For-profit colleges: It’s all about the $$$

16 Oct

Moi wrote in Report: For-profit colleges more concerned with executive pay than student achievement:

Michael Stratford reports on the Harkin report in the Chronicle of Higher Education article, Senate Report Paints a Damning Portrait of For-Profit Higher Education:

For-profit colleges can play an important role in educating nontraditional students, but the colleges often operate as aggressive recruiting machines focused on generating shareholder profits at the expense of a quality education for their students.

That’s the unflattering portrait of the for-profit higher-education industry detailed in a voluminous report officially released on Monday by the Senate Health, Education, Labor, and Pensions Committee. The report, which also criticizes the accrediting agencies that evaluate the colleges, concludes a two-year investigation into the operations of 30 for-profit higher-education companies from 2006 to 2010….

Profits Over Students

The report says that more than half of the 1.1 million students who enrolled in the colleges under scrutiny in 2008-9 had withdrawn by mid-2010. Those retention rates varied between publicly traded and privately held for-profit colleges. At the 15 publicly traded companies 55 percent of students withdrew, compared with 46 percent at the 15 privately held companies, many of which are owned by private-equity firms.

While community colleges and two-year for-profit programs have similarly low retention rates, the cost of the for-profit programs makes those programs more risky for students and federal taxpayers,” the report says. Nearly all students attending a for-profit college take out loans to attend, the report says, compared with just 13 percent of community-college students.

Internal company documents examined by the investigation reveal that decisions to increase tuition at for-profit colleges were driven by profit goals rather than increasing costs of instruction. The educational interests of students rarely, if at all, figured into that decision making, the report says.

For-profit education exists at both higher education and K-12.

Moi wrote in Online K-12 education as a cash cow for ‘Wall Street’: There should be a variety of options and approaches in education. Still, School choice does not mean education on the cheap! K-12 education should not be the next sub-prime mortgage or derivative gambit for large for-profit companies. Lee Fang has written the alarming Nation article, How Online Learning Companies Bought America’s Schools.

While most education reform advocates cloak their goals in the rhetoric of “putting children first,” the conceit was less evident at a conference in Scottsdale, Arizona, earlier this year.

Standing at the lectern of Arizona State University’s SkySong conference center in April, investment banker Michael Moe exuded confidence as he kicked off his second annual confab of education startup companies and venture capitalists. A press packet cited reports that rapid changes in education could unlock “immense potential for entrepreneurs.” “This education issue,” Moe declared, “there’s not a bigger problem or bigger opportunity in my estimation.”

Moe has worked for almost fifteen years at converting the K-12 education system into a cash cow for Wall Street. A veteran of Lehman Brothers and Merrill Lynch, he now leads an investment group that specializes in raising money for businesses looking to tap into more than $1 trillion in taxpayer money spent annually on primary education. His consortium of wealth management and consulting firms, called Global Silicon Valley Partners, helped K12 Inc. go public and has advised a number of other education companies in finding capital.

Moe’s conference marked a watershed moment in school privatization. His first “Education Innovation Summit,” held last year, attracted about 370 people and fifty-five presenting companies. This year, his conference hosted more than 560 people and 100 companies, and featured luminaries like former DC Mayor Adrian Fenty and former New York City schools chancellor Joel Klein, now an education executive at News Corporation, a recent high-powered entrant into the for-profit education field. Klein is just one of many former school officials to cash out. Fenty now consults for Rosetta Stone, a language company seeking to expand into the growing K-12 market.

As Moe ticked through the various reasons education is the next big “undercapitalized” sector of the economy, like healthcare in the 1990s, he also read through a list of notable venture investment firms that recently completed deals relating to the education-technology sector, including Sequoia and Benchmark Capital. Kleiner Perkins, a major venture capital firm and one of the first to back and Google, is now investing in education technology, Moe noted.

Henry M. Levin of Columbia University had some cautionary notes about for-profit K-12 education in 2001.

In the 2001 paper, Thoughts on For-profit Schools, Levin wrote:

The fact is that we know little about how for-profit schools will operate and how they will affect students and other schools. At least three major questions have yet to be answered satisfyingly:

If schools are a potentially profitable endeavor, then why did entrepreneurs wait so long to enter the market? Is there something unique about schooling that makes it difficult to earn a profit?

Now that we do have for-profit schools, how will they achieve cost savings? Will they bring fundamentally different approaches to education through curricular and technological innovations that will “break the mold”?

Even if they are more effective or less costly, or both, will they earn profits that are comparable to the returns on other investments?

AP and Seattle Times staff are reporting in the article, University of Phoenix closing some Puget Sound-area learning centers:

Apollo Group, the for-profit education company that operates the University of Phoenix, said it would close 115 of the university’s locations, including several in the Puget Sound region…

Apollo said the closures will affect 13,000 students nationwide, or about 4 percent of the university’s students. The move was spurred by a 60 percent decline in Apollo’s fiscal fourth-quarter profit, which was hurt by higher costs and declining University of Phoenix enrollment.

Shares in the Phoenix-based company tumbled nearly 8 percent in after-hours trading Tuesday.

The closings nationwide include 25 main campuses and 90 smaller satellite learning centers. At least one location in 30 states is slated to be shuttered.

Students affected by the closures will be given the option of transferring to online programs or moving their course work to other sites, said University of Phoenix President Bill Pepicello.

If no other center is nearby, the company will continue courses at other space near the closed facility until students complete their degrees, he added.

The university, which also recently announced a tuition freeze, is in the process of notifying students.

The University of Phoenix currently has about 328,000 students, down from a peak of more than 400,000. Following the closures, it will be left with 112 locations in 36 states, the District of Columbia and Puerto Rico.

The announcement comes as enrollments overall in the for-profit sector are declining after years of rapid growth, even as enrollment in other sectors of higher education rises. Recent federal figures showed enrollment in for-profits fell 2.9 percent in 2011. The sector has faced tighter regulations and more pressure to enroll students who have a better chance of graduating.

Another factor in the closures: students increasingly favor online courses. Others are put off by the shaky economy.

People are simply holding off investing money in education at a time when the costs are escalating and the outcomes are uncertain,” Pepicello said.

In the June-to-August quarter, the number of students enrolled in degreed programs at University of Phoenix fell on an annual basis by 13.8 percent to 328,400. While enrollment of new students in degreed programs declined 13.7 percent.

That decline led to an 11 percent drop in fiscal fourth-quarter revenue for the university’s parent company, which helped weigh down earnings despite some changes in tuition prices and other fees.

Apollo reported net income of $75.4 million, or 66 cents per share, for the three months ended Aug. 31. That compares with net income of $188.6 million, or $1.37 per share, a year earlier.

The latest results included $9.4 million in restructuring costs and other charges. Excluding the special items, Apollo’s earnings amounted to 52 cents per share.

Revenue fell to $996.5 million from $1.12 billion.

Many critics put the emphasis on “for-profit” and will adamantly argue that any entity which is for-profit is inherently bad for education. Moi would put the emphasis on neighborhood choice and argue that entities without strong ties to the neighborhood they intend to operate in, do not have the loyalty to succeeding in that particular neighborhood and will probably not be successful. Let’s be honest, corporations intend to generate a profit from their education activities as their primary goal. The secondary goal is probably the education of children. Moi is skeptical that a for-profit entity really has the commitment to a neighborhood and thus to a neighborhood’s schools. Still, moi is not like some so called “anti-reform” types who foam at the mouth at the words charter and for-profit. There is no magic bullet or “Holy Grail” in education. There is only what works to produce academic achievement in each population of children. That is why school choice is so important. Still, the welfare of the student must be paramount.

Children are not the new sub-prime mortgage business or the new derivative gambit.People must be afraid, very afraid of the vultures who are now hovering around the education sector. If folks don’t watch them, the results will not be pretty.


College accreditation – U.S. Department of Education

College Accreditation: Frequently Asked Questions

Ask questions before deciding on a for-profit college [Video]

For Profit Colleges: Get the Facts


For-profit colleges: Money buys government, not quality for students                                                                      

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