I wonder if this, “Online Colleges Receive a Boost From Congress” will affect this, “Demographic shift hits for-profit school?” It would seem that some measure of accountability could be maintained by keeping federally financed aid programs within the non-profit academic sphere. I am not sure how for-profit online companies can be held accountable when they have share holders who apply the pressures of increased profits.
Online Colleges Receive a Boost From Congress
By SAM DILLON (NY Times)
It took just a few paragraphs in a budget bill for Congress to open a new frontier in education: Colleges will no longer be required to deliver at least half their courses on a campus instead of online to qualify for federal student aid.
That change is expected to be of enormous value to the commercial education industry. Although both for-profit colleges and traditional ones have expanded their Internet and online offerings in recent years, only a few dozen universities are fully Internet-based, and most of them are for-profit ones.
The provision is just one sign of how an industry that once had a dubious reputation has gained new influence, with well-connected friends in the government and many Congressional Republicans sympathetic to their entrepreneurial ethic.
The Bush administration supported lifting the restriction on online education as a way to reach nontraditional students. Nonprofit universities and colleges opposed such a broad change, with some academics saying there was no proof that online education was effective. But for-profit colleges sought the rollback avidly.
“The power of the for-profits has grown tremendously,” said Representative Michael N. Castle, Republican of Delaware, a member of the House Education and Workforce Committee who has expressed concerns about continuing reports of fraud. “They have a full-blown lobbying effort and give lots of money to campaigns. In 10 years, the power of this interest group has spiked as much as any you’ll find.”
Sally L. Stroup, the assistant secretary of education who is the top regulator overseeing higher education, is a former lobbyist for the University of Phoenix, the nation’s largest for-profit college, with some 300,000 students.
Two of the industry’s closest allies in Congress are Representative John A. Boehner of Ohio, who just became House majority leader, and Representative Howard P. McKeon, Republican of California, who is replacing Mr. Boehner as chairman of the House education committee.
And the industry has hired well-connected lobbyists like A. Bradford Card, the brother of the White House chief of staff, Andrew H. Card Jr.
The elimination of the restriction on online education, included in a $39.5 billion budget-cutting package, is a case study in the new climate. Known as the 50 percent rule, the restriction was one of several enacted by Congress in 1992 after investigations showed that some for-profit trade schools were little more than diploma mills intended to harvest federal student loans.
Since then, the industry has grown enormously, with enrollment at such colleges outpacing that at traditional ones. In 2003, the last year for which statistics were available, 703,000 of the 16.9 million students at all degree-granting institutions were attending for-profit colleges.
These colleges offer a wide range of courses, including marketing, accounting, cooking and carpentry. Many attract students who have had limited success at other schools. Some offer certificates, while others issue associates, bachelor’s, master’s and doctoral degrees. About 2,500 for-profit schools are accredited to offer federal student aid.
Yet commercial higher education continues to have a checkered record, particularly for aggressive recruitment and marketing. The Department of Education’s inspector general, John P. Higgins Jr., testified in May that 74 percent of his fraud cases involved for-profit schools.
But commercial colleges found a sympathetic ear in the administration and Congress in their quest to remove the 50 percent rule. Representatives Boehner and McKeon sponsored the measure.
Laura Palmer Noone, president of the University of Phoenix, said the growth of Internet-based learning had shown it to be effective, especially for rural, military and working students.
Kevin Smith, a spokesman, said Mr. Boehner “views this as removing an unnecessary barrier to distance education.” He added, “While continuing to ensure that there are strong antifraud protections in place, he believes we need to break down more barriers to education for low-income, first-generation and nontraditional students.”
Some academics say the nation is rushing to expand online higher education because it is profitable, without serious studies of effectiveness.
“This is a growth industry and you get rich not by being skeptical, but by being enthusiastic,” said Henry M. Levin, director of Columbia University’s National Center for the Study of Privatization in Education.
“People at the academic conferences will say they did a survey about Internet-based education, but there are a lot of phantom statistics,” he said, “and its all very promotional. We have not found a single rigorous study comparing online with conventional forms of instruction.”
How fast the college landscape will change is uncertain. Sean Gallagher, a senior analyst at Eduventures, a Boston research firm, predicted that the proportion of students taking all their classes online could rise over the next 10 years or so to 25 percent from the current 7 percent.
To test online learning, Congress established a demonstration program in 1998 that allowed a few dozen colleges with online programs to request waivers from the 50 percent rule. The Department of Education reported last year that enrollment at eight of the colleges shot up 700 percent over six years.
Ms. Stroup has overseen the program since becoming an assistant secretary of education in 2002.
Several opponents of lifting the 50 percent rule said Ms. Stroup had been fair in policy evaluations. But in a 2004 audit, the Education Department’s inspector general said a 2003 report she provided to Congress on the program “contained unsupported, incomplete and inaccurate statements.”
Most were assertions that online education was working as well or better than traditional methods, with little risk. The inspector general, citing the collapse of one participant in the program, the Masters Institute in California, chided the Education Department for reporting that it had found “no evidence” that the rule change could pose hazards.
Ms. Stroup formally disagreed with the inspector general. In an interview, she said a subordinate had written the report, although she had signed off on it. In a later report to Congress, the department acknowledged “several possible risk factors.”
Ms. Stroup, in the interview, said she had withdrawn from all decisions directly affecting the University of Phoenix. “I don’t see myself as representing any one sector,” she said. “We try to help all students.”
Traditional colleges, in fighting repeal of the rule, cited the Masters Institute, whose online enrollment surged after it gained access to federal money. The institute collapsed in 2001 during a fraud investigation.
“What we opposed was that federal aid should go to these virtual universities that disguise themselves as colleges, where it’s just something on the Internet with no resources behind it,” said Sarah Flanagan, a vice president at the National Association of Independent Colleges and Universities, which represents nearly 1,000 nonprofit institutions.
The Department of Education estimated the change would cost the government $697 million over 10 years.
Representatives Boehner and McKeon have also pushed through committee other changes sought by the for-profit industry, and lobbyists and lawmakers gave them good chances of passage this year.
Unlike all but a few traditional universities, the for-profits have formed political action committees to channel campaign donations, especially to members of the House and Senate education committees.
While the $1.8 million that executives of the largest chains of proprietary colleges and their political action committees have donated to federal candidates since 2000 is not huge by Washington standards, the money is strategically donated.
About a fifth — $313,000 — went to Mr. Boehner and McKeon and political action committees they control, according to figures provided by the Center for Responsive Politics, which monitors campaign finances.
Mr. Smith said there was “zero” connection between the donations and Mr. Boehner’s policy decisions. James Geoffrey, a spokesman for Mr. McKeon, said the donations had no bearing on his choices, either.
Some lobbyists for the traditional universities said that because few of them form political action committees, they are at a disadvantage.
“If I seek an appointment with a member of Congress, I get a staff member, if anybody,” said David Hawkins, a lobbyist for the National Association of College Admissions Counsellors, which as a nonprofit group is barred from making campaign donations.
A. Bradford Card, who represents some commercial colleges in New York, said lawmakers were responding to commercial colleges’ educational contributions. He said he had spoken several times with Mr. Boehner about his clients’ agenda. Mr. Card said he never lobbied his brother, Mr. Bush’s chief of staff.
“These are not fly-by-night schools,” Mr. Card said “Members of Congress are really taking a look at this industry because they recognize that proprietary colleges are helping people get into the work force, pay taxes and become the best they can be.”
Demographic shift hits for-profit school
from Business Week
FEB. 28 1:04 P.M. ET Apollo Group Inc. shares plunged to their lowest level in nearly three years Tuesday after the University of Phoenix operator again warned the dwindling ranks of its once biggest student population will hurt profits.
Baby boomers who once flocked to for-profit secondary schools are now thinking more about retirement than getting master’s degrees. The Phoenix-based higher education chain told Wall Street this was among the main reasons it was forced to issue disappointing second-quarter guidance, and yank its already lowered 2006 outlook.
Apollo — with more than 200,000 students among 150 campuses and online programs — is by far the market leader in for-profit education by revenue and enrollment. The company is often the first to feel changes in the industry, and is closely watched by analysts as a major influence on the stock movement of its rivals.
“We urge continued investor caution as we believe mix shift to a lower revenue offering, decelerating enrollment trends, and recent management turnover clearly is taking its toll on the company’s results,” said Lehman Brothers analyst Gary Bisbee in a research report.
The company’s finances aren’t the only thing being hurt. Shares of the company plunged $8.31, or 14.2 percent, to $50.16 in afternoon trading on the Nasdaq after earlier hitting a low of $49.51. The stock is down 17 percent so far this year, and has not traded this low since March 2003.
Investors also sent shares of Apollo’s biggest rivals sharply lower in trading — with many hitting new 52-week lows of their own.
DeVry Inc. shares dropped $1.05, or 4.3 percent, to $23.44, and earlier reached a 52-week low of $23.24 on the New York Stock Exchange. ITT Education Services Inc. shares fell $2.69, or 4.2 percent, to $61.76 on the Big Board.
Shares of Career Education Corp. — which operates more than 75 campuses mostly located in the U.S. — gave up 91 cents, or 2.7 percent, to $32.99 on the Nasdaq.
The only bright spot in the sector came from Lincoln Educational Services Corp., which operates about 32 technical colleges around the nation. The West Orange, N.J.-based company reported fourth-quarter profit roughly doubled on a 12 percent jump in revenue.
Setting Lincoln apart from many of its rivals is that it targets recent high school graduates and working adults — as opposed to professionals looking to complete advanced degrees. Shares of the company jumped 86 cents, or 5.5 percent, to $16.60 on the Nasdaq.
Brian Mueller, Apollo’s chief executive, might be taking a page from Lincoln’s strategy. He told analysts during a conference call he plans to lure younger students in order to boost profitability.
The company — which has been unable to meet revenue projections for five quarters — also wants to hire enrollment advisers to beef up the student population, targeting younger professionals through an expanded number of degree programs.
The uncertainty at Apollo comes after former chief executive Todd Nelson unexpectedly resigned in January, giving rise to speculation he was pushed out of the job. Apollo has been reeling since regulators last year investigated allegations it used questionable recruiting tactics to boost federal financial aid.