The billion-dollar question is whether this is a momentary downturn as the industry adjusts to a new reality of greater oversight and savvier students, or if it's the beginning something more profound -- a bubble's big burst. It's still too early to pin down a definitive answer. But there's reason to think this is more than just a blip.
For the last decade, for-profit schools have ridden a unique set of circumstances to profitability. The percentage of Americans enrolling in college continued to rise and the enormous population bomb known as Generation Y began graduating high school. States continued cutting back on higher education funding per student, and so classrooms at inexpensive community and four-year colleges began filling up to capacity. With the help of aggressive recruiting, and an early embrace of online technology that made them appealingly convenient for working adults, for-profit schools were able to capture students that the traditional, non-profit schools were missing, as well as some people who otherwise probably never would have (nor should have) stepped foot on a college campus. When the recession hit, even more Americans took shelter from the nightmarish job market in the classroom.
In short, these schools were set up to succeed, even if students in their classrooms failed.
As the job market has improved, the enrollment boom seems to have leveled off. And unlike traditional colleges and universities, this poses a problem for the for-profit industry, especially public companies like Apollo, Strayer Education Inc., and the Washington Post Co.-owned Kaplan, which need to demonstrate consistent growth to investors. The pie of potential customers has stopped naturally expanding at just the moment that these schools have decided to push for higher caliber students. That means lower enrollment and, with it, lower revenues.
At the same time, nonprofit schools such as Southern New Hampshire University and University of Maryland University College (UMUC) have started moving in on their turf. As the WSJ's Korn notes, UMUC saw enrollment in its online courses grow 5 percent during the last year, to 97,001 students (University of Phoenix, the largest for-profit, has about 328,000). The college offers relatively inexpensive tuition to in-state students and military veterans, and if other states create schools like it, it would further corrode the for-profit industry's student base. By 2020, the Department of Education expects total college enrollment to grow by 2.5 million. But if convenient nonprofit options continue to sprout up, it's not likely that many of those new students will choose to lay down $10,000 or more a year to get a degree from a school that spends more on marketing than career counseling.
The key is competition. It's misguided to think of higher education on the whole as a bubble, because there's no sign yet of employers losing their taste for college graduates. Quite to the contrary, it's never been more important to have a diploma if you want to make it in the job market. And while the free, massive open online courses from platforms such as Coursera and edEx are extremely exciting, it's not clear yet that they'll become a credible replacement for a traditional college education in the eyes of companies. In short, people don't have a choice other than to keep paying for their educations, at least for the near future. But they can choose not to pay the price for a for-profit degree if there's an option that's better, cheaper, and readily available.