While Public Colleges Feel Pain, For-Profits See Gains

Poor economic conditions have historically proven a boon for career colleges, and early signs indicate that trend will continue in the current climate.

December 10, 2008

WASHINGTON -- State support of public colleges is shrinking.

Endowment values are plummeting.

Tuition is increasing, and threatening college affordability.

Sounds pretty bleak, right? Not if you run a for-profit college.

“In my opinion, all of that is good news for career colleges,” Rene Champagne, chairman of the Career College Association, told fellow leaders of for-profit colleges at a conference here Tuesday.

Tuesday morning’s sessions of the CCA’s Annual Higher Education Investment Conference focused on the growing profitability and market share of for-profit colleges. While Champagne was quick to say he didn’t wish public colleges any ill will, there is little denying that some of the worst economic conditions for public colleges have historically proven fertile ground for the growth of the for-profit sector, according to data presented at the conference.

For-profit colleges have seen enrollment grow by an average of about 17 percent during the past nine economic downturns -- when Gross Domestic Product declined and unemployment rose -- compared with an average of 8 percent growth during positive economic conditions, according to an analysis provided by Stifel Nicolaus, a brokerage and investment banking firm.

The current economic downturn appears to be having a similarly positive effect on for-profit institutions’ enrollments. Between July and September of 2008, nine publicly traded for-profit colleges saw average enrollment growth of 14.8 percent, about 2 percentage points higher than the last four quarters, Stifel Nicolaus found.

As would be expected, publicly traded for-profit colleges saw revenues increase as well, generating $10 billion in the fall of 2008, an increase of 13 percent over last year, Stifel Nicolaus found.

The dramatic spike in unemployment in the U.S. also has a silver lining for for-profit institutions.

“Students are less likely to drop out because there are no jobs to go to or few jobs to go to,” said Champagne, former chairman and chief executive officer of ITT Educational Services, Inc., which operates more than 100 for-profit technical institutes.

Career Colleges See Role in Jobs Push

Leaders of for-profit colleges also see opportunity in the promises of President-Elect Barack Obama, who is calling for the creation of 2.5 million jobs by 2011. Daniel Hamburger, president and CEO of Devry Inc., said he has met with Obama’s transition team for education and has noted an “increased awareness” that the for-profit sector -- Hamburger calls it the “market-funded” sector -- has a critical role to play in job creation.

“I am more optimistic today than I have ever been,” he said.

Devry announced this week that it saw undergraduate enrollment grow to more than 15,800 this fall, an increase of 19.7 percent from the previous year.

Despite the optimism in the for-profit sector, Hamburger’s rejection of the “for-profit” label indicates continuing concerns about the way such colleges are sometimes portrayed. Lawmakers and leaders in nonprofit higher education have historically viewed the sector with skepticism, questioning the quality of the education provided and citing lingering concerns that the worst of career-oriented institutions take advantage of low-income students.

But Hamburger said he sees that skepticism fading, particularly because there’s greater recognition that for-profit colleges will have a role to play in stabilizing the economy.

“Take all this other stuff and strip it away,” he said, “and it’s about jobs.”


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