Once havens for jobless, for-profit colleges now face own downsizing

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Already under constant fire from Capitol Hill Democrats screaming for tighter regulations, the for-profit college sector now has bigger problems on its hands.

Plummeting enrollment and steep declines in stock values have begun to reverse years of growth for schools that fashion themselves as no-nonsense, career-education alternatives to traditional higher education.

The latest example emerged this week when the University of Phoenix, the largest player in the for-profit world and the one with the greatest name recognition, announced that it would shutter 115 locations across the country, with at least one site in 30 states scheduled to close.

For the second quarter of this year, the university reported a 13.7 percent decline in new degree-program students. Its overall student population now stands at about 328,000, down from its high of more than 400,000.

Despite the grim news, industry leaders say the future of for-profits remains bright, and that the Phoenix move and others represent a “right-sizing” for the sector after rapid expansion during the Great Recession.

The economic downturn drove many out-of-work adults to search for inexpensive education in the hopes of re-entering the workforce with new skills, but that movement has begun to taper off, said Steve Gunderson, president of the for-profit trade group the Association of Private Sector Colleges and Universities.

“At the beginning of the recession, this sector grew incredibly, double-digit growth rates. That happened for a couple of years. Then all of a sudden, when the recession lingered, people said that ‘until there are jobs available, I’m not going to take on the debt.’ So enrollments have gone down,” said Mr. Gunderson, a former Republican congressman from Wisconsin.

“They’re making the appropriate adjustments based on market demand at the present time. Some schools expanded too much too soon, and now they’re going back to a size that fits today’s market.”

Mr. Gunderson also acknowledges that the schools have become a hot political topic in Washington and on the campaign trail.

The Obama administration has cracked down on for-profits through new Education Department rules, and the Democratic Party platform states that they “often leave students buried in debt and without the skills for quality jobs and that prey on our service-members and veterans.”

The Republican platform offers words of support to for-profits, saying they offer a worthy higher education alternative and ought to be expanded. Republican presidential nominee Mitt Romney has underscored the deep divisions between the two parties on the issue.

While politicians debate their merits, for-profits, including several in the Washington area, continue to struggle.

Phoenix’s parent company, Apollo Group Inc., reported net income of about $75 million for the quarter that ended Aug. 31, compared with $188.6 million a year earlier.

Brands such as Corinthian, Kaplan Higher Education, Strayer and others also have reported drops in the number of new students. Overall, enrollment at for-profit schools dropped by 2.9 percent in 2011, according to federal figures.

Bloomberg’s general for-profit-colleges stock index is down 48 percent in 2012.

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