Are American For-Profit Colleges Facing Extinction?

American for-profit colleges are struggling financially. Several have shut their doors for good in recent years, and in 2013, nearly half of the debtors to default on student loans obtained them while attending for-profit schools. So, what is happening to these institutions and do these trends signal the end of this industry in America?

Slipping Revenues of For-Profit Schools

American for-profit colleges are struggling financially. Several have shut their doors for good in recent years, and in 2013, nearly half of the debtors to default on student loans obtained them while attending for-profit schools. So, what is happening to these institutions and do these trends signal the end of this industry in America?

Slipping Revenues of For-Profit Schools

The University of Phoenix appears to be the most recent victim of the plight affecting this industry. The school reported enrollments of only about 50% of their student levels of just five years ago, dropping from 460,000 enrolled nationwide in 2010 to just 213,000 this year. This has equated to a steadying decline in profits, with the school’s parent organization, Apollo Education Group, reporting a 14% drop in revenues in the last quarter as compared to a year ago. All of this follows the closing of 115 campuses in 2012.

Similarly, in 2014, Corinthian College closed its doors for the last time.

What is Happening?

Once an extremely profitable industry, the for-profit education system has been under attack for some time. Many of these schools face accusations of inflating their promises to students, bragging of career improvement and job placements that never occur. These schools have also been criticized for a business model that is often more focused on driving enrollment (and capitalizing on upfront payments of tuition, often through student loans) than in seeing their students actually complete their academic programs. Many have graduation rates that hover at around 50% or less (sometimes much less).

While 12% of the nation’s college students opted to attend for-profit universities, a report by the Institute for College Access and Success found that nearly half of those to default on student loans in 2013 had obtained those loans to attend for-profit schools. While for-profit schools were once the ideal choice for working adults, thanks to their flexible programs and class hours, the popularity of online classes and similar program offerings from state-funded schools have eroded this advantage. Thus, many analysts are pointing to a shift in public sentiment about the value of these schools versus equally available state-funded institutions that often cost many thousands of dollars less.

What Does the Future Hold for This Industry?

While for-profit education is far from dead, many fear for its long-term future. Last March, the Obama administration announced plans to tighten financial aid availability for these institutions. CNN Money reports that the industry took in $5 billion in 2010, but will be lucky to break $2.7 billion in 2015. Numerous financial analysts have downgraded the stock ratings of for-profit schools and many are cautioning investors against making new acquisitions in this industry.

Still, officials for these schools remain optimistic. Representatives for Apollo Education Group indicated that their students have been experiencing declining student loan default rates in recent years. Both the University of Phoenix and other schools have claimed that they are making changes to their business models that they believe will overcome their current financial situations. But, there is not yet an indication that these plans are having the effect needed to keep these companies afloat.