Thursday, November 15, 2012

Downsizing For-Profit Colleges

For-profit college giant Career Education Corporation (CEC) recently announced that it will close 23 of its 90 campuses, according to the Bay Citizen. The move comes in response to a $33 million decline in revenue and 23% drop in new student enrollment this quarter and will result in the loss of 900 jobs. Other for-profit colleges have also announced downsizing in response to declining revenues, including University of Phoenix and Corinthian.

CEC has not yet stated which of its 6 California campuses will be closed. CEC owns the California Culinary Academy in San Francisco and the Cordon Rouge culinary schools in Southern California, as well as the International Academy of Design and Technology in Sacramento.

According to Kevin Kinser, professor of higher education policy at the University at Albany, SUNY, the wave of closures and downsizing at for-profit colleges is due in part to tighter regulation of the for-profit education sector. For example the U.S. Department of Education imposed a ban on incentive pay for recruiters last year. This has undermined these colleges’ business model which is based on admitting as many students as possible, charging them exorbitant tuition and sidling them with massive student debt.

Additionally, many for-profit colleges, including CEC, have recently gotten in trouble with accreditors for inflating job placement rates for their graduates. When CEC released its new accurate rates, most of its campuses had rates below the 65% minimum required by the Accrediting Council for Independent Colleges and Schools. Once a school loses its accreditation, its diplomas become less credible and students are less likely to enroll.

Another factor is that some schools are losing access to state or federal Grants because too many of their students are defaulting on their loans. Under a new law in California, for example, a school’s loan default rate must be 15.5% or lower. As a result of the new law, the International Academy of Design & Technology in Sacramento lost eligibility for Cal Grants this fall because 20% of student borrowers were defaulting. The Academy of Arts College, in San Francisco, also lost Cal Grant eligibility this year. There were 154 institutions [PDF] (mostly for-profit) that were booted from the program this fall. This has likely contributed to the declining enrollment at these schools since few students can afford their expensive tuition without grants and loans.

None of this should be considered a sign that the for-profit college industry is going away. For-profit colleges are a $25 billion a year industry, with an average profit margin of 19.7%, according to the WSWS. Their CEOs earned an average of $7 million last year. Even with the new laws, it will continue to be a highly profitable sector. What we are actually witnessing here is their attempt to maximize profits in the face of a few unfavorable lawsuits and legislative changes.

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