FOR-PROFIT SCHOOLS FEEL PRESSURE - SHARES DIVE AS ENROLLMENT DROP PREDICTED; INDUSTRY UNDER GOVERNMENT SCRUTINY
Sun Sentinel (Fort Lauderdale, FL) - Friday, October 15, 2010
Author: Walter Hamilton Tribune Newspapers
Shares of for-profit education companies plunged Thursday after industry leader Apollo Group shocked Wall Street by predicting a sharp drop in enrollment at a time of increasing government scrutiny.
For-profit colleges have been under enormous pressure in recent months amid criticism that they admit poorly qualified students who rack up enormous debt that they later have trouble paying off at low-wage jobs.
Lawmakers and regulators have proposed a variety of new rules to reduce the number of students who default on loans, which must be picked up by taxpayers.
But the surprise announcement from Apollo, which runs the University of Phoenix chain, raised the specter that the industry's troubles are deeper than feared and that a variety of new regulations could force companies to revamp their business models.
In a conference call late Wednesday, Apollo said it is focusing on attracting qualified students who have the best chances of graduating rather than on increasing its overall student body. Enrollment by new students could drop more than 40 percent from a year earlier, the company said.
New enrollments are critical at for-profit colleges, which must replace the large number of students who drop out each year.
"People knew enrollment was going to decline but my jaw dropped when I heard that number," said Jeff Silber, an analyst at BMO Capital Markets in New York.
The industry grew strongly over the past decade on attracting academically challenged students who qualified for federal financial aid, said Kevin Kinser, associate professor of education at the State University of New York at Albany.
"They're going out and seeking a market and recruiting students who might not have thought about going to college before seeing the ubiquitous University of Phoenix ads every time they turn on their computer," Kinser said.
It now is being forced to focus on people with jobs who are looking to upgrade their skills for career advancement, he said.
Apollo's stock fell $11.50, or 23 percent, to close at $38. Corinthian Colleges tumbled $1.23, or 20 percent, closing at $4.79. DeVry was off 17 percent, Strayer Education declined 13 percent and ITT Educational Services slid 14 percent.
Apollo also said it would no longer pay bonuses to recruiters. Enrollment at for-profit colleges exploded during the recession as students sought to boost their skills and find a temporary haven amid the brutal employment market.
The Department of Education has proposed rules that would bar for-profit colleges from federal financial aid if the loan repayment rates of their graduates are too low.
whamilton@tribune.com
INFORMATIONAL BOX:
For-profit profile
A look at undergraduates in private-sector colleges and universities.
Financially independent from parents: 76 percent
Age 24 and older: 63 percent
Have dependent children: 47 percent
Work full time: 28 percent
SOURCE: U.S. Department of Education, National Postsecondary Student Aid Survey, 2008
For-profit colleges have been under enormous pressure in recent months amid criticism that they admit poorly qualified students who rack up enormous debt that they later have trouble paying off at low-wage jobs.
Lawmakers and regulators have proposed a variety of new rules to reduce the number of students who default on loans, which must be picked up by taxpayers.
But the surprise announcement from Apollo, which runs the University of Phoenix chain, raised the specter that the industry's troubles are deeper than feared and that a variety of new regulations could force companies to revamp their business models.
In a conference call late Wednesday, Apollo said it is focusing on attracting qualified students who have the best chances of graduating rather than on increasing its overall student body. Enrollment by new students could drop more than 40 percent from a year earlier, the company said.
New enrollments are critical at for-profit colleges, which must replace the large number of students who drop out each year.
"People knew enrollment was going to decline but my jaw dropped when I heard that number," said Jeff Silber, an analyst at BMO Capital Markets in New York.
The industry grew strongly over the past decade on attracting academically challenged students who qualified for federal financial aid, said Kevin Kinser, associate professor of education at the State University of New York at Albany.
"They're going out and seeking a market and recruiting students who might not have thought about going to college before seeing the ubiquitous University of Phoenix ads every time they turn on their computer," Kinser said.
It now is being forced to focus on people with jobs who are looking to upgrade their skills for career advancement, he said.
Apollo's stock fell $11.50, or 23 percent, to close at $38. Corinthian Colleges tumbled $1.23, or 20 percent, closing at $4.79. DeVry was off 17 percent, Strayer Education declined 13 percent and ITT Educational Services slid 14 percent.
Apollo also said it would no longer pay bonuses to recruiters. Enrollment at for-profit colleges exploded during the recession as students sought to boost their skills and find a temporary haven amid the brutal employment market.
The Department of Education has proposed rules that would bar for-profit colleges from federal financial aid if the loan repayment rates of their graduates are too low.
whamilton@tribune.com
INFORMATIONAL BOX:
For-profit profile
A look at undergraduates in private-sector colleges and universities.
Financially independent from parents: 76 percent
Age 24 and older: 63 percent
Have dependent children: 47 percent
Work full time: 28 percent
SOURCE: U.S. Department of Education, National Postsecondary Student Aid Survey, 2008
Memo: Informational box at end of text.
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