The Sunset of Private-for-Profit Education?

The University of Phoenix, the nation’s largest post-secondary institution, is quietly shutting down campuses in cities across the country.

This week, the U of P said that they would shut down campuses and learning centers in Ohio, New Mexico, and Hawaii. These closures are part of a big new plan to shutter 115 sites across the country. Those locations currently count approximately 13,000 students on their rolls.

Schools like the U of P, DeVry, or ITT Tech are not financial institutions and BankTalk is not about education. Still, it is hard to ignore the crossover. If you can acknowledge that some members of the unbanked come disadvantaged and/or non-traditional households, then you are halfway there to seeing the connection. Private for-profit schools are more likely to enroll students that are minorities, who live at or below the poverty line, who grew up in households that rented, or are from families with less than ten thousand dollars in assets. More students at private-for-profit schools have a GED (as opposed to a high school diploma) than do students at other types of institutions.

They also serve people with complicated lives: more are likely to have dependents, to file as “independent” on their taxes, or to begin school at or above age 21.

No one disputes that graduation rates across the  PFP sector as whole are much lower. The question really comes down to why: are the rates lower because of the nature of the student bodies or is it because of the schooling provided? The University of Phoenix is hardly different. Recent data from the National Center for Education Statistics (“NCES”) finds that most of the U of P campuses had graduation rates below 30 percent.

Some schools use this demographic mix to argue that they should be held to different standards when it comes to expectations about graduation rates. Another trope is that finances, and not factors of institutional quality, explain distinctions in graduation rates.

The U of P cites emphasizes the latter constraint in its 2010 Academic Annual Report:

“Their progression is not linear or orderly and is complicated by a variety of life factors (i.e. risks)….for these students, measures such as graduation rates are not the best indicators of institutional success….Because money and finances account for the majority of college dropouts, graduation rates are a misleading metric of institutional academic quality.”

In my opinion, the report makes for fascinating reading. The U of P is under no obligation to prepare such a report and few of its PFP peers go to a similar effort.

Nonetheless, the U of P still charges plenty for tuition. The web site for the Raleigh campus estimates that a year in its Associate of Arts with a concentration in Foundations of Business program will cost $23,500 per year, not including room and board or “other expenses.” The total with those other items then comes to $55,102 per year.

The net result is that these students become a factory for student loans. Yes, a share of tuition for low-income students will be borne by Pell Grants and it may be complemented by other grant sources. Even so, at its Raleigh campus (2009 completions per 100 FTE: 26.9, 85.1 percent minority student body) 86 percent of students took out a loan in 2009. That data comes from NCES.

It is hard to tell what it will mean when so many campuses shut down. In general, enrollment at the U of P has been falling so it could be a case that its capital investment in classroom space is being under-utilized. The largest campus at the U of P is its online division. I see that the schools says it will keep the doors open for its current students. No doubt investors have already come to their own conclusion: APOL shares have fallen from the 80s to $20.81 as of today in just the last three years.