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For-profit institutions hit a major speed bump years ago when politicians, advocates and students stood up against large for-profit chains to criticize their often-poor relative debt levels, job market payoffs and recruitment efforts that often target vulnerable populations.

Some collapsed. New regulations were born. Mergers, acquisitions and attempts to transition to nonprofits are still plentiful.

But those that are left find themselves on another precipice. The credit-rating agency S&P Global this week announced that the novel coronavirus has sent the global economy into a recession. The agency warns that the damage is about to get worse in Europe and the United States.

At the same time, the coronavirus is pushing people to isolate and forcing colleges to pivot to online, a delivery method most for-profits know well.

Could this be the time for a comeback?

Most experts think the sector won’t ever return to its former glory. But the colleges that survived the past few years will probably stick around.

The repeal of the gainful-employment rule could also make it even easier for for-profits to surge again, which is a worry for many advocates.

Steve Gunderson, president and CEO of Career Education Colleges and Universities, believes for-profits aren’t yet done transitioning.

“This consolidation is not yet over,” he said. Many for profits entered into long-term lease agreement during the recession, Gunderson said, and they are still stuck in those leases while their enrollments are declining.

“There are probably some schools, even with good programs, that are not going to survive,” he added.

But the sector is of “dramatically higher quality” than it was before, he said. And now it has more of a focus on completion, like much of higher education.

While changes still are occurring for the sector, Gunderson believes a recession will send people back to colleges, and many to for-profits with career-focused programs.

The Institute of College Access and Success in December released a report that said for-profits may be making a resurgence. Beth Stein, senior adviser at TICAS, said that while it seemed they were headed for an upswing, the sector ended up staying "more or less stable." A report from the National Student Clearinghouse Research Center showed that for-profits lost enrollment last year, though by a smaller amount than the previous year.

This doesn’t mean for-profits will go away. Stein believes the sector now is part of the educational landscape and will continue to be. Her concern is for those that are exclusively online.

“We have no idea how students do in those programs, and we have no way of breaking them out right now to track,” she said.

Many companies also are working on short-term programs and boot camps, she said, which is concerning, as those programs don’t qualify for federal Title IV funding and thus aren't required by the federal government to be adequately transparent.

"More Complex" Recession

Generally, it’s believed that higher education runs countercyclical to the economy. When unemployment is low and times are good, fewer people opt to further their education. When recessions hit and employment becomes scarce, more people go to college to become more attractive to employers. This helped for-profits explode during the 2000s, but it could play out differently this time.

“The next recession will be more complex than the last recession,” said Trace Urdan, managing director at Tyton Partners.

Urdan expects some parts of higher education will act in a countercyclical way to the economy this time around. Vocational schools, certificate programs and training for specific skills will probably be in high demand, he said.

But it might be more complicated for bachelor’s and master’s programs, which take more time and aren’t always as directly linked to careers as are shorter programs.

Higher education in general also will be dealing with several changes, Urdan said. Employers are sponsoring education for employees, which Urdan thinks probably will be cut if budgets get tight.

Student demographics also have changed. Now attending are more part-time students, working students and students with fewer resources.

“When things tighten up in the economy, the alternative for those students is to borrow more,” he said. “The attitudes and appetites for borrowing have changed.”

"Bucket of Cold Water"

For-profits also are thinking about the upcoming presidential election.

If it looks like Joe Biden, former vice president under Barack Obama, will win the presidency, many companies would assume he would continue the Obama administration’s approach to for-profits, said Corey Greendale, a managing director at First Analysis. If Bernie Sanders, the Independent senator from Vermont, is in the running, the sector’s stocks probably won’t do well, he said.

If it looks like Donald Trump will be re-elected, then for-profits would likely feel in the clear. Betsy DeVos, secretary of education in the current administration, repealed the gainful-employment rule this past summer, which was widely seen as a win for for-profit institutions. Most of the institutions that failed to meet gainful-employment standards in the first round of ratings were for-profits.

This could be why there was a fair bit of acquisition activity up until a few months ago, according to Tony Guida, a partner at Duane Morris LLP and a team lead for the Duane Morris Education industry group.

“It kind of slowed down as people have taken a step back and want to see what happens with the election,” he said. “Uncertainty is the biggest bucket of cold water that you can throw on a market waiting to invest.”

Guida also believes that career-oriented, shorter programs will see an upswing in a recession and attract more investors.

Success, but How Much?

Several experts mentioned Strategic Education Inc., which owns and operates the for-profit Strayer University and Capella University, as an example of a company that’s doing well.

New student enrollment increased at Strayer for the sixth consecutive year and at Capella for the third consecutive year, according to Karl McDonnell, CEO of Strategic Education.

McDonnell credits much of the colleges’ successes to the company’s investment in students. A few years ago, for example, it built a film studio and paired faculty with filmmakers to make better, more engaging digital courses.

“After we did that, we had record levels of student engagement,” he said.

The company also found ways to cut costs for students. Capella offers a competency-based program called FlexPath that lets students move forward at their own pace, allowing them to finish a degree faster. Strayer reduced undergraduate tuition and let students earn a free senior year in 2014.

The universities also feature partnerships with employers. At least a quarter of their enrollment comes from those employees, McDonnell said.

In a recession, demand for undergraduate programs probably will follow the countercyclical route, McDonnell said, as it’s hard to earn a living wage without a four-year degree. But he expects demand for graduate education to feel more pressure in a downturn.

The colleges that remain in the sector are stepping up and doing well due to decreased competition, Gunderson said. But after the past few years, the sector has morphed into a different industry.

“I think the era of double-digit enrollment is long since past. It will never return,” he said. “I think we will see increases, but it will be in the single digits.”

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