Monday, February 08, 2010

For-Profit Colleges Change Higher Ed's Landscape

Interesting article in today's
Chronicle of Higher Education, here are some excerpts:
At a time when American public higher education is cutting budgets, laying off people, and turning away students, the rise of for-profit universities has been meteoric.

Enrollment in the country's nearly 3,000 career colleges has grown far faster than in the rest of higher education—by an average of 9 percent per year over the past 30 years, compared with only 1.5 percent per year for all institutions, according to an industry analyst. For-profit universities now educate about 7 percent of the nation's roughly 19 million students who enroll at degree-granting institutions each fall. And the proportion rises to 10 percent, or 2.6 million, if you count students who enroll year round. Just this academic year, the University of Phoenix eclipsed California State University as the second largest higher-education system in the country, with 455,600 students as of this month—behind only the State University of New York.

Proprietary schools charge a lot more than public colleges—an average of $14,174 this year, compared with $2,544 at public two-year institutions and $7,020 for in-state tuition at public four-year institutions, according to the College Board. But students frequently choose proprietary schools over public colleges because for-profits do so much to limit the hassle of enrolling and applying for aid, and because students can take the classes they need quickly and get on with their lives.

The biggest player among those is the Apollo Group. Its flagship University of Phoenix has morphed from an institution with 25,100 students in 1995 to one with 455,600 today. That means that 15 years ago Phoenix was about the same size as George Washington University. Now it is larger than the entire undergraduate enrollment of the Big Ten.

The stocks of publicly held for-profit education companies have outperformed the Standard and Poor's 500 by about 40 percentage points in each of the past two years. And companies like Stifel Nicolaus that analyze the market predict that the sector will continue to enjoy a "significant tailwind." Indeed, BMO Capital Markets predicted in the fall that revenue from the for-profit sector would rise by 10 percent per year through 2014.
MP: The chart above (
data here) shows the 600% increase in the Apollo Group's stock (University of Phoenix) since 2000, compared to the flat return for the S&P500.


At 2/08/2010 11:48 AM, Anonymous gettingrational said...

I went to the Apollo Group website to look at the 2008 annual report and discovered a mention of InSight High Schools. This is a growing subsidary with a presence in 11 states and is tuition free!

InSight high schools offer 110 on-line high school courses. Each student has an adult imentor and 24/7 on-demand academic tutoring when a teacher is unavailable. They even have a special education team.

For the math challenged state of Washington all a student needs is 5th grade compentecy to enter InSight. Apollo college students have an outstanding record of improving math skills so it would seem promising for InSight high schools.

At 2/08/2010 2:26 PM, Blogger James Fraasch said...


Cool stuff. As a school board member that sort of thing scares the daylights out of me. In PA we spend about $15,000/student per year. Tuition at $1900/year for full time high school students is really something!


As a District we are embarking on a $100+ million high school project. Maybe I should propose just sending them all to this place.


At 2/08/2010 2:58 PM, Anonymous Norman said...

I think these For-Profit 'colleges' take in a lot of students that get loans from the government which they then default on at a huge rate. If this is true then like the government induced housing bubble these 'colleges' are getting the same type of wind to their backs and it will be unstainable. What the government giveth the government taketh away. Extrapolate growth at your peril

At 2/08/2010 5:15 PM, Anonymous Disagree said...

Oh please! Any successful startup (viewed in hidsight) is going to outperform the broader market in terms of growth rates. A single corporation has a steep growth curve from nothing to something and marginal growth rates diminish with a fixed scale. Over the course of ten two twenty years, scale has advanced which gives further growth illusion. There is survivorship bias in any such analysis.

Seldom do much-vaunted growth rates measure risk and liquidity along with them. Amazon couldn't generate revenue for years and they are lucky that their first-mover advantage effectively precluded replication of their business model.

There are tons of money in proprietary education, but do you have any idea how it's funded? It's funded by students being MAXED OUT in government student loans and government grants as well as Parents loans and work. Many of these students leave two-year proprietary trade schools with $50,000 in student loan debt and low-paying jobs.

Uncle Sam defers their interest and principal payments, gives them tax deductions for interest, and sucks up the costs when they default.

Again, leave it to a clueless libertarian to jump for joy over a "free market" business thriving only because of government expenditures, excessive debt, and imprudent risk taking.

At 2/08/2010 6:22 PM, Anonymous Lyle said...

A better price comparison would be with the rack rate at private colleges. That takes the state subsidy out of the picture. It should be noted that the for profit schools don't offer a lot of areas being mostly about business admin,nursing, education, criminal justice and technology. No basic sciences i.e. physics or biology degrees, and likewise no humanities, arts, or social sciences (the latter because the degrees in the arts are essentially not income enhancing). What the for profit schools are doing is saying get our degree to up your earning power.
This then comes to the issue of what is an education for, a glorified technical school, or a broadening experience.
It does suggest that if you want to get an education for as a job credential particularly if you are not in the 18-24 year old range its the way to go. (Its interesting that universities are going wide scale with some programs in the MBA area for example, and for some of the programs community colleges are competitors.
The real question is long term how will education be affeced by the online revolution, its problem is that traditional modes have not had any productivity improvement in the last 100 years, its still basically the same lecture and discussion format. One way to cut costs is to id great teachers in subjects and let their lectures be used at multiple colleges, with local discussion leaders and graders.
As an example if he were still alive let Richard Feynman teach the national intro physics course, (at the level of his text book) and replace all the intro lectures nationwide with that.

At 2/08/2010 6:42 PM, Blogger OneCleverCookie said...

While they are raking in the dough at present, please be advised that these private schools are doing so at the tax payers expense. The vast majority of these "for profit" colleges offer a curriculum that isn't as valuable to its students as a cosmetology degree from a vocational school. I am all for private education, but it should be private and independent from the tax payer, and this includes the funding of the student loans which under the current administration the students wouldn't have to repay.

At 2/08/2010 7:15 PM, Anonymous Disagree said...

Lyle and Smart Cookie:

You are correct that many of these kids get glorified Vo-Tech degrees. Some of them make excellent post-graduate salaries, particularly the mechanics, nurses, and chefs. My points are 1) most of them do not and 2) they achieve this through huge govt subsidies.

If government didn't have these monstrous loan programs, perhaps tuition would be cheaper at these schools. But it would also shut out a lot of students and threaten the business model. Proprietary schools in expensive cities would have to shut down or relocate.

They are all moving more toward online education to cut back on costs of brick and mortar, but schools for nursing, auto repair, massage therapy, etc will not be able to do that. Ironically, those are the most valuable degrees these schools produce.

UofP degrees are garbage. They are used mostly by people in GOVERNMENT (teachers, soldiers, cop, federal employees) to gain pay raises through degree advancement. This is another hidden cost to taxpayers of these types of schools.

It's not that the education model CAN'T produce good educational outcomes, they just fail to because of student and teacher apathy and the mediocrity compact.

BTW, I was a teacher, online facilitator, and Academic Director at one of these schools so I know what I'm talking about. My wife teaches nursing at a proprietary school and her cousin is a Dean at another one. The pay is very low except for Admissions staff, Financial Aid staff, Campus Directors or Presidents and the Corporate Staff. Admissions can make almost as much as a President if they drag in lots of warm bodies with student loans.

At 2/10/2010 12:29 AM, Anonymous Ian Random said...

Intel dropped support for UOP awhile ago. Even though I've not heard good things from them, they have seemed to push public institutions to get online and offer a discount over their drunken student tuition. As soon as I sort out my immune system problems, I am serious looking at a public institution online for a bachelor's in underwater basket weaving. Despite having enough credits for a Master's degree, HR wants a piece of paper.


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