Capella Education Steps Up Efforts to Retain Students

Capella Education Co is ramping up spending to keep its working adult student base as these are more likely to pay back federal debt in a fiercely competitive education market that has seen tougher rules on federal aid.

The new rules, drafted after for-profit colleges were criticized for burdening students with debt and not fully preparing them for work, link a college’s access to federal aid with its students’ ability to pay back debt.

Federal student aid is a primary source of income at for-profit colleges.

Capella increased marketing and promotional spending by 18 percent to $35.3 million in its first quarter as it stepped up efforts to check a fall in new students signing up for its courses.

"We … will continue to expand our branding efforts in the second quarter in a disciplined manner," Chief Executive Kevin Gilligan said on a conference call with analysts. "We are prepared to increase spending, assuming a reasonable return on investment."

The company said it expects second-quarter new student enrollments to fall 40 percent as it feels the impact of increased competition and measures to meet the new rules. It said second-quarter revenue would be flat to up 2 percent.

Capella said the tuition fee increase for the 2011-12 academic year would be lower than its previous hike, and it will provide scholarships and grants to attract more students.

The Minneapolis, Minnesota-based company reported January-March adjusted earnings of 97 cents a share, compared with analysts’ estimate for 83 cents.

New student enrollments fell 35.8 percent.

Market leader Apollo Group , which last month reported a 45 percent drop in its new student starts, has forecast a drop in fiscal 2011 and 2012 revenues.

Capella shares were flat at $49.94 on Tuesday on Nasdaq. They have fallen by a fifth since reporting fourth-quarter results in February.

REUTERS