With increased spending on marketing and discounts, for-profit colleges promote their online courses to boost enrollment from people hampered by the coronavirus crisis
In March, as colleges and universities around the country shuttered their campuses under a nationwide lockdown, Strayer University updated its website with a simple message: “Great things can happen at home.”
Capella University, owned by the same company as Strayer, is running ads promoting its flexibility in “uncertain times” and promising would-be transfer students that they can earn a bachelor’s degree in as little as a year.
Online for-profit colleges like these see an unusual opportunity to boost enrollment during the coronavirus pandemic. Their flexible academic programs may be newly attractive to the many workers who have lost their jobs, to colleges students whose campuses are closed and to people who, from home, now seek to change careers. And the colleges’ parent companies often have substantial cash reserves that they can pump into marketing and tuition discounts at a time when public universities and nonprofit colleges are seeing their budgets disintegrate.
But few of the largest for-profits operating primarily online have track records to justify the optimistic advertising pitches. Some have put students deeply in debt while routinely post dismal graduation rates, amid a history of investigations by state and federal agencies, including many that have led to substantial financial settlements.
Still, interest in these schools has increased, and every additional student each school enrolls helps boost the bottom line — primarily in the form of taxpayer-funded federal financial aid.
“I hate to call anybody a winner in this crisis,” said Jeffrey M. Silber, managing director at BMO Capital Markets, a financial services company, “but I think growth will increase this fall and could continue thereafter.”
“Unfortunately, because of the financial distress a lot of not-for-profits are facing, they may have to cut back on marketing. I think the for-profits may be at a competitive advantage.” Jeffrey M. Silber, managing director, BMO Capital Markets
For-profit institutions have long devoted large sums to advertising, spending almost $400 per student on it in 2017, according to research from the Brookings Institution. At nonprofit and public institutions, that figure was $48 and $14, respectively. The ability to significantly invest in marketing, combined with the fact that their instruction is primarily online, has put the largest for-profit universities in an attractive position amid a faltering higher education landscape.
“Unfortunately, because of the financial distress a lot of not-for-profits are facing, they may have to cut back on marketing,” Silber said. “I think the for-profits may be at a competitive advantage.”
Ashford University has received so many new inquiries in recent months that it announced plans to hire 200 additional “enrollment advisors” to field them. Grand Canyon University says it has seen a surge in enrollments. (Grand Canyon has nonprofit status in Arizona and with the Internal Revenue Service but is designated as a for-profit institution by the U.S. Department of Education.*) Capella and Strayer have also reported increases in visits to their websites and requests for information.
This trend concerns many student-protection advocacy groups, which point out that the colleges that stand to gain are among those with the most troubling records. For the most part, the largest online for-profit universities have poor graduation rates — often no higher than 25 percent, and sometimes as low as in the single digits. Several have been accused of intentionally misleading students about potential job prospects to persuade them to enroll and often to take on tens of thousands of dollars in debt.
Eileen Connor, legal director at the Project on Predatory Student Lending at Harvard Law School, said she was worried by the prospect of a resurgence by for-profit online schools.
“In times of economic downturn, that’s when the for-profit colleges start to thrive” as people out of work turn to education, she said. Online colleges “have a running start, especially now, when there’s an economic downturn keeping people in their homes. That is a perfect storm for the thing that they’re trying to do.”
For-profit colleges spent almost $400 per student on advertising in 2017, while nonprofit and public institutions spent $48 and $14, respectively, according to Brookings Institution research
These schools often attract low-income, nontraditional college students who tend to have lower graduation rates than those who attend full-time straight from high school. Often these students have family pressures that interfere with study.
In recent earnings calls, many companies emphasized the quality of the education they provide. Karl McDonnell, the president and CEO of Strategic Education Inc., the parent company of Capella and Strayer, told investors in March, “We’re going to continue to focus on maintaining the highest possible academic quality figuring that that’s really the best way to sort of position yourself vis-a-vis any kinds of regulatory or legislative initiatives.”
In the first quarter of this year, Strategic Education took in $46.5 million in profits, up from $36.7 million over the same quarter last year. Its executive chairman, Robert Silberman, told investors that the company had a “fortress balance sheet with over $500 million in cash.”
Before the broad market decline last week, Strategic’s stock price had climbed steadily since early April, as had those of other publicly traded companies that own universities and college-related education services, including Grand Canyon Education Inc., Perdoceo Education Corporation and Zovio. But for many of their students, the future is precarious.
At Capella, only 11 percent of undergraduates earn a degree within eight years, according to the most recent federal statistics. At Strayer, graduation rates range from 3 percent at its Arkansas campus to a high of 27 percent in Virginia.
Fewer than a third of students at Perdoceo campuses graduate within eight years; one of them, a branch of American Intercontinental University, had a 19 percent graduation rate, according to the most recent federal data. The company’s schools were recently barred from receiving G.I. Bill money from new students after the Department of Veterans Affairs found that they had used sales and enrollment practices that were “erroneous, deceptive or misleading.”
Ashford University, owned by Zovio, had a 25 percent graduation rate in the most recent federal data. Those who did complete their degrees had a median debt of $34,000 on leaving. Zovio is currently being sued by the California attorney general, accused of making false promises to students and using illegal debt collection practices. The company denies any wrongdoing.
For-profit schools made a similar play for students during the 2008 recession, as people searching for work in a shrinking job market flocked to colleges to acquire new job credentials at low cost. Enrollment at for-profit colleges climbed 24 percent at the height of the recession, according to an analysis by BMO Capital Markets.
Along with that surge came increased scrutiny. Government investigators concluded that two of the biggest for-profit operators, Corinthian Colleges Inc. and ITT Technical Institute, had mismanaged or failed to account for millions of dollars in federal financial aid. They were subsequently barred from receiving such aid, which led to their collapse. The companies were also accused of pushing students to take loans they could never expect to repay.
The Obama administration put rules in place to shut down programs whose graduates didn’t earn enough to pay back their student debt and to make it easier for students who had been defrauded to have their loans forgiven. Experts say conditions are ripe for new growth in the for-profit sector because the Trump administration has rolled back those changes.
“A lot of the pieces are in place to be right back where we were in 2008, and the regulations that had come out of lessons learned are being whittled away.” Yan Cao, higher-education fellow, Century Foundation
“A lot of the pieces are in place to be right back where we were in 2008, and the regulations that had come out of lessons learned are being whittled away,” said Yan Cao, a fellow at the liberal-leaning Century Foundation who studies higher education.
The Trump administration’s Department of Education has disputed criticism of its oversight of for-profit colleges. Its policy has been to state that transparency will enable consumers to avoid being taken advantage of and to note that it has expanded consumer information on its websites to help students make informed choices.
Shawn Cooper, an Air Force veteran, said he was twice given approval for his dissertation project at Capella, then worked on it for months at a time, only to be told that he needed to start over with a new topic. He said he was then forced to leave, despite having a 4.0 GPA.
Cooper owes more than $100,000 in student loans after his time at Capella. “At the end of the day, I feel like it’s all just a facade on their end,” he said. “Get people in, take their money and get them out, usually without anything to show for it.”
A lawsuit was filed against Capella seeking class-action status for students like Cooper who say the school intentionally and needlessly prolonged their doctoral programs, costing them tens of thousands of dollars. Last year, a judge allowed three counts in the suit to continue, all regarding the length of time it took a “typical” student to complete programs, but dismissed most other counts, including those about how long the programs were “designed” or “structured” to take.
Strategic Education officials did not reply to several requests for comment.
Angela Selden, the CEO of American Public Education Inc., which owns American Public University and American Military University, told investors that the company has started spending part of its marketing budget originally earmarked for later this year. “The pandemic has created an unexpected opportunity,” Selden said, to reach more potential students.
Wallace Boston, the president of American Public’s two universities, said both offer a high-quality education. “People who are critical of the sector on a whole tend to be looking at things on the surface and marketing is one of the things they pick on the most,” Boston said. “I don’t think that those critics are justified unless they do their homework.”
Relative to some other online-only institutions, the American Public University System is cheaper, at $6,880 a year in tuition and fees, and has higher graduation rates. Still, only 22 percent of American Public University’s 36,000-plus students graduate after eight years, according to the most recent federal data.
Boston said that the university allows students to take up to a decade to complete their programs. The most recent 10-year graduation rate was 35 percent, he added.
Tyler Hutchinson, of Brigham City, Utah, enrolled at American Public University in 2017. He had three children and worked part time, so the flexibility of taking online classes, as well as the promise of financial aid, made him hopeful that he could earn a degree in environmental science that would lead to a well-paying job.
But Hutchinson, now 31 years old, dropped out after one semester because, he said, the college never disbursed his federal financial aid, making it impossible for him to continue. The school also sent him a bill for more than $1,000 for classes the next semester that he had never signed up for, he said — a bill that has been sold to a collection agency.
Boston said that the university could not provide information about a student without the student’s consent; Hutchinson gave his consent via email but a spokesman said the university needed a formal consent filing and would haveno further comment.
Now, having been laid off from a convenience store and with his work as a United States Census worker temporarily suspended because of the coronavirus pandemic, Hutchinson has no income.
“When they advertised, what got me was the work-life balance. And with financial aid, it was really attractive,” he said. “Even though I really enjoyed it, the financials were such a burden we just decided to discontinue.”
Meanwhile, American Public Education Inc.’s net income of $2.4 million in the first three months of 2020 was more than double that of the same period last year, and on June 9, its stock price hit its highest closing point in a year.