For-Profit College Stocks Tumble On Enrollment Decline Warning

NEW YORK — The nation's largest for-profit college says it will take a big hit to enrollment – and its bottom line – as it tightens admission practices. The move comes as the government ramps up regulation of an industry which critics say preys on lower-income students and leaves them with hefty debt loads and meager job prospects.

The number of lower-income students enrolled at for-profit colleges has surged in the past few years. Big advertising budgets drew those trying to bolster their resumes as a hedge against high unemployment. But critics claim the schools are not helping students find better jobs and say enrollment counselors sign up many who are unprepared for higher education. When they drop out, they are still stuck paying back their student loans.

Defaults on student loans have been rising, sticking taxpayers with the bills. So the government has proposed regulations that could limit schools' access to federal financial aid if graduates' debt levels are too high or too few students repay loans.

Amid intense scrutiny of the industry, Apollo Group Inc. said Wednesday it will provide new students with a free three-week trial program to see if they are ready for its University of Phoenix curriculums – weeding out those at risk of leaving school before earning degrees. And it will no longer pay its counselors bonuses based on how many students they enroll.

"Now, they have to slow down enrollment and be less active in targeting these students. They have to go back to the more traditional students who are working adults," said Matt Snowling, an analyst at FBR Capital Markets.

The Phoenix-based company also is monitoring 30,000 conversations every day between its employees and prospective students after a government report showed some for-profit colleges engaged in allegedly deceptive recruiting practices. It is trying to attract more employer-sponsored students into its classrooms – and will likely end up with a wealthier student body.

"There's going to be fewer associate students. Generally associate students tend to be a lower-income demographic," said BMO Capital Markets analyst Jeff Silber.

But the tighter admissions standards come at a cost. Apollo said it expects the number of new students enrolling at its University of Phoenix campuses to drop 40 percent in the next quarter and withdrew its profit outlook for next year.

The news sent chills through the industry as investors worried that other for-profit schools will issue similar forecasts. Stocks tumbled across the sector, led by Apollo, which dropped $11.50, or 23 percent, to $38. Education Management Corp., DeVry Inc., Corinthian Colleges Inc., ITT Educational Services Inc., Career Education Corp. and Strayer Education Inc. all fell by double-digit percentages. Shares of newspaper publisher Washington Post Co., which gets the majority of its revenue from the Kaplan school chain, slumped 9 percent.

Apollo, the first of the sector to report quarterly results, also warned that it is close to maxing out how much revenue it can receive from federal financial aid resources. Industrywide, for-profit schools get about 83 percent of their revenue from government-backed loans and federal Pell Grants, which go to lower-income students. Federal regulations cap that amount at 90 percent. If a school exceeds that limit for two years in a row, it may lose access to federal financial aid.

Apollo said that it expects to top that level in 2012. Since the government only covers a certain amount of tuition, Apollo said it may have to raise tuition to reduce the percentage of aid it receives and stay within the 90/10 requirement.

That scares Joslin Jade Ellis, a stay-at-home mom from Prince George's County, Md., and an online student at University of Phoenix. Her tuition is now covered entirely by a federal Pell Grant and other financial aid.

"It's important for anyone who wants to go to college to at least have that shot," said Ellis, who is taking health administration courses. "A lot of families can't afford to send their kids to college, at least in this economy. And now, no one will even look at your resume unless you have some sort of college background or a degree."

Former UoP student Glenn Moscoso finds the prospect of tuition increases alarming.

"In this economy and job market, isn't raising tuition adding debt to a no-guarantee job market?" said Moscoso, who in April earned a master's degree in education.

Moscoso, 40, said he chose the school because it didn't require him to take the Graduate Record Examination, or GRE. He said he took out $19,000 in federal student loans and so far has not found a job – in part, he said, because of limited opportunities in his field, adult education.

____

_ AP Education Writer Eric Gorski in Denver contributed to this report.

Comments

[themainpoint]

11:22 AM on 10/15/2010

I suppose if Universities were to effectively lobby government for good jobs policies, then more students would have confidence that expensive degrees would pay off financially.

[elan4444]

10:28 PM on 10/14/2010

Didn't have to take the GRE? A credible university will have entrance standards. Also, the health care professions require a knowledge of chemistry, and accuracy in performing tests and reading calibrations. I went to a local urgent care facility which had a recent Kaplan graduate working. He did not know how to fit the blood pressure cuff on! Incredible! Phoenix has been draining the federal student loan program for years, so let's thank Harkin and others who worked to get this legislation passed. It does not reflect well on our country to begin a wholesale dumbing-down of higher education, as many Phoenix "graduates" discovered when their so-called degrees were not recognized elsewhere. A university education has to mean something, and places like Phoenix have lowered the bar. So let's see if they can raise up their own standards in order to remain in business, instead of taking advantage of desperate students in order to enrich their corporation..

[lucyfurr]

10:23 PM on 10/14/2010

I worked for one of these for-profits for a little while . WOW- almost a cult-like mentality. All I heard every day was to "drink the kool-aid". I took the Enrollment Advisor job out of desperation due to the poor economy. I quit after 8 mths. I could no longer "find the pain" of the student (as instructed in training) and manipulate them into enrolling in class immediately- Financial Aid approval within 5 minutes for Grad students. Above and beyond tuition they got an extra with 10K a year "if needed". I felt like it was a huge scam. I could no longer be a part of it.Now I'm unemployed. Oh Well.

[Ralph Noyes]

08:56 PM on 10/14/2010

Anything to slow down the Judas goats leading the credulous sheep.

College should be for people who are capable of doing the coursework. For those who need to get up to speed, there are non-profit community colleges.

Let's stop playing games with our tax dollars and credulous people's lives.

[carolina919]

08:37 PM on 10/14/2010

"Moscoso, 40, said he chose the school because it didn't require him to take the Graduate Record Examination, or GRE. He said he took out $19,000 in federal student loans and so far has not found a job – in part, he said, because of limited opportunities in his field, adult education."

Especially, I bet, when he's competing for positions with people who have degrees from institutions that actually require the GRE....gee, might be a connection there.

For profit institutions aren't the only ones in education guilty of leading students into insupportable debt, however. For all too many students the prospect of "easy" money and the salesmanship of private lenders has led to a totally unrealistic way of life during college that can't be replicated even with good entry level jobs. It's amazing how many students feel that their own apartment, their own car and their own "discretionary spending money" are absolute necessities. Combine that financial irresponsibility with the sub-standard education that many receive from some private AND public colleges and you've got a bad situation compounded into a true disaster. Colleges and universities DO have a role to play in helping students avoid (or limit) debt. To turn a blind eye to these practices and the real financial status of their students flies in the face of the true mission of "education". Another example of how the chase for profit (or revenue) can be corrupting for all concerned.

[Obama1984]

06:40 PM on 10/14/2010

let them all go bankrupt

[Lauramae]

06:10 PM on 10/14/2010

The slick marketing campaigns often hide something more shallow than it first appears.