The Wall Street swagger of for-profit college companies — so visible just five years ago — looks a lot more like a limp at the dawn of 2016.
At the height of their growth, in 2010, for-profit colleges enrolled more than one in 12 students at degree-granting institutions in the United States. The colleges still make up a significant part of the education landscape, enrolling about 6.5 percent of all students as of the spring of 2015, according to the National Student Clearinghouse. But enrollment at those colleges has fallen by 26 percent since the high point, a far greater decrease than the 9-percent decline in overall
postsecondary enrollment.
Not all for-profit colleges are hurting, even among those owned by publicly traded companies. Enrollment has been consistently robust at Grand Canyon University over the past five years, thanks in large part to its Christian-education focus, and the numbers have recently rebounded at Capella University as well. When it comes to market value, the trend is even more consistent — and downward. With the exception of Grand Canyon, many of the companies have seen their value drop, often drastically, as enrollments have fallen and scrutiny has increased. In 2009, 10 of the biggest publicly traded companies were collectively worth about $30-billion. Today, with Corinthian Colleges bankrupt, Education Management Corporation trading for pennies, and even the once-mighty Apollo Education Group valued at less than one-tenth of its 2009 figure, the estimate on that collection of companies is closer to $6-billion.
Apollo’s decline, from $10 billion in 2009 to under $800 million today, is mirrored in the steep drop in enrollment at its flagship property, the University of Phoenix, In 2009 Phoenix’s enrollment topped out at 455,600, By 2015 it was down to about 216,000, and company officials say they expect it to get even smaller, part of a broad overhaul that includes closing brick-and-mortar campuses, offering fewer start dates, retiring several associate-degree programs, and putting in place admissions criteria. The company is also facing scrutiny from several federal regulators, including the Federal Trade Commission. The Department of Defense put the institution on probation in October, preventing it from enrolling active-duty servicemembers using their federal Tuition Assistance benefits.
The new “gainful-employment” rule, which could eliminate federal student aid for degree programs that leave students with too much debt relative to the incomes they can earn with those degrees, is also having a major effect on the sector. Several colleges have recently cited the regulation as a reason for closing, and many others are eliminating or altering their pricier programs to comply with it.
“It really is a time of adaptation,” says Constance Iloh, who is writing a book on proprietary colleges. That’s true not only for the for-profit colleges, which are responding to increasing regulation and greater scrutiny, but also for many other kinds of institutions in higher education.
Ms. Iloh, an incoming assistant professor at the University of California at Irvine, says that the sector’s many enrollment and legal challenges don’t necessarily signal its demise. “This is a sector that has many lives,” she says. “it’s way too early to close the story.”
As the ecosystem of higher education expands, she says it may also be time to think past old labels. “The questions certainly need to evolve beyond the issue of ‘nonprofit’ and ‘for-profit’ to looking at sets of behaviors that might indicate institutions’ goals, values, and actions,” she says. Existing regulatory and oversight systems may not yet be suitable for this new environment, Ms. Iloh adds. But ultimately, “what’s going to drive this moving toward a more nuanced discussion is a sincere focus on students.”
Where does that story stand right now?
Political and Legal Scrutiny Continues as College Companies Shrink
Phoenix’s plan to downsize itself and impose more-restrictive admissions requirements comes in the face of falling enrollments. Other for-profit colleges facing enrollment declines, including American Public University System, have also announced plans to tailor their recruiting toward students more likely to succeed.
Many of the companies are shadows of their former selves. Five years ago, Career Education Corporation enrolled more than 100,000 students. In May it announced it would be closing down several of its career-school divisions by the end of 2016 and trying to sell off another, its culinary brand, leaving it with two institutions that collectively enrolled fewer than 34,000. (Last month it gave up on trying to sell Le Cordon Bleu and announced it would close it down instead.) Another once-prominent college company, the privately held Westwood College, announced in November that it was no longer enrolling new students.
Also in November, what was once one of the biggest of the companies (before it closed down 15 of its Art Institutes campuses), Education Management Corporation, ended several federal and state lawsuits over its recruitment practices with a $95.5-million settlement. But several of the college companies continue to face investigations, most notably ITT Educational Services, which is being sued by the U.S. Securities and Exchange Commission and the Consumer Financial Protection Bureau. The Federal Trade Commission is also investigating Phoenix, Career Education, and DeVry Education Group.
Yet while the college companies face continued scrutiny and enrollment challenges in America, several of them, including DeVry, are expanding overseas, DeVry says it now makes more than a quarter of its revenue from its campuses outside the United States. In late 2015 the parent company of the University of Phoenix finalized its purchase of a German college focused on management and hospitality. And Laureate Education, which has always been heavily dependent on its overseas operations, recently filed documents indicating its plans to go back onto the market as a public company. It is doing so after eight years as a private venture, during which time it expanded from 24 institutions with more than 240,000 students to a network of 88 institutions across 28 countries enrolling more than a million students.
A Smaller Trade Association
The collapse of Corinthian Colleges last year and major cutbacks at other big-profit college companies have left a big dent at the Association of Private Sector Colleges and Universities, the industry’s main trade association. Following the departures last year of Education Management and ITT, Kaplan and DeVry left the association as of July 1 and Career Education Corporation quit in September.
The association assesses dues based on the tuition revenues of its member colleges, so those departures, coupled with enrollment declines at other institutions, forced it to reduce its budget for annual operations by nearly half, to about $5.5 million. The organization has also reduced its staffing from more than 20 employees 16 months ago to about a dozen today.
When he took over as president in 2012, Steve Gunderson said he was considering a campaign to strengthen the association’s political action committee. Today, however, he says the association will primarily defer to PACs created by member colleges. He said the association may find a new name to better reflect its colleges’ career-training mission.
The association also suffered a legal blow last year when a federal judge dismissed its challenge to the gainful-employment rule. The organization has appealed that court ruling, and oral arguments are scheduled for this month.
For-Profit Conversions Pick Up — And Come Under the Spotlight
Last year’s conversion of Herzing University from for-profit to nonprofit and the continuing question of whether the larger, publicly traded Grand Canyon University can do the same have brought attention to such transactions. They’ve also prompted some public criticism.
The conversions allow the colleges to avoid income taxes and regulations like the gainful-employment rule, but an October report from the Century Foundation spotlighted questionable aspects of Herzing’s and three other recent conversions. It also argued that for-profits-turned-nonprofits now occupy “a dangerous regulatory blind spot.” Colleges making these conversions say they’re doing so, in part, out of concern that students and others hold negative feelings about for-profit colleges.
The 50-plus Everest and WyoTech campuses formerly owned by Corinthian now belong to a nonprofit venture called Zenith Education Group, a subsidiary of the loan-servicing company ECMC.
At the same time, a few existing for-profit college companies — Minnesota-based Rasmussen College and, just recently, the global giant Laureate — have reincorporated themselves as “benefit corporations.” Under that structure, the companies are protected from liability to shareholders if the companies pursue benefits to the public at the expense of some profit.
Goldie Blumenstyk writes about the intersection of business and higher education. Check out www.goldieblumenstyk.com for information on her new book about the higher-education crisis; follow her on Twitter @GoldieStandard; or email her at goldie@chronicle.com.
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