.”
There aren’t as many prospective students as some companies believe there are, he says. Students who might be interested are deterred by high tuition and grim job prospects. He thinks that for-profit colleges must reduce tuition or expand their degree offerings to stay competitive.
Some of the largest companies have suffered the most. Apollo Group, which owns the University of Phoenix, saw its new-student enrollment fall 40.5 percent in the third quarter that ended May 31. With 398,400 students, it is still one of the country’s largest higher-education systems, but its total enrollment has dipped 16.4 percent since this time last year.
Phoenix has adjusted its recruitment and marketing practices over the past two years, eliminating financial incentives for recruiters that are barred by new federal regulations and instituting a new orientation process to weed out students most likely to leave their programs before completion. Roughly one-fifth of prospective students now opt out after beginning the university’s orientation workshop. The company attributes about 8 percent of the 40.5 percent decrease in new-student enrollment to orientation dropouts.
According to a statement the Apollo Group issued to The Chronicle, those efforts are “designed to improve student outcomes,” which will “position us for stable, long-term growth.”
In a June earnings call, the company said it expected Phoenix’s total enrollment to continue falling through next year, but that new-student numbers would grow in 2012.
Sharp Drop for Kaplan
Kaplan Higher Education has suffered significant revenue losses because of a 47-percent falloff in new students, according to an earnings report released this month by its parent company, the Washington Post Company. To boost retention rates, Kaplan, like Phoenix, has adopted a risk-free trial period, which it links to lower numbers of newly enrolled students.
Kaplan has also seen a big drop in its overall enrollment. In the past year, total enrollment has fallen 30 percent, to 78,534 students, at Kaplan University and Kaplan Higher Education Campuses. Last month, the company announced that three top officials—the chief executive and chief financial officer of the Kaplan Higher Education division, and the president of Kaplan Higher Education Campuses—were stepping down.
In a UBS investment-research report that outlined Kaplan’s performance in the last quarter, an analyst, Ariel Sokol, signaled that the stormy economic climate might be affecting consumers’ decisions, but that the long-term prognosis was still “unclear.”
“We do not know if working adults will seek to pursue higher education if the economy declines this time around, given an increasing reluctance by adults to take on debt,” the report says. “We also don’t know if reputational damage of for-profit schools would cause working adults to pass on Kaplan were the economy to deteriorate.”
Corinthian Colleges Inc. saw new enrollment slacken by 26 percent. In September, the company stopped a controversial practice of admitting students without a high-school diploma or GED who pass a basic skill test. Corinthian chairman and chief executive Jack D. Massimino said in a news release that the enrollment slump was largely due to their decision to end this “ability-to-benefit” admissions policy. The company has since resumed accepting those students “on a carefully managed basis,” said Kent Jenkins, a Corinthian spokesman.
The uncertain economy, stiffer regulations, and negative publicity may have also played a role in reducing the number of new students at Corinthian, Mr. Massimino said. Like several of its competitors, Corinthian has come under fire for how it pays recruiters, and has faced a number of state and civil lawsuits.
Bucking the Trend
While some of the biggest for-profit colleges saw declines, a few showed enrollment increases. Total enrollment in the American Public University System, which charges $250 per undergraduate credit—less than many of its proprietary peers do—grew 28 percent in the quarter ending June 30. The system is operated by American Public Education Inc.
With a similarly low price point, Bridgepoint Education saw a slight uptick in new-student enrollment. But whether enrollment will continue to climb is open to question, given the company’s revelation in May that New York’s attorney general is investigating its business practices.
How for-profit enrollments will trend in the future is “difficult to call,” said Robert L. Craig, a managing director of the investment bank Stifel Nicolaus. He says external factors such as the economy and federal student aid will affect how well those institutions fare. He expects the for-profit sector will continue to grow in the long term, as emphasis is placed on expanding higher education to a greater portion of Americans and as traditional options for acquiring a degree reach capacity in some states.
But some analysts are concerned that if institutions do not lower their prices, they risk losing applicants and profits. “A lot of these institutions have a cost system that is going to be untenable for the consumer,” said Mr. Safalow, as more traditional universities enter into online education and the number of available applicants plateaus. “This is an industry that is closer to saturation than I think most people realize.”