For-Profit Colleges Change Higher Ed's Landscape

Interesting article in today's Chronicle of Higher Education, here are some excerpts:

At a time when American public higher education is cutting budgets, laying off people, and turning away students, the rise of for-profit universities has been meteoric.

Enrollment in the country's nearly 3,000 career colleges has grown far faster than in the rest of higher education—by an average of 9 percent per year over the past 30 years, compared with only 1.5 percent per year for all institutions, according to an industry analyst. For-profit universities now educate about 7 percent of the nation's roughly 19 million students who enroll at degree-granting institutions each fall. And the proportion rises to 10 percent, or 2.6 million, if you count students who enroll year round. Just this academic year, the University of Phoenix eclipsed California State University as the second largest higher-education system in the country, with 455,600 students as of this month—behind only the State University of New York.

Proprietary schools charge a lot more than public colleges—an average of $14,174 this year, compared with $2,544 at public two-year institutions and $7,020 for in-state tuition at public four-year institutions, according to the College Board. But students frequently choose proprietary schools over public colleges because for-profits do so much to limit the hassle of enrolling and applying for aid, and because students can take the classes they need quickly and get on with their lives.

The biggest player among those is the Apollo Group. Its flagship University of Phoenix has morphed from an institution with 25,100 students in 1995 to one with 455,600 today. That means that 15 years ago Phoenix was about the same size as George Washington University. Now it is larger than the entire undergraduate enrollment of the Big Ten.

The stocks of publicly held for-profit education companies have outperformed the Standard and Poor's 500 by about 40 percentage points in each of the past two years. And companies like Stifel Nicolaus that analyze the market predict that the sector will continue to enjoy a "significant tailwind." Indeed, BMO Capital Markets predicted in the fall that revenue from the for-profit sector would rise by 10 percent per year through 2014.

MP: The chart above (data here) shows the 600% increase in the Apollo Group's stock (University of Phoenix) since 2000, compared to the flat return for the S&P500.