The College Shakeout Begins

NEW YORK (TheStreet) --For nearly a quarter-century, ever since my daughter was born, I have been an off-and-on education reporter.

For most of that time, promises I made on the industry's behalf were fraudulent. New capabilities emerged before teachers could be trained on the old. What kids had at home was more compelling than what school offered.

PCs were heavy, expensive and fragile. I brought a typewriter to school in the 1960s. My son, who is also dysgrahic, never could in the 2000s. They weren't being made, and the available PCs were too valuable to risk.

But a lot has changed. The Internet has matured. New online tools such as Ancile's ULearn let colleges manage online tests reliably.

A new industry has been born, with nonprofit state schools such as Troy State in Alabama and Central Michigan opening offices in far-flung cities to manage thousands of online alumni, and for-profit institutions like Apollo Group's ( APOL) University of Phoenix running national ads and buying stadium naming rights.

Stanford and MIT are among the first schools to place high-quality courseware online through a start-up, Coursera, but 16 major institutions will now offer classes through the system, the Seattle Times reports. The field even has its own acronym -- Massive Open Online Courses, or MOOCs. A single course can have as many as 100,000 students enrolled at any one time.

Teachers perform three roles. They present information, test the material, and tutor students who need help. They have been advertising a technology revolution for decades, with the saying "out with the sage on the stage, in with the guide at the side."

But, really, little has changed. Schools remain highly bureaucratic, at all levels. They continue building huge facilities to do things computers learned how to do decades ago.

What may drive real change is the industry shakeout that has now begun.

The for-profit sector is in big trouble, with DeVry ( DV)leading another leg down thanks to disappointing results ( read about it on Insider Monkey) for the quarter ( and on Reuters). Reuters reports investor David Einhorn is shorting APOL, the market leader.

The industry's problems stem from its financing model. Some 42% of its students use private student loans, against 14% of public and nonprofit students, notes Daily Finance . This area is in its own sub-prime bubble, and while the totals aren't as big as they were for housing five years ago, they are still large enough to scare new money away.

The sector is also being hurt by poor placement. Corinthian Colleges ( COCO) alone has 40 programs that don't meet federal guidelines under which just 35% of former students have to be repaying their loans, according to DailyFinance.

Bridgeport Education's ( BPI) Ashford University was recently denied accreditation, 24/7 Wall Street notes.

All this is about to get very political. Gov. Romney has the sector's back and they have his, according to Alternet. As with public schools, Republicans blame unions and government bureaucrats for education's problems, and want to get for-profits into the funding tent to force competition.

This shakeout will take years. Many public and private colleges will close, as will many in the for-profit sector. Only the strong will survive. I think Phoenix will be one of those survivors, but I wouldn't buy any shares in APOL until I have more visibility.

Still, the fact of the shake-out has people asking basic questions about how colleges operate. The education establishment that evolves out of this will look nothing like what we have now. There will be fewer, bigger schools, with the Internet doing more of the heavy lifting, and high-quality learning will come within reach of every student, everywhere.

At the time of publication, the author had no investments in the companies mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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