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.