For-Profit Colleges in Financial Trouble

story first appeared in The Wall Street Journal

As consumers wise up about education spending, for-profit colleges are getting schooled.

Institutions such as Apollo Group Inc.'s University of Phoenix, DeVry Inc. and Washington Post Co.'s Kaplan—who only a few years ago reported double-digit student gains on a regular basis and posted hundreds of millions in profits—now are hemorrhaging students.

The storm was supposed to have passed for for-profit colleges when proposed regulations restricting access to federal student aid were watered down, and then overturned earlier this year. But some schools are still hurting, and it looks like the pain won't let up any time soon. Successful schools are often invested in new technology fields, offering concentrations in things like Wind Turbine Repair and Solar Panel maintenance.

They are facing increased competition from nonprofit and state schools and growing skepticism about the value of a high-cost education. Just last week, industry bellwether Apollo said it would close nearly half of its brick-and-mortar locations to save on overhead.

It wasn't supposed to be this way. After years of government scrutiny and bad press about recruiting practices and questionable academic quality, schools worked to improve their reputations by tightening admissions standards, beefing up student support services and pouring money into rebranding. They received a slight reprieve this summer when a federal judge struck down a series of regulations that could have restricted schools' access to the federal student aid that supplies most of their revenue.

But the hoped-for recovery has failed to materialize as students rethink college entirely, and nonprofit schools muscle in to compete for market share.

Now, some analysts say pockets of the industry may never recover, with school closures and further losses all but certain.

Under the old model, schools boosted enrollment by getting students—generally working adults seeking a quick career jump-start—in the door, often with little regard for whether they eventually earned a degree.

Kevin Kinser, an associate professor of higher education policy at the State University of New York at Albany said that colleges could be very profitable as a business, even if not as an educational institution.

No longer. Apollo said last week that enrollment fell by nearly 14% to 328,400 in the fiscal quarter ended Aug. 31. Student counts have dropped by nearly a third since their May 2010 peak of 476,500. The school says the money saved from closing classrooms will be rededicated to its online programs.The school blames its dwindling enrollment in part on increased competition from more traditional education providers, as well as the fact that many potential students don't move beyond University of Phoenix's free "orientation," a trial period of instruction before tuition is due, spokesman Mark Brenner says.

The economy has also put pressure on schools, which normally benefit from economic downturns as adults seek to bolster their résumés with new skills and degrees. This time around, the weak job market coupled with rising college costs has made many prospective students leery of investing in school without guaranteed returns.

The U.S. Department of Education recently reported the first drop in college enrollment in more than a decade—albeit one of less than 0.2%—based on data for students enrolled in fall 2011. But for-profit colleges saw enrollment fall by 2.8%.

Meanwhile, as states seek to reduce government spending, legislators see financial aid that ends up at for-profit schools as an easy target for cuts. In California, lawmakers this summer decreed that students at 154 schools—nearly all of them for-profit colleges—will no longer be eligible for the state's need-based Cal Grants, citing the schools' low graduation rates and students' heavy debt burdens.

To boost graduation rates and keep student-loan defaults in check, Apollo and peers are now competing for higher-quality students who have a better shot of graduating. But nonprofit schools are successfully courting the same market segment, with more students turning to online degree programs at schools including University of Maryland University College, Southern New Hampshire University and Liberty University, which don't have the reputational baggage for-profit schools do.

That leaves for-profit colleges fighting for an even smaller sliver of a shrinking pie.

Piper Jaffray analyst Peter Appert says nonprofit institutions have been slow to make a meaningful shift online, but now that they have, students are paying attention and there is a "sea change" in the market.

Enrollment in the online arm of Southern New Hampshire University, which has a ground campus in Manchester, N.H., more than doubled from last October, now hitting 16,700. University of Maryland University College, meanwhile, saw enrollment in its online programs increase by 5% in the last year, to 97,001 students.

Not all for-profit colleges are struggling. Some specialized and niche schools are still posting gains. Grand Canyon Education Inc., a Christian school with a traditional campus in Arizona and online operations, has seen enrollment soar by 60% since 2009, hitting 44,435 as of June 30. And American Public Education Inc.,  which targets people in the military and public safety, increased course registrations by 45% to 92,900 in that time. Michigan child abuse defense attorney programs are holding steady.

But another dark cloud looms: The Education Department says it is considering its legal and regulatory options in the wake of the July court decision striking down parts of the so-called "gainful employment" rule, which aimed to evaluate programs on how well they prepare students for employment, though industry insiders say it is unlikely much will happen in Washington until after the election.

Still, many institutions are under close watch. ITT Educational Services Inc. and Corinthian Colleges Inc. have both notified investors of a broad inquiry by the Consumer Financial Protection Bureau, while Universal Technical Institute Inc.and Bridgepoint Education Inc. have disclosed U.S. Department of Justice investigations into how schools incentivize staffers to land new students.

Robert Danford fits the profile of the typical for-profit customer. When the 24-year-old was looking for a program in graphic design this fall, he considered Career Education Corp.'s Collins College, where he had briefly studied a few years earlier. But he says the sales pitch and high cost—he says he took out $12,000 in loans for his first stint there—soured him on the school.

A Career Education spokesman says the school's admissions officers are trained on integrity and not to promise outcomes or access to financial aid when working with prospective students.

Mr. Danford enrolled instead in the nonprofit Chandler-Gilbert Community College in Chandler, Ariz., where he is paying a few hundred dollars per credit hour and takes courses part-time while working at a nearby Office Max. He says he intends to earn an associate degree and hopes to enroll in a bachelor's degree program down the line

Out-of-State College Students Flock to North Dakota

Story first appeared on WSJ.com.
A high school senior from Connecticut took a coast-to-coast tour of 10 public universities, bearing acceptance letters from each. She fell in love in Fargo.
She is evidence of an unlikely trend: the growing allure of higher education in North Dakota. The state ranks 48th in the U.S. at attracting tourists. Its young people routinely flee for warmer or more exciting places. The private sector here, struggling to lure sufficient numbers of workers from elsewhere, is wrestling with labor shortages even amid national unemployment around 9%.
Compare numbers and percent of in- and out-of-state students.
But college students are flocking here in ever greater numbers. Out-of-state students account for about 55% of the 14,500 enrolled at North Dakota State University, as well as at similarly sized University of North Dakota in Grand Forks. Nonresident students at North Dakota's 11 public colleges constitute a higher ratio than in almost every other state.
High school juniors and seniors scouring online college guides find North Dakota universities are inexpensive and well-regarded, with modest-sized classes typically taught by faculty members rather than adjuncts or graduate students.
One California resident found it online, showed it to her Dad and he was impressed. She has since graduated in May from North Dakota's Valley City State University, where her younger brother is now enrolled. For California residents, North Dakota colleges cost about $10,000 a year in tuition and fees compared to about $12,000 in the University of California system.
Many students hail from states far beyond the region. Floridians numbered 182 in 2010, up from 37 in 2000. During the same period, international enrollment rose to 1,600 from 1,125.
This isn't happening by accident. A dozen years ago, a years-long decline in the number of state high school graduates was accelerating. Faced with the prospect of closing academic departments or entire schools, university leaders instead moved to attract more students, particularly from beyond state borders.
The state poured money into improving academics. In the National Science Foundation's rankings by federal research expenditures—a key measure of prestige for research universities—North Dakota State and University of North Dakota each jumped ahead of more than 30 other institutions over the past 11 years, to the 147th and 143rd spots, respectively.
While improving its schools, North Dakota kept tuition low. In recent years, state revenues gushing from an oil boom in western North Dakota have given the state more resources to lure nonresidents.
The result: Even as the number of North Dakota high school graduates fell below 7,400 in 2010 from 9,058 in 2000, enrollment at public colleges surged, climbing 38% in the decade ended in 2010, to 48,120. Leading that growth was a 56% jump in nonresident students.
Out-of-state students who have stayed after graduation have helped reverse a decades-long population decline, with North Dakota now on the verge of breaking its 1930 record of 681,000 people.
Out-of-state students fill both classrooms and budget holes. Traditionally, states charge nonresidents tuition and fees as much as triple that charged to residents. The premium is especially tempting now as state legislatures nationwide slash outlays for higher education.
Facing a funding cut of $650 million or more, the University of California system sent a record 18% of its undergraduate admission letters for the upcoming semester to non-residents, up from 12% in 2009. One goal: to collect a $23,000 premium imposed on out-of-staters, bringing their annual tuition-and-fees to about $35,000.
Luring nonresidents is growing more crucial as the demographic dilemma North Dakota confronted years ago spreads to other states. Due to population shifts, 27 states will see declines in home-grown high-school graduates in the next five to 10 years, says a recent report from the U.S. Department of Education.
As public colleges and universities battle across state lines, there will be winners and there will be losers. Among probable winners will be academically elite public colleges such as some in California, Texas, Michigan, Virginia and North Carolina, along with colleges in tourist destinations such as Arizona and Colorado.
Touting both advantages is Vermont, the nation's top nonresident magnet. A once-private public college that offers academic cachet near wooded hills laced with ski slopes, the University of Vermont draws 75% of its freshman class from other states, even though it charges nonresidents tuition of $32,500, about $20,000 more than residents pay.
The battle could be fiercest for a type of enrollee who until now has gone largely unnoticed: the out-of-state bargain hunter. Although many public colleges have long offered out-of-state tuition below $20,000, few have advertised it, largely to avoid antagonizing state lawmakers who believe state schools should serve state residents.
But political opposition is generally waning amid the depleted budgets and declining high school grads. Caps on nonresident enrollment are loosening in many states. A recent press release from San Diego State University, touted its nonresident rate of under $16,000.
No place has proved more popular with bargain-hunting nonresidents than flat, cold, landlocked North Dakota.
The state has a long tradition of spending generously on higher education. Some in the heavily Republican state have complained that it is academically socialist. To make sure no North Dakotans had to travel far to attend college, the state has 11 public colleges, including half as many four-year institutions as Minnesota—a state with eight times as many people.
In 1999, the state legislature assembled a committee of 63 leaders of government and business to debate whether to cut classes and departments. After all, North Dakota in 1999 produced fewer than 9,000 high school graduates, down from 10,740 in 1980.
In the end, however, the so-called "Roundtable" committee vowed to bolster their university system in a bid to exploit its potential as an economic development asset. All along, North Dakota's 11 public colleges had provided economic stability to up-and-down agricultural towns like Mayville and Dickinson.
In a May 2000 report, the committee laid out a plan to attract ever-greater numbers of nonresident students to North Dakota universities, and help those universities spawn private enterprise that would hire those students upon graduation. Higher education would become a primary engine in reversing the state's economic and demographic woes.
A key to attracting out-of-staters was undercutting other states on price.
The highest-priced public colleges in North Dakota—UND and NDSU—officially charge nonresident students about $17,000 in tuition and fees. That's half what nonresident students pay at many public colleges elsewhere. And it's less than some in-state rates at public colleges in places like Illinois and Pennsylvania.
But as it happens, few nonresidents at UND or NDSU pay anywhere near that rate. That's because North Dakota belongs to consortiums in which it and about 20 other states agreed to charge each other's students no more than 1.5 times in-state rates.
As others raised tuition, North Dakota held its price down. In many cases, North Dakota waived the premium, enabling out-of-staters to enroll full-year for about $7,000, lower than resident tuition in most other states.
Traffic charts of higher-education consortiums in this region show heavy student migration toward North Dakota. In a Midwest student-exchange program in 2009, North Dakota enrolled 557 students from Wisconsin, Missouri, Nebraska and three other neighboring states, while losing only 39 North Dakotans to the bunch of them.
A Western consortium of 15 states including California, Oregon and Arizona delivered 1,604 students to North Dakota in 2010, while attracting only 367 North Dakotans.
Especially productive is North Dakota's reciprocity agreement with Minnesota next door. In the school year ended in 2010, 8,381 Minnesotans studied in North Dakota, compared with 4,781 North Dakotans going the other way. Minnesotans can enroll at North Dakota State or University of North Dakota for tuition of about $7,200, compared with in-state tuition at the University of Minnesota in Minneapolis of about $10,000.
For other states, competing with North Dakota on the cost of education is difficult. As other states battle budget shortfalls, oil revenues this past year enabled North Dakota to run a billion-dollar surplus, and to fund a 13.4% increase over two years in appropriations to the North Dakota university system. That followed higher-education budget boosts of 20.6% in 2009 and 13.5% in 2007.
The increases help keep tuition low while paying for improvements. As its enrollment grew by nearly 50% in the past 11 years, North Dakota State more than doubled its doctorate programs, to 44 from 18.
Its annual research expenditures have climbed to $120 million from $45 million a decade ago. In February, the Carnegie Commission on Higher Education reclassified the school as a "very high research activity" institution, placing it among the nation's top 108 private and public universities.
The influx of out-of-state students to the school has benefited Fargo's economy. North Dakota research indicates that about 39% of nonresidents remain in the state at least one year after graduation. The city's population has risen to 105,000, 16% higher than in 2000, and an array of defense, medical, computer science and other firms have sprouted along the Red River corridor stretching north to Grand Forks and UND. City leaders say that its image finally is recovering from the Oscar-winning 1996 film "Fargo," which described it as "the middle of nowhere."
After graduating from North Dakota State in 2010, a Sri Lanka native started working as an engineer at Pedigree Technologies, an information-technology firm, founded by a 1997 graduate.
To recruit in other states, both UND and North Dakota State spend on advertisements in magazines and on cable channels such as Comedy Central. Each also has stationed a full-time recruiter in their largest out-of-state market, Minnesota's Twin Cities.
Increasingly their reach is extending beyond the Great Plains and Mountain West.
As a senior at Miss Porter's, the 168-year-old Connecticut boarding school, one student learned about North Dakota State during a computer search for undergraduate programs in zoology.
She chose it over nine other schools because of the beauty of its tree-lined campus and the personal attention she received from the zoology faculty during her visit. Also, she says, Downtown Fargo has the restaurants, the coffee bars, the cultural stuff she wants.
The aspiring marine veterinarian was delighted that the school helped her obtain summer internships at aquariums in Rhode Island and Florida.

Reduced Tuition For University Law Students

NY Times

Costs are rising rapidly throughout the University of California system, but its newest law school, at Irvine, announced this week that the 80 students chosen for the second entering class will get privately financed scholarships covering at least half their tuition for all three years.

Irvine’s inaugural class of 60 students, who arrived in August, received full scholarships for all three years — a deal that helped Irvine attract so much interest that it accepted only 4 percent of its applicants, making it the most selective law school in the nation in its very first year.

“Obviously we can’t keep these scholarships going forever,” said Dean Erwin Chemerinsky, “but I think we need to keep it going till we’re established as a school, so that we keep getting these high-quality applicants.” The law school is not yet accredited.

Most of the scholarship money, Mr. Chemerinsky said, comes from Southern California lawyers. Just last week, Mark Robinson, an Orange County trial lawyer who had donated $1 million for the inaugural class, made an additional $400,000 contribution.

Tuition for the 2010-11 year is expected to be about $40,000 for California residents and about $50,000 for out-of-state students, an increase of more than 10 percent from this year.

Mr. Chemerinsky, who formerly taught at Duke University law school, said that the quality of this year’s applicants was at least as strong as last year’s — and that with this week’s scholarship announcement, he expected a surge of new applications before the Feb. 15 deadline.

“One recruiting advantage we have this year is that we have these great students here now,” he said.

Mr. Chemerinsky got off to a rocky start at Irvine. He was hired to be the dean in September 2007 — and fired a week later amid complaints about his outspoken liberal views. That reversal sparked further protests, and several days later, the chancellor, Michael V. Drake, flew to North Carolina, and rehired him.

“There’s been no problem since then,” Mr. Chemerinsky said. “The chancellor and I co-taught a freshman seminar, and he could not be more personally supportive of me, or institutionally supportive of the law school.”

Going To College And Going Broke

From Business Week

Cash-strapped families were dealt another blow this fall as tuition at public and private colleges for the 2009-10 academic year continued to outpace inflation, the College Board said in a report released on Oct. 20.

This year's College Board report shows average increases of 6.5% for public in-state tuition and 4.4% for private colleges. The consumer price index declined 2.1% between July 2008 and 2009, meaning that inflation-adjusted increases in prices this year are significantly larger than current dollar increases, the College Board says. At the same time, family net income has barely budged over the past decade, says Sandy Baum, a senior policy analyst with the College Board.

"The struggle of families to pay for college is largely attributed to rising prices, but also to the fact that incomes are simply stagnating," Baum says. "Families are facing these prices with incomes that are not making any progress at all,"

The spiraling cost of higher education comes at a time when institutions are reeling from the aftershocks of shrinking state aid, battered endowments, and significant budgetary pressures. Schools managed to temper some of these increases by doling out more institutional aid and grants to students, a move that made the sticker price less painful for the 18.5 million students projected to attend college this year. Last year, about two-thirds of full-time undergraduates received grants, with students receiving on average $5,041 in grant aid, up from $4,656 the year before, the report says.
Tuition hikes: the main budget option

That aid barely softened the blow for some students, especially those attending public schools, where for the second consecutive year tuition and fees rose faster than those of private schools. In such states as California, Washington, Florida, and New York, public schools raised tuition by more than 15%, he says. Other states, like Maryland, were able to keep tuition at steady levels.

"Once you get past budget cuts such as program reduction, layoffs and furloughs—the order of the day at just about every institution—you're really only left with tuition, " says Terry Hartle, a senior vice-president of the American Council on Education. "That is acting as a fiscal balance wheel at many institutions, making up the difference between lost revenue from other sources and the funding they can't come up with."

The average annual in-state tuition and fees at four-year public colleges for the 2009-10 academic year is $7,020, up $229 from last year. Those numbers don't include room and board, which adds another $8,193.

"This is certainly higher than most of us like to see, but is lower than we might have feared, given the current state of the economy and what we experienced in past recessions," Baum says, noting that in past recessions the average price increase for public colleges was sometimes in double digits.
accelerating prices at public schools

This year's 6.5% tuition increase for public colleges is almost identical to last year's increase (6.4%), but it's particularly worrisome because of the long-term trend, Baum says. From 1979 to 1989, the price of attending a public four-year institution went up in inflation-adjusted dollars at an annual rate of 3%, increasing to 4% from 1990 to 2000—and, for the most recent decade, nearing 5%.

"At public four-year colleges, we've seen a rapid rate of increase in prices and that trend has been exacerbated in recent years," Baum says.

That's the exact opposite of what has been happening over the long-term at private colleges, which have seen dips in the rate of increase of published prices. For example, the annual inflation-adjusted cost of attending a private school in the last decade has gone up just 2.6% a year, a decline from the 1980s, when the average price increase stood at 4.7%, the report says.

This year, however, costs at private universities continued to rise, with published tuition and fees for 2009-10 averaging $26,273, a $1,096 increase over last year. When $9,363 in room and board costs are tacked on, the annual sticker price totals $35,636.

Private schools have been especially intent on keeping the price of college affordable for students this year, says Baum. Many top-ranked schools have introduced programs in the past two years that make college more affordable for families earning in the low six figures, And this has led other institutions to offer comparable packages to middle-class families.
Private schools boosted student aid

"Private institutions are concerned under the current economic climate, where many students and families are price-sensitive," Baum says. "I do think that over time there has been an accumulating awareness at these schools that they have to do something to decrease the rate of growth."

Tony Pals, a spokesman for the National Association of Independent Colleges and Universities, which represents more than 1,000 institutions, says the nation's colleges and universities have indeed become more affordable. Despite falling endowment values and a decline in fundraising, schools sought to make the price of college more affordable for students by cutting staff salaries and benefits, delaying construction and renovation projects, and cutting back on travel. By doing this, they were able to increase institutional student aid for students by 9% and maintain enrollment levels this fall, he said.

"What happened was that institutions had to cut deeply into certain areas of their budgets and transfer those savings over to institutional aid," Pals says. "The overall impact was to keep higher education affordable to students from all backgrounds."

Institutional grant aid and merit-based scholarships played an important role this year in determining what most students pay for college—a figure called the "net price" that is often sharply different from the published tuition prices listed by schools. The net price is what the average student pays after grants, student aid ,and tax benefits are factored into his or her college bill.

At four-year public colleges and universities, students on average receive about $5,400 in aid, bringing the average tuition cost to around $1,600 a year. At private universities, aid totals around $14,400, bringing the average annual tuition to about $11,900.

Public four-year colleges sought to increase the amount of student grants this year, distributing about two-thirds of grant dollars without regard to financial need, according to the College Board report.
Losing "well-qualified" students?

Lauren Asher, president of the nonprofit Institute for College Access and Success, which runs the Project on Student Debt, says she finds this trend worrying,

"Economic constraints can lead well-qualified students to lower their academic aspirations or give up on college altogether without adequate aid," Asher says in a statement. "It is particularly disturbing that public colleges are using such a large share of their financial aid resources for so-called 'merit aid' in these tough times."

While many students were able to pay for college with the help of grants from schools, a majority still depend on student loans to cover the remainder of the tuition bill. Total education borrowing increased 5% from the 2007-08 academic year to 2008-09, the latest year for which figures are available. Federal student loan borrowing increased by $15 billion while non-federal borrowing, or private loans, declined by $11 billion, a 50% decline from 2007-08.

Private lending decreased sharply because of the turmoil in the financial markets, ,which caused many private lenders to close up shop or impose stricter credit requirements. As a result, more students than ever are turning to unsubsidized federal Stafford loans, which in 2007-08 totaled $38 billion, up from $29 billion the year before. Education advocates say they see this as a positive development for students because of the lowest interest rates and more favorable repayment options that come with federal loans.

"The private loan capital for higher education may well be drying up," says Hartle. "This is intriguing because it seems like a fundamental shift."