Cutting Class: the University of Phoenix Has Lost Half Its Students in the Last Five Years

NEW YORK (MainStreet) — Once a star in the for-profit college firmament, the University of Phoenix reported yesterday that both year-on-year revenue and enrollment sank roughly 14% in the latest quarter compared to 2014. Enrollment has fallen from 460,000 in 2010 to 213,000 currently.

In an earnings release yesterday, Greg Cappelli, CEO of the Apollo Education Group (APOL), the University of Phoenix's parent, tried to strike a positive note.

“In a time of unprecedented change in the higher education industry, we are focused on enhancing outcomes through a deep understanding of student and employer needs,” Cappelli said on Wednesday. “This includes differentiating University of Phoenix through its program-based colleges and diversifying our organization with the expansion of Apollo Global and other targeted growth initiatives. We are aligning education to careers, offering students tangible skills and helping employers develop a high-performance workforce.”

Investors dumped shares of Apollo on a day that saw the Dow, the Nasdaq and the S&P 500 close red. Apollo closed at $27.99 on Tuesday and at $20.04 on Wednesday, a 28.40% loss in value.

Apollo's sharp drop is channeling the decline in for-profit education generally. Last July, one of Apollo's competitors, Corinthian Colleges, sold roughly half of its 108 campuses to student loan debt collector ECMC Group. The University of Phoenix closed 115 of its campuses in 2012. In 2010, Apollo had revenues of almost $5 billion. This year Thomson Reuters has a consensus estimate of $2.73 billion.

For-profit colleges only account for about 12% of the nation's students, but about half of all student loan defaults came from for-profit colleges in 2013, based on federal data. In March 2014, the Obama administration proposed new limits on federal aid for for-profit colleges. Then last January, Obama unveiled a program to make community college free. Even though many are skeptical of the Obama plan, it represents another threat since for-profit colleges compete with community colleges for many of the same students.

Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a source of advice and information on student loans, attributes the drop in new students to criticism by policymakers and the negative publicity.

"For-profit colleges have taken steps to reduce drop-outs and to improve performance relative to the gainful employment rules," he said. "For example, Apollo adopted a free trial period to try to get the students who will drop out to do so before they borrow federal student loans, instead of afterward."

That tactic reduced new enrollment, but the percentage of students graduating improved.

"This, and other steps to improve the quality of education, will ultimately help the institution survive," he said. "The profit might decrease in the short-term, but long-term it will recover."

In the earnings release, Apollo noted that default rates have declined in recent years.

--Written by John Sandman for MainStreet

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