Shakeup in For-Profit Education?

The most recent Sunday edition of The New York Times carried an interesting article written by Gretchen Morgenson entitled “The Insiders Are Selling, But Why”, about the fact that 13 Apollo Group insiders have recently sold 1.6 million shares of stock. In addition, the Apollo Group, which owns the University of Phoenix, did no share repurchasing during the most recent quarter, in contrast with extensive repurchasing in the past. Apollo stock, Morgenson tells us, is down 14% from it’s peak, while Career Education Corporation and the Corinthian Colleges…two other major players in for-profit education, have seen their stock prices fall by 31% and 50% respectively.

It has since been announced that the Career Education Corporation will close several of its schools and colleges after allowing currently enrolled students to complete the programs in which they are now enrolled. McIntosh College in Dover, New Hapshire, founded in 1896, is among the institutions scheduled to close. Lehigh Valley College, and Gibbs schools and colleges in New England, New York, New Jersey, and Pennsylvania are also scheduled to cease operating.

For many reasons, including significant enrollment growth, Apollo seems to be in better shape than most of its competitors. But, with recent changes and heightened government and consumer interest in the student lending industry, the nation’s current economic woes, the financial pressures being felt by lenders, and the number of high risk loans awarded to students at proprietary institutions, life in the for-profit education world may become more difficult for the schools, for investors, and for students.

Typically, for-profit schools offer limited scholarships. And, such schools attract a fair number of low income students who require financial aid to continue their education. Thus, if loans become more difficult or costly to obtain, it may well be proprietary schools and the students they serve who will be impacted most dramatically.

Nobody is predicting the demise of for-profit education. In fact, recent events may make some stocks in the sector a good value. But, when the insiders of the most successful corporation in the sector sell off massive holdings for relatively small profit and a major player closes long established schools after failing to find buyers for them, many questions arise.

Among those questions; is a major shakeup coming in the for-profit education sector? Will we see more closings (and perhaps displaced students)? Will there be mergers or will the larger chains acquire smaller chains and/or independents? Will the small independent hair dressing schools, massage schools, and business training schools be able to survive? Will more students turn to community colleges? If so, will 25% go on to four-year colleges as they do now?

Will students, who now find online degree programs increasingly attractive, turn to online colleges in even greater numbers?

It will be very interesting and very telling to watch the trends in the fairly immediate future (perhaps 12 months) and in the next few years.

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