Years of record enrollment growth at for-profit colleges may be coming to an end.
New student enrollments have declined at many for-profit institutions, according to earnings reports released over the past few weeks.
When compared to last year’s figures, new student enrollment was down 2 percent at Strayer Education and down 3.9 percent at ITT Education Services. Corinthian Colleges said it expected declines of 5 to 7 percent this year, while DeVry and Capella Education both announced expectations that new enrollment would drop slightly.
The decline in new student enrollments was most severe at the University of Phoenix, the largest for-profit college in the nation. Although the Apollo Group, the University of Phoenix’s parent company, said that new enrollment had fallen 10 percent in the quarter that ended Aug. 31, the company warned that numbers could sink more than 40 percent in the quarter ending Nov. 30 (“As For-Profit Colleges’ Enrollment Growth Slows, Analysts See Signs of an Industry Reset,” The Chronicle of Higher Education, Nov. 11, 2010).
Representatives for many for-profit institutions are linking the slowing enrollment numbers to the marketing and recruiting changes the schools are making in order to comply with new government rules that regulate access to Title IV federal financial aid, which includes federal grants and federal student loans.
One rule, which is already scheduled to go into effect, extends the period after graduation during which student loan defaults are measured by the U.S. Department of Education from two to three years, making it harder for for-profit colleges to demonstrate sustained acceptable student loan default rates that are low enough for the schools to remain eligible for federal financial aid.
Another rule, referred to as the “gainful employment” rule, is a proposed regulation that creates a debt-to-income ratio that ties for-profit colleges’ access to federal financial aid with the ability of students to find employment and successfully make payments on their federal student loans after graduation. For-profit colleges have lobbied heavily against the gainful employment rule, and the Education Department has delayed final language on the rule until early next year.
Student Loan Regulations Spurred by Schools’ Deceptive Practices
The student loan default rules were developed in the wake of heightened federal scrutiny of for-profit colleges, many of which get nearly 90 percent of their revenue from federal grants and federal student loans. Under the government’s so-called “90/10 rule,” at least 10 percent of a for-profit school’s revenue must come from non-federal sources, such as upfront cash tuition payments and private student loans.
Federal inquiries came to a head this summer when an undercover investigation by the Government Accountability Office found widespread deception by recruiters, admissions officers, and financial aid officers at for-profit colleges. There have also been Senate hearings — the third of which is scheduled for December — and state probes into reports of student-recruiting abuses.
For-Profit Colleges Step Up Screening of Students
As a result of the new financial aid rules, for-profit colleges are becoming more selective about the students they enroll.
“Colleges are paying much more attention to the students they bring into their doors because they’re going to be accountable for them,” said Kevin Kinser, who studies for-profit higher education as a senior researcher at the Institute for Global Education Policy Studies at the University at Albany.
Some of the changes made by the larger for-profit schools include offering free orientation periods during which students and colleges can evaluate each other before either party makes a commitment; providing financial-literacy training to deter excessive student loan borrowing; and no longer enrolling “ability to benefit” students who lack a high school diploma or GED but pass a basic skills assessment test to qualify for federal financial aid.
Ability-to-benefit students tend to default on their student loans at twice the rate of other students.
Ariel Sokol, an analyst with UBS Securities, told The Chronicle of Higher Education that the decline in new student enrollments at for-profit colleges throughout the industry is “an appropriate contraction,” considering the confluence of political, regulatory, and financial pressures and the explosive growth in enrollment rates that the for-profit industry has enjoyed the last few years.
The enrollment growth rate at for-profit colleges was 17 percent in 2008 and 28 percent in 2009, compared with a historic growth rate of between 10 and 11 percent, according to Jerry R. Herman, an analyst with Stifel Nicolaus — a surge that Herman sees as “unsustainable growth.”
In the end, Sokol said, the financial and regulatory pressures could “weed out the bad actors that don’t have the appropriate cost structure or the appropriate business model to serve the student population” that they choose to recruit.
Further Reading
Epstein, Jennifer. “Closer Look at ‘Gainful Employment.’ ” Inside Higher Ed. July 26, 2010.
U.S. Department of Education. “Gainful Employment Proposed Rule.” Federal Register, 34 CFR Part 668. July 26, 2010.
U.S. Government Accountability Office. “For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices.” Testimony submitted to the U.S. Senate Committee on Health, Education, Labor, and Pensions. August 4, 2010.
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