4
How will crackdown hurt for-profits?
DeVry University
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF STORY
Kai Ryssdal: Here's a rare instance of government regulation having an almost immediate impact in the marketplace. Congress, as you may know, has been looking into for-profit colleges. Lawmakers and the White House want restrictions on federal financial aid to places like DeVry and the University of Phoenix. Well, the for-profits start reporting their profits in the next couple of weeks. We got a preview not long ago when the University of Phoenix warned enrollment could drop as much as 40 percent, in no small part because of government regulation.
From the Marketplace Education Desk at WYPR in Baltimore, Amy Scott reports.
Amy Scott: Shares of for-profit colleges have plunged by as much as 50 percent in the last year, as investors flee amidst a slew of bad PR and the threat of tougher oversight.
Analyst Trace Urdan at Signal Hill says education stocks have been trading in line with payday lenders. They took a hit when Congress overhauled financial regulations.
Trace Urdan: The market has decided that these universities are the equivalent of payday lenders, and that's how they're being valued right now, which is extraordinary because they used to trade at a premium.
To the industry's critics, it's an apt comparison. They see for-profit colleges as predators, loading up low-income students with debt they can't pay. The Obama administration has proposed rules that would cut federal aid for programs whose graduates aren't likely to earn enough to pay off their loans. Urdan says the latest stock decline was fueled by one company's efforts to get ahead of the regulations.
Apollo Group, which owns the University of Phoenix, said recently it's tightening admissions standards and will no longer pay enrollment counselors based on how many students they sign up. Investors didn't like it a bit.
Urdan: What they've suggested is that the days of enrolling six or seven students with the hopes of hanging onto one are over. And they're really looking to be much more like a traditional school. And in the short term that creates a tremendous amount of uncertainty.
Analysts aren't expecting such dramatic news from DeVry or Corinthian or the other companies reporting in the next few weeks.
Pauline Abernathy is with the Institute for College Access and Success, a student advocacy group. She says in the long run investors in these companies may have to settle for smaller profits.
Pauline Abernathy: What students will see will be higher quality programs at charges that they can afford to repay. Shareholders may have to start no longer expecting a 37 percent rate of return year after year.
The Obama administration has delayed finalizing the so-called gainful employment rules until next year. It'll hold public hearings next week.
I'm Amy Scott for Marketplace.
Nothing extraneous about my efforts to boost the sector.
These schools are responding to specific policy goals meant to expand access to all types of students. The net result of these changes is that FP schools will be more selective about who they enroll -- but that will result in less access. So some students that would have failed will no longer fail. But by the same token, some students that would have succeeded will not succeed. Even in the old model, taxpayers are much better off with FP schools casting a wide net, because even with dropouts the next cost of grads is still far lower than state-funded schools. When you consider what those students that fail to succeed will ultimately cost society the comparison is even more stark.
I know these schools and their students very well. There are ways they can improve and ways in which public policy can be smarter, but I apologize to no one in my believing in their business models and in a market-funded approach to higher education.
Trace Urdan
Signal Hill
It's fascinating that when the potential for outright grafting of potential students is gone, the investor money is gone too. Sort of like with the housing bubble. Could it be that the free market doesn't really like solid companies, but rather likes the companies that can fleece the public? So much for free market knows best?
It's great that Congress is taking a look at whether for-profit college students are overburdening themselves with student loan debt, but why doesn't this inquiry include non-profit colleges and universities? It's possible to get loans for more than $130,000 for a master's degree in women studies -- do such programs boost a graduate's earning power enough to ever repay their loans?
