Two years’ worth of the most intense public scrutiny in their history is having an impact on many of the country’s biggest for-profit higher-education companies. For most, after a decade of double-digit growth, enrollments are declining, along with revenues and profits.
The companies, several of which have reported their 2011 fiscal-year results in the past few weeks, say the negative publicity about their colleges from Congressional hearings, lawsuits, and state investigations is a key factor in the decline, along with prospective students’ reluctance to take on debt.
In addition, new federal regulations designed to curb aggressive tactics in student recruiting have taken effect. Another factor in the enrollment slowdown is a change in the role of the admissions representative, “theoretically from a selling function to a consultation function,” said Jerry R. Herman, an analyst at the Stifel Nicolaus investment bank, at a December meeting of the Association of Private Sector Colleges and Universities.
The chief executive of Career Education Corporation, which has until April to resolve issues with its accreditor over false information it provided on job-placement rates, acknowledged the concerns in an earnings release two weeks ago, when the company reported a 24-percent decline in new-student enrollments between December 31, 2010, and December 31 of last year. It also reported an 84-percent decline in operating income, a standard measure of profitability. “We expect a challenging business and reputational year ahead,” said Steven H. Lesnik, the CEO.
After the close of its fiscal year last June, Corinthian Colleges reported declines of 43 percent in its operating income and 27 percent in new-student enrollment. Both figures continued to decline over the next six months.
Several companies have begun programs to enroll students who are less likely to drop out and default on their student loans, like the free orientation at the Apollo Group’s University of Phoenix and the fully refundable first course at the Washington Post’s Kaplan University. But the companies say those programs are also chilling enrollment.
Kaplan said that it saw a 37-percent decline in new-student enrollments from the 2010 calendar year to last year, but that the drop would have been only about 20 percent were it not for the “Kaplan Commitment” program, under which there’s no charge for a first course. The company also said that without the program, its higher-education revenue for the year would have been $63-million higher than the $1.4-billion it recorded. Kaplan Higher Education reported operating income of $148-million for 2011, compared with $406-million in 2010.
Kaplan said new-student enrollment picked up in the final quarter of 2011.
Apollo, which had previously reported a 33-percent decline in new-student enrollment and a 19-percent decline in overall enrollment for the fiscal year ending August 31, recently warned that the uptick in enrollment in the fall of 2011 wouldn’t be repeated when it next reports, in March.
The financial and enrollment trends point to some emerging themes. Analysts said they expected the for-profit colleges that will best weather the new climate of scrutiny are those with the strongest academic reputations, niche markets, or lowest prices—the latter being the business model of companies like Bridgepoint Education, which owns Ashford University. It has continued to report growth in revenues and profits, although the 13-percent decline in new students it reported last week may be a sign of a slowdown.
American Public University is another company whose growth trajectory has defied the industry’s recent trends. But its heavy reliance on students with military ties, who use their tuition-assistance or GI Bill benefits to cover their costs, may make it vulnerable now that several senators have begun to question the large share of that money going to for-profit colleges.
Correction (3/12, 2:07 p.m.): The article originally misstated an assertion by Kaplan University. The company said that, without its Kaplan Commitment program, it would have had $63-million more in revenue, not in income, for the 2010 calendar year. The article has been updated to reflect this correction.