February 3, 2013
For-Profit Colleges Take a Step Back to Regroup
By Goldie Blumenstyk
A rash of TV commercials—the University of Phoenix's "Let's Get to Work" ads and the DeVry
University "Know How" spot, for example—offer a conspicuous glimpse at the ways big players
in the for-profit college industry are now scrambling to reverse two years of falling enrollments,
campus closures, and employee layoffs.
With a few exceptions, the industry remains in retrenchment, staying profitable thanks largely to
downsizing and using tuition freezes and extensive tuition discounts to keep enrollments from
plummeting even lower.
Enrollment in for-profit colleges fell by about 7 percent from the fall of 2011 to the fall of 2012,
according to December estimates from the National Student Clearinghouse. That is a much
steeper decline than the drop of 1.8 percent for higher education over all during the same period.
"The swagger of a few years ago is clearly gone," says Kevin Kinser, a professor of education at
the State University of New York at Albany who studies nontraditional higher education.
At a time when students are more price-conscious, for-profit colleges may seem less appealing,
says Mr. Kinser. Or, he says, some students may be "deciding it's not worth it" after finding out
how preceding students fared after taking those programs.
Over the past two years, for-profit colleges have come under growing scrutiny from federal
lawmakers, state regulators, skeptical investors, and consumer advocates, who have questioned
their recruiting tactics and educational quality.
An increasing number of nonprofit colleges have also begun to offer programs online, making it
tougher for the for-profit institutions to compete on factors like convenience.
New federal regulations now also make it explicitly illegal for the colleges to pay incentives to
their admissions representatives on the basis of the number of students they enroll. Mr. Kinser
says the declines in enrollment that coincide with that new regulation suggest that without those
incentives, "they're having a tougher time recruiting."
New Discounts
Some for-profit institutions are still growing at a brisk clip, including American Public
University, Grand Canyon University, and National American University. But they are the
exceptions. "Those that have grown through the recession tend to have lower prices," says
Robert Lytle, co-head of the education practice at the Parthenon Group, a consulting company.
For the rest, contraction has been a major theme over the past two years. Career Education
Corporation announced the closing of a quarter of its 90 campuses and a reduction of 900
positions; Corinthian Colleges took steps to sell or close nine campuses; DeVry announced plans
to cut its employee count by 570; and Capella Education planned a reduction of 185. Last month
the University of Phoenix and its parent company, the Apollo Group, began the elimination of
115 of its 227 campuses and learning centers, and 800 jobs, in addition to the 700 positions it cut
two years ago.
The climate creates an unprecedented test for the industry, says Jerry Herman, an analyst with
Stifel Nicolaus, an investment bank. "Those that can innovate in a way that can deliver good
value for the cost will do better," he says.
That's one reason, he notes, that so many of the for-profit-college companies are cutting their
prices with new kinds of scholarships and discounts. Capella, Career Education, Corinthian,
DeVry, Phoenix, and Strayer have instituted or are planning such tuition adjustments for at least
some of their programs.
Last month ITT Educational Services went even further, announcing that an "Opportunity
Scholarship" program it had been testing at 24 of its campuses would be extended to all 150 of
them.
Total enrollment at ITT decreased by nearly 17 percent, to 61,059, as of December 31, compared
with 73,255 a year earlier.
All About Jobs
Looking to differentiate themselves from one another and from their nonprofit competitors,
several of the companies have begun new advertising blitzes, most of which aim to highlight
how their educational programs can help students get jobs. Phoenix has been using its television
commercials to showcase new relationships it has forged with employers, the career-planning
emphasis it has added to its curriculum, and the connections that students can make through the
university's alumni network.
It plans to introduce another new ad during the broadcast of the Grammy Awards this month.
Just as Strayer University began to promote itself to working adults and their employers with its
Jack Welch Management Institute, Phoenix announced an executive-education venture with
Clayton Christensen, the Harvard Business School professor known for his work on the impact
of "disruptive innovation."
Phoenix wants to show that it can "stand for more than convenience, access, and online," says
Gregory Cappelli, Apollo's chief executive, in an interview with The Chronicle.
But the university may be facing a regulatory challenge. In January it disclosed that it expects to
be placed "on notice" by its accreditor. The company had previously reported that the accreditor,
the Higher Learning Commission of the North Central Association of Colleges and Schools, had
raised questions about the ratio of full-time faculty to students and the rate of student-loan
defaults.
For the whole sector, the late-January announcement that its most visible critic in Congress, Sen.
Tom Harkin of Iowa, would not seek re-election in 2014 may have seemed like good news. But
for now, Mr. Harkin, as chairman of the Senate education committee, "still has the gavel," notes
Mr. Kinser.