For-profit colleges, long troubled, see surge amid pandemic

In March, as colleges and universities shuttered 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, has run 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 have seen an opportunity to increase enrollment during the coronavirus pandemic. Their flexible programs may be newly attractive to the many workers who have lost their jobs, to college students whose campuses are closed, and to those now seeking to change careers. The colleges’ parent companies often have substantial cash reserves that they can pump into tuition discounts and marketing at a time when public universities and nonprofit colleges are seeing their budgets disintegrate.

Few of the largest for-profit colleges operating primarily online have track records to justify the optimistic advertising pitches. Some have put students deep in debt while posting dismal graduation rates amid a history of investigations by state and federal agencies, including many that have led to substantial financial settlements.

Still, there is evidence that interest in the schools has increased.

“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.”

For-profit colleges have long devoted large sums to advertising, spending almost $400 per student in 2017, according to research from the Brookings Institution. For nonprofit institutions, that figure was $48, and for public colleges it was $14.

“Unfortunately, because of the financial distress a lot of not-forprofits 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 has announced plans to hire 200 additional “enrollment advisers” to field them. Another school that operates largely online, Grand Canyon University, says it has had a surge in enrollments. (Grand Canyon has nonprofit status in Arizona and with the IRS but is designated as a for-profit institution by the U.S. Department of Education.) Capella and Stray

er have reported increases in requests for information.

The 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% 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.

These schools often attract low-income, nontraditional college students who tend to have lower completion rates than those who enroll straight from high school and attend full time. Many have family pressures that interfere with study.

In recent earnings calls, many companies emphasized the quality of the education they provide. Karl Mcdonnell, chief executive of Strategic Education Inc., 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-à-vis any kinds of regulatory or legislative initiatives.”

In the first quarter, Strategic Education took in $46.5 million in profit, 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 Corp. and Zovio. But for many of their students, the future is precarious.

At Capella, only 11% of undergraduates earn a degree within eight years, according to the most recent federal statistics. At Strayer, graduation rates range from 3% at its Arkansas campus to a high of 27% in Virginia.

Fewer than a third of students at Perdoceo campuses graduate within eight years. The company’s schools were recently barred from receiving GI 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% graduation rate, according to the most recent federal data. Those completing degrees had a median debt of $34,000 on leaving. Zovio is 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 sought new credentials at low cost. Enrollment at for-profit colleges climbed 24% 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,” said Yan Cao, a fellow at the Century Foundation who studies higher education.

The Trump administration’s Department of Education has disputed criticism of its oversight of for-profit colleges. It notes that it has expanded 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 and worked on it for months, only to be told that he needed to start over with a new topic. He said he was forced to leave, despite a 4.0 GPA.

Cooper says he 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 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 requests for comment.

Angela Selden, chief executive 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.

Wallace Boston, president of American Public’s two universities, said both schools offered a high-quality education.