For-Profit Colleges

Once-high-flying private, for-profit universities seek turnaround strategies

After crackdowns, bad PR, and crashing enrollments, schools turn back to roots

TEMPE, Arizona—There are classrooms. A career center. A cafeteria. A statue of the founder. Portraits of the presidents. Historical artifacts. Even a trophy case.

This sun-scorched place, on a Tuesday afternoon, has a lot of things that make it look like any college campus. But one is curiously absent: students.

That’s because most of the people enrolled here at the main branch of the University of Phoenix, in a nondescript office park beside Interstate 10, come at night. Mostly older than the 18- to 22-year-olds who go to public and nonprofit colleges, half work full-time and a third are juggling their educations with raising their own kids, all in the hope of earning credentials that will get them new or better jobs.

It’s these students—not fresh-faced high school graduates—who comprise the fastest-growing group of people entering American higher education. And after deep enrollment and revenue declines and even bankruptcies driven by economic changes and terrible publicity about students taking out huge loans and never graduating, they’re the best hope once-high-flying providers like the University of Phoenix have to rise again.
“There’s still a market out there that’s typically ignored by the rest of higher education—people who are working and have families and need professional development or career education,” said Daniel Bennett, a professor of economics at Patrick Henry College who has studied the industry. “This is the niche market the for-profits can serve.”

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The comeback of the for-profit universities doesn’t end with finding a market. Those that have survived are busily devising strategies to rebuild enrollment that has crashed by 26 percent collectively since its peak in 2009—more than twice that at the University of Phoenix—while seeking out new sources of revenue rather than continuing to invite relentless scrutiny by relying almost entirely on federally subsidized student financial aid.

And, while they’re at it, to overcome public mistrust, said University of Phoenix president Tim Slottow, who works upstairs in that office building on I-10.

“I’m not naïve enough to tell you we’re over the hardest part,” said Slottow, a former chief financial officer at the University of Michigan.

University of Phoenix parent Apollo Education Group announced in January that it had agreed to be acquired by a group of investors for $1.1 billion—slightly more than a tenth of what it was once worth—and go private. The deal will be finalized by August, if approved by regulators and shareholders.

Like other for-profits, the university will shutter some locations to focus on markets with the most demand and least competition, shrinking from 91 campuses and learning centers nationwide to 67 in 16 states and the District of Columbia.

Also like some of its for-profit counterparts, it will for the first time test incoming students before they are allowed to start, rooting out the ones who might not be ready, instead of taking anyone who has a high school diploma, as has previously been the case. Those in need of further help, said Slottow, will be steered toward orientation programs.

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“We want to make sure we’re not admitting you and setting you up for failure,” he said. “It’s all about increasing the likelihood the student will stick and succeed.”

It’s also about addressing two things students want to know before they sign up for a higher education, said Steve Gunderson, president of the Association of Private Sector Colleges and Universities, or APSCU, which represents the for-profits in Washington: how much it will cost, and whether they will get a better job at the end.

Students can’t get jobs unless they finish, reasoned Slottow. So if the schools can make sure more of them do, “the rest of it gets easier.”

Among the other changes for-profits are widely adopting: focusing on shorter, “career-relevant” certificate and two-year associate’s degree programs, and speeding them up, since the longer it takes students to finish, the less likely they ever will.

As for that question of how much it will cost, for-profits have been quietly cutting their prices, which are down 2.4 percent since 2012, while tuition and fees at community colleges and public universities are up 4 percent and at nonprofits nearly 3 percent.

A plain-spoken former Republican congressman, Gunderson said in a report to his members last month that they grew too fast when the economic downturn drove people to sign up by the tens of thousands to get credentials that would translate into jobs—and the for-profit colleges, focused on shareholder profits, took all comers. Many of these students dropped out, often with loan debt to repay but no degree to show for it. The schools also strayed into offering bachelor’s and graduate degrees, which were not their strength.

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“This sector grew too much, too fast, and we are paying a price,” said Gunderson, whose association has seen its own membership and budget shrink.

Now, he said, “We have to identify what we’re good at, and we have to advance that. And our value proposition is in two-year career education. We have to own postsecondary career education going forward.”

Private, for-profit universities and colleges, Gunderson pointed out, specialize in training workers for the jobs for which demand is projected to increase, such as medical assistants, licensed practical nurses, and computer support technicians.
By 2022, he said, there will be 10.1 million students 25 and older enrolled in higher education—mostly to improve their career prospects.

“What used to be the exception is now the rule,” said Rob Paul, president of DeVry University. “These nontraditional students are the new majority.”

Yet most public and nonprofit universities do little to serve this group, except community colleges, which are being thinly stretched and pushed in many states to become feeder schools for four-year, bachelor’s degree-granting institutions. That leaves the field largely open for the for-profit providers.

So great is this opportunity that APSCU began at the end of last year to highlight occupations in which there are potential shortages, and for which its members offer training. It’s called Shortage of Skills, or SOS. And it may, in fact, help rescue the private, for-profit higher education industry.

“That is actually the money spot for the for-profits,” said Derrick Mason Anderson, across Tempe on the campus of Arizona State University, where he is a professor of public affairs specializing in higher education management.

For all their widely publicized shortcomings, for-profits turn out to be better than community colleges at graduating students from two-year programs. Nearly two-thirds finish within six years, according to the National Student Clearinghouse, compared to 38 percent at community colleges. On the other hand, fewer than a third in four-year programs finish within six years—half the rate at public and nonprofit institutions.

For-profit schools are also seeking out new sources of income, since relying as heavily as they do on federal grants and loans has invited harsh scrutiny from regulators and critics. So far, that strategy has largely meant offering employee training under contract to employers.

Strayer University, for example, develops customized training for employees, and it’s teamed up with Fiat Chrysler to provide education services for car dealers and their families. The University of Phoenix has created a course in information storage management for EMC. DeVry has partnerships with Rite Aid, Lyft, McDonald’s and Walmart. Capella Education Company is about to launch a collaboration with the CareerBuilder job-search website providing 90-day courses in skills employers say they need; when a graduate gets hired, Capella will receive a portion of the placement fee.

This, said insiders and observers, is another opportunity for the for-profits to rebound at a time when businesses complain that workers need more and better skills. Employers spend $164.2 billion a year on professional development, or more than $1,200 per employee, according to the Association for Talent Development, a third of it by contracting with outside companies and 11 percent through tuition reimbursement.

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“I happen to think we have an enormous role to play” in that realm, said Slottow, the University of Phoenix head, absent-mindedly arranging a fan of thin glossy pamphlets on his conference table with the university’s new advertising slogan, “We Rise.”

A sort of vision statement that reads almost like a prayer, the pamphlets say, in part: “We know pride and we know humility. We are sculpted by adversity.”

That’s a fitting elegy for private, for-profit higher education in America.

Many of the biggest operators in the business have closed. Corinthian Colleges, parent of Everest and other schools, declared bankruptcy last year. Career Education Corporation will close its 14 Sanford-Brown campuses and its chain of 16 Le Cordon Bleu culinary schools by the end of this year. Westwood College has stopped accepting new students. Education Management is shutting down 15 of its Art Institute locations.

Instead of taking action earlier, said Kevin Kinser, a professor of education at the University at Albany and author of The Global Growth of Higher Education, the for-profits seemed to be waiting for court rulings or a more lenient presidential administration to relieve the pressure on them.

“They should have been thinking about these things earlier,” Kinser said. “It took them a very long time to move from a stage of denial to a stage of acceptance.”

Now, he said, “They’re recognizing that this is the environment they’re going to have to operate in.”

More trouble could lie ahead. A Senate bill would ban colleges and universities from using federal student grant and loan money for marketing—a shot directly at the for-profits, which a Senate investigation found got 86 percent of their revenue from that taxpayer-subsidized government aid and spent a quarter of it on advertising and recruiting. Another bill could reduce the for-profits’ hefty share of G.I. Bill benefits.

But the biggest blow could come this spring, when the U.S. Department of Education is scheduled to publish the prospective earnings payoffs of degrees, compared with what they cost to get. This is the first stage of what’s called the gainful employment rule, which the industry sued for years to block. It will measure whether students’ investment in tuition is actually worth the money. APSCU predicts that as many as 14 percent of for-profit programs could fail the test, meaning students could no longer receive federal financial aid to pay for them.

There’s also a proposal for “borrower defense regulations” under which colleges may be required to maintain reserves of money from which student loan recipients could be reimbursed in case they close. Such warning signs as high dropout rates would trigger cuts in eligibility for federal funding. The for-profit colleges’ negotiator has opposed this, saying it would put them in financial distress.

Many have already taken huge hits to their bottom lines. Education Management had to pay $96 million in November, for example, to settle federal and state lawsuits over its recruitment practices. Share values have tumbled. Annual revenues have collectively fallen by $2.3 billion since 2010, according to APSCU. Apollo Education Group lost more than $57 million in its most recent quarter, compared to income of more than $36 million for the same quarter last year, corporate documents show.

“We grew up and now we’re growing down,” said Slottow, using his hands to imagine a bar graph in the air.

Still, said Kinser, “This is certainly not the end of the for-profits. It’s part of recalibrating their efforts to work inside a new economic and regulatory environment.”

He said: “You’ve got to look on the bright side. The future’s going to be positive because what’s going on now is so damn bad.”

This story was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Read more about higher education.

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Jon Marcus

Jon Marcus, higher-education editor, has written about higher education for the Washington Post, USA Today, Time, the Boston Globe, Washington Monthly, is North America higher-education… See Archive