For- Profit Postsecondary Is Going Through A Course Correction

Reshaping the For-Profit

Ashley A. Smith, excerpt reprinted from Inside Higher Education

The large for-profit college chain isn’t dead.

Stop the funeral dirges — or celebratory hymns, depending on where you fall on the political spectrum.

Yes, Corinthian Colleges hit bust. Yes, ITT Education Services is facing serious scrutiny from state and federal agencies that may yet shut down the chain. Yes, the new federal gainful employment rule will have an effect on the sector. And certainly enrollment numbers at many for-profit institutions are dropping. But the industry’s heralded doom is an exaggeration.

If anything, experts say it’s a course correction amid a climate of intense scrutiny and increased regulation.

The decline is undoubtedly happening. According to the National Student Clearinghouse Research Center, for-profit student enrollment is down 4.9 percent compared to last spring. The enrollment decreases are playing a large part in driving down revenues and stock prices.

“It’s shrinking. Has been shrinking. Will continue to shrink. Things are getting less worse, but stabilization is a ways off,” said Jeff Silber, an education financial analyst with BMO Capital Markets.

But the demand for for-profit institutions is still there, even as enrollments fall from their peak in 2010, said Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities (APSCU) — the for-profit sector’s primary trade group. In 2012, approximately 3.5 million students attended for-profit institutions. That figure is lower than the 4 million students who were enrolled in 2010, but still higher than the 2.6 million figure in 2007, Gunderson said.

Yet the massive changes in the sector have even shaken up APSCU, which is shifting to focus less on large for-profit chains and more on the nonprofit education sector as a few high-profile members leave the association. (See related article about its future.)

For-profit colleges have been around for at least 100 years in some form or another, but the current-day institutions are unique in that they’ve been providing degrees rather than the certifications granted by truck-driving or beauty schools, said Kevin Kinser, chair of the department of educational administration and policy studies at the State University of New York at Albany and an expert on for-profit higher education.

“What we might see is not the demise or complete collapse of publicly traded institutions, but a different focus for them,” he said. “A niche focus for them … a shift from degree granting to service providers. Maybe they have a higher education institution as part of the portfolio, but the portfolio is in the education service realm.”

Both Capella and Strayer Universities have managed to buck the trend of losing money and students by focusing on approaches experts say will keep the industry alive in the future. For instance, Capella has specialized in graduate degree programs for a long time, which has made them one of the more respected providers in the industry. Strayer found success in part through its partnerships with corporate clients.

“Predictions of the demise of the major publicly traded for-profit universities, colleges and education providers would be premature,” said Gary Rhoades, a professor and director of the Center for the Study of Higher Education at the University of Arizona. “But it is clear that a combination of consumer skepticism, competition from not-for-profit colleges and universities, and consumer protection actions by federal and state governments have reduced, not just market share, but also the image of for-profit higher education.”

If anything, the for-profit sector appears to be in the bust period of its regular boom-and-bust cycle. The last time the industry was in this level of turmoil was 25 years ago, when the government instituted tougher regulations and the sector readjusted, Kinser said. For-profits increased their enrollments dramatically in the 1980s and concerns arose around students defaulting and the amount of aid going to those colleges. So the federal government stepped in to regulate just how much federal money could go to for-profit institutions, among other things, he said — although many of those regulations were rolled back in the 2000s under the George W. Bush administration.

But the current bust cycle is more noticeable now than in the late 1980s and early 1990s because of how much larger the sector has grown. For-profits grew to take up about 10 to 13 percent of the education marketplace and also began offering more degrees, Kinser said.

“For-profits up until the 1990s were still predominantly non-degree-granting institutions … then we saw the transformation of the for-profit sector into the degree-granting sector and that’s why it became so prominent. It touched on what most people think of as actual college,” he said.

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