Quantcast
Last updated on April 18, 2014 at 21:21 EDT

U.S. education companies face slower growth

August 12, 2005

By Rasha Elass

NEW YORK (Reuters) – As one in three U.S. high school
graduates gets ready to go to college this fall, for-profit
colleges are struggling to keep attracting adults.

These publicly traded companies, which enjoyed high
double-digit enrollment growth in the past five years, are now
suffering as a stronger job market reassures more adults that
they can find work without having to go back to school.

At the same time, competition among for-profit colleges has
increased, and some are facing tough questions about the value
of the education they provide.

Indeed, “McUniversity” is what some locals call the
29-year-old University of Phoenix, which is run by for-profit
market leader Apollo Group Inc. and offers courses both on
campus and online.

Like the traditional colleges that operate as nonprofit
institutions, companies like Apollo are accredited as
post-secondary education providers.

It costs more to study at a for-profit campus than at
community colleges and many other nonprofit institutions,
however. Admission is open, requiring only a high-school
diploma.

These schools tend to attract people who have been in the
work force for some time. The average student at Apollo rival
Strayer Education Inc., for example, is 35 years old, holds a
full-time job and attends class in the evening or on weekends.

Many for-profits offer undergraduate and graduate degrees
in areas like health care, information technology, business and
criminal justice.

Harris Nesbitt analyst Jeff Silber calls the education
business counter-cyclical because its fortunes tend to move in
the opposite direction of the economy.

“The rate of enrollment slows down as jobs are a bit easier
to find,” said Silber. “If fewer people are laid off, then they
don’t need to go back to school.”

Enrollment growth at Career Education, the second-largest
for-profit education company, accelerated to 83 percent in the
first quarter of 2004 — just a year after unemployment rates
reached 6.3 percent, their highest level in a decade.

But as more people went back to work, more students opted
to study online rather than at brick-and-mortar campuses, a
trend that means significantly less revenue for education
companies.

Career Education, which has almost 100,000 students, has
seen its stock price drop 47 percent from an all-time high of
about $71 in April 2004, while the Standard & Poor’s 500 was on
the way up in that time.

Other for-profits have also suffered. Strayer showed no
enrollment growth in the second quarter, compared with a
year-earlier jump of 22 percent. Its shares have fallen below
$100 from an all-time high of about $130 in May 2004.

WHAT’S IT WORTH?

Besides an unfavorable economy, some for-profit educators
have run into trouble with regulators.

Last month, the California state government found that one
of Career Education’s schools, Brooks Institute of Photography,
misled students to believe they would earn $50,000 to $150,000
upon graduation. The average student graduates with $70,000 of
debt.

A company spokeswoman declined to comment on the figures,
but said Career Education would present its side of the story
at the next hearing.

The state has given Brooks conditional approval to operate
for the next two years.

On a federal level, the U.S. Securities and Exchange
Commission and the Department of Justice found in May that
various Career Education employees tried to falsify student
records to obtain financial aid.

Also in May, the U.S. Department of Education ordered
Corinthian Colleges Inc. to return $776,241 in federal loans
after it found the company had improperly administered them.

And late last year, Corinthian said a group of former and
current students filed a lawsuit saying it failed to disclose
that its Florida Metropolitan University was not accredited by
the Southern Association of Colleges.

Controversies like these have raised questions about the
value of a for-profit education.

Full-time tuition at the University of Phoenix runs about
$10,000 a year. That compares with less than $9,000 for about
70 percent of students at traditional four-year colleges,
according to College Board, an association of educational
institutions.

Citing company policy, an Apollo spokeswoman declined to
comment on the jobs students find or how much they make after
graduation.

At Strayer, Chief Executive Robert Silberman said working
students at his college see their salaries double to about
$60,000 from when they enroll to when they graduate.

A degree from a for-profit school does offer some value,
according to Marc Karasu, marketing vice president of Yahoo
Inc.’s HotJobs search engine.

“It depends on the kind of job that potential employers are
looking to fill,” Karasu said. “These schools are a great way
for someone in the work force to stay on top of things new in
their field.”