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

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Some financial analysts say the retrenchment isn’t necessarily a bad sign and that for-profits’ ability to downsize quickly demonstrates that the sector can become leaner and transform to fit students’ needs much faster than traditional universities.

“Some of this is healthy. Anytime you get a high-growth industry, you do overshoot a bit,” said Bruce A. Eatroff, a partner at New York City’s Halyard Capital, a private equity firm specializing in education and other industries.

“But the for-profit sector is very analogous to Wall Street – they’re not going to sit around with excess inventory. They’re going to cut,” he said. “The traditional schools are more like the auto industry. They’re providing a very good product, but they’re slow-moving entities.”

Whatever its virtues, the industry also has taken a beating from congressional Democrats pushing a narrative that many for-profits are little more than scams raking in millions of dollars from American taxpayers while offering minimal educational value. Sen. Tom Harkin of Iowa has led that charge, having spent years producing reports and holding hearings on the perceived evils of the schools.

Many institutions, he contends, target students regardless of whether they are likely to graduate, with their sole aim to profit through federal Pell Grants and loans.

Mr. Harkin and others have pushed harsh crackdowns, and the Department of Education has laid out defined graduation rate and other goals that schools must reach to be eligible for federal student aid.

The negative publicity has taken a toll, though opinions differ on just how great it has been.

“It has had some impact. I don’t think anybody can quantify it,” Mr. Gunderson said. “I think the economy has more of an impact on enrollments than anything our detractors have said. It’s an inside-the-Beltway story, that Harkin and [Sen. Richard J.] Durbin [of Illinois] are going after us.”

With U.S. companies desperately in need of more skilled employees, for-profits’ overall outlook remains strong, despite the public relations hits and the rash of bad financial news, Mr. Eatroff said.

“The industry itself, as a sector, has very good fundamentals,” he said. “I would expect over the medium-term, the next three to five years, the industry will be quite fine.”

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