You have /5 articles left.
Sign up for a free account or log in.

As Democratic lawmakers raked many for-profit colleges over the coals during the past decade, National American University, a chain based in South Dakota, managed to keep its reputation mostly intact.

But the publicly traded company has been beleaguered in recent years by the same troubles affecting much of the for-profit sector. Plummeting enrollment has prompted National American to close physical locations and place its bet on online education as the path to sustainable growth.

The company's financial challenges also have prompted scrutiny from the U.S. Department of Education and other regulators.

After National American de-listed from the Nasdaq stock exchange and acknowledged in a January corporate filing that falling revenues raised “substantial doubts” about its ability to continue operating, the Education Department sought collateral in the form of a letter of credit and imposed new financial reporting requirements on the chain. The new oversight measures were first reported by Education Dive.

The company said it is committed to offering academic programs online. But after the abrupt closure of multiple for-profit college chains in the past year -- including Education Corporation of America, Vatterott College and Dream Center-operated colleges -- the new disclosures about financial turmoil at National American have some observers closely watching the response by regulators.

“During its 78-year history, the university has periodically evolved to serve the changing needs of its students, the majority of whom are working adults. College education has changed dramatically during the past several years and continues to evolve today. Our students want full mobile functionality and support services available 24-7,” Ronald Shape, National American’s president and CEO, said in a statement. “To serve the needs of the majority of its students, NAU will primarily offer courses online taught by faculty across the country.”

The company will continue to operate physical locations at Ellsworth Air Force Base and Kings Bay Naval Submarine Base, which enroll mostly military students and their families. Other campuses will be phased out.

National American enrolled a total of nearly 10,000 students just four years ago. But that enrollment has dropped to about a third of what it was. The decline has been especially dramatic over the past year. Nearly 6,000 students attended NAU nondegree programs as well as undergraduate, graduate and doctoral programs in the 2018 winter term. But about 3,800 students were enrolled as of February of this year, a 36 percent decline.

In SEC filings, the company attributed the drop-off to lower demand among its targeted student demographic. In November, NAU suspended new enrollment in 34 of 128 programs as part of its strategy to focus on online programs. The company’s revenues have declined by $15.2 million, or more than 26 percent, compared to the same period a year ago, driven mostly by falling enrollment.

Declining enrollment isn’t National American's only looming challenge. A former employee filed a whistle-blower lawsuit in 2017 alleging violations of the Higher Education Act, and two students filed a lawsuit in Missouri state court last year alleging fraud and misrepresentation of the value of their degrees. The company has denied any wrongdoing in both cases, which are pending.

After those financial disclosures, the department found in March that NAU was out of compliance with financial responsibility standards for colleges receiving Title IV student aid. In a letter to the company, the feds demanded a letter of credit worth either 50 percent of federal aid revenue -- roughly $36.6 million -- or 15 percent of aid revenue and a provisional certification form.

National American asked the department to reconsider the requirement, and discussions about the letter of credit are ongoing, according to the department. If the department does not drop the demand for a letter of credit and National American cannot produce it, it may face losing access to Title IV programs, the company warned in its latest SEC filing.

Liz Hill, an Education Department spokeswoman, said federal officials haven’t discussed plans for a possible closure with NAU’s accreditors or state authorizers because the department “has not gotten any indication from NAU that the organization intends to precipitously close.”

When it sought the letter of credit, the department also imposed new financial reporting requirements. It asked for biweekly reports on cash balances and monthly reports on projected and actual cash flows. And the department placed NAU on heightened cash monitoring, a financial aid restriction that requires a college to distribute aid to students before it is reimbursed by the federal government.

A spokesman for the Higher Learning Commission, National American’s regional accreditor, said it has received a provisional plan from the company on its strategy to ensure students can either complete their programs or transfer credits to another equivalent institution through what’s known as a teach-out agreement. The accreditor requires those plans when the Education Department takes any actions against a college or when an institution announces plans to close locations.

National American said in corporate filings that it has such an agreement in place with Brookline College; the company did not confirm if it is in talks with other colleges.

Clare McCann, deputy director for federal higher education policy at New America, said the most important steps for federal officials to take when a college is facing possible closure are to make sure teach-out agreements are in place, secure financial protection in the form of a letter of credit and get student rosters so the department can do outreach about loan-discharge options. She also said students should be made aware of potential issues at their institution.

National American did not respond to questions about steps it was taking to inform students about the wind-down of physical campuses.

Antoinette Flores, associate director of postsecondary education at the Center for American Progress, said students often are the last to know about potential campus closures, as was the case for many students at colleges operated by Education Corporation of America and Dream Center.

“Shareholders have been informed of problems for months, but students may be completely unaware,” she said.

Career Education Colleges and Universities, the lobby group for for-profit colleges, has proposed addressing the risk of sudden closures by having the Education Department create an Office of Continuing Education Services that would work with struggling colleges to make sure their students can continue their education. CECU proposed that the office be funded with a per-student fee paid by for-profit colleges.

“Think of how the FDIC manages a transition in a failed bank -- professionals come in and achieve the transition to new ownership without any interruption in the customer’s reliance on the bank for their financial services,” Steve Gunderson, CECU's president, wrote last year in an opinion piece for Inside Higher Ed.

Next Story

More from For-Profit Colleges