Between government investigations and plummeting student numbers, for-profit colleges have had a rough few years.
Dozens of colleges saw double-digit drops in enrollment, and in 2012 a U.S. Senate committee released a damning report on the for-profit-college sector, concluding that some colleges had dropout rates above 50 percent and that the industry was spending more on marketing than it was on instruction.
However, new enrollment data suggest things may soon be looking up for the sector. Analysts’ projections suggest the industry is close to “bottoming out” and could once again see student growth.
To get an idea of what’s coming next, The Chronicle analyzed earnings reports and analyst projections for 14 publicly traded higher-education institutions, which together make up about half of the sector’s enrollment of two million students. The analysis found that, though enrollment dropped again in 2014, the forecast is for a smaller decline in 2015 and then enrollment increases thereafter.
Indeed, several companies that were posting double-digit enrollment losses for the last four years are expected to post gains in 2015.
The enrollment projections do not mean the industry is out of the woods, but they could indicate that the colleges are starting to rebound.
And to investors, fewer lost students equals more-stable profits.
Jeffrey Silber, an analyst covering the for-profit-college industry at BMO Capital Markets, said every dollar of revenue gained was about 50 cents in profit. (On the downside, that pattern also works in reverse.)
Even though some for-profit colleges are projected to have upticks in enrollment next year, the industry’s leader, the Apollo Education Group—the operator of the University of Phoenix—is projected by BMO to post enrollment losses in each quarter next year.
“Apollo, until recently, was declining at double digits, now it’s single digits, which is close to the industry trend,” Mr. Silber said. “It’s the 800-pound gorilla in the industry, and it will take a little time to catch up.”
That catch-up doesn’t necessarily derive from American students. For some colleges, the turnaround is due to growing overseas enrollment.
One example is the DeVry Education Group, which is seeing falling enrollment at most of its American colleges. But those losses are offset by its college in Brazil and its nursing school in the United States.
Analysts say slowing enrollment declines would be a huge shift for an industry that peaked in 2010 and has since experienced large decreases.
Trace Urdan, an analyst at Wells Fargo who tracks a dozen for-profit colleges, said prospective students had been discouraged by stories of students’ enrolling during the recession and not being able to find jobs after graduation.
“In 2010 the largest classes in history met a rough job market that wasn’t ready to absorb them,” he said.
Yet, despite an improving economy, students (especially those thinking about attending for-profit vocational colleges) will need to see an improved job market before they enroll.
“These students are not reading The Wall Street Journal for consumer-confidence reports,” Mr. Urdan said. “They need the news by word of mouth or to see it.”
An improved economy might encourage some to take the plunge, but for others a better economy could make going to college a tougher decision, especially if they already have a job.
“Why pay $15,000 for a medical-assistant job that will pay $14 an hour when you could get a $10-an-hour job at the mall today?” Mr. Urdan asked.
Still, improved enrollment gains will not cure all the headaches of the industry, which is facing new government regulation.
Last month the U.S. Department of Education introduced its final “gainful-employment rule,” which will restrict student-aid dollars from career-training programs deemed to have too many former students struggling with student-loan debt.
The department estimates that 1,400 college programs, totaling about 840,000 students, would not pass its accountability standards. Of those students, 99 percent are at for-profit institutions. Not surprisingly, the industry’s trade group, the Association of Private Sector Colleges and Universities, filed a lawsuit this month challenging the new rule.
