For-Profit Schools are Entering Era of Tighter Federal Regulations

As for-profit schools head into perhaps the industry’s most difficult year, all eyes will be on Apollo Group Inc.

The company, based in Phoenix, is the largest private-education company in the U.S. and the corporate parent of the University of Phoenix, which has 438,100 students around the country.

From universities to culinary schools, for-profit institutions are grappling with falling new-student enrollment and much tougher federal rules.

One proposed rule, which is expected to be finalized this spring, will restrict students from using federal financial aid to pay for programs that rack up excessive loan debt but train students for occupations with relatively low entry-level salaries.

A second rule, which will go into effect this summer, will close loopholes that allowed admissions counselors to be compensated based on how many students they signed up

And the industry, which enjoyed years of Jack-and-the-beanstalk-style growth in enrollment and profits, has seen some of those gains level off.

Greg Cappelli, who shares Apollo’s CEO mantle with Charles "Chas" Edelstein, says that he welcomes the attention.

In recent months, in a bid to reduce the number of dropouts, the University of Phoenix has implemented a three-week orientation program for students with little prior college experience.

"The Apollo Group, the University of Phoenix, is going to be a very important company in this industry for a long time, but we are going do it the right way," Cappelli said. "Whether that means financially we take a hit this year, I’m confident that over the long term that we will be a financial leader because you can do things right and make a profit in this industry."

In a wide-ranging interview, Cappelli talked about the academic rigor of University of Phoenix courses.

"The University of Phoenix is not easy," Cappelli said. "See, some people think ‘convenience’ means ‘easy’ and it’s not."

He also argued that expanding educational choices will help the U.S. compete abroad.

Other excerpts from the conversation:

Question: Are the days of huge financial and enrollment growth over for for-profit schools?

Answer: I think because of the size of some of the institutions, they won’t grow as fast. I will say this: I am not in favor of regulating growth. I think what you regulate is quality.

And the reason I say that is because if the free-market system can provide capital to our country and that capital can go into educating people and because of that investors make a profit off of that – but because of that lots of people benefit?

That is a good thing in my opinion. . . . I completely agree that you have to make sure that people are giving students an education and are doing it the right way.

Q: Are some schools more vulnerable to the new federal rules?

A: I think some of the trade-school-type programs may be more vulnerable because of gainful employment (the anticipated federal rule about debt and entry-level salaries). . . . Gainful employment will cause programs, in areas such as nursing or teacher education or law enforcement, (for) for-profits not to be able to offer them . . . (because the federal formula) uses first-year salaries.

I can tell you my first-year salary for what I wanted to do wouldn’t have qualified. It takes time.

Q: The industry is in the middle of a difficult period. How long will this last?

A: It’s hard to say exactly. We are so focused on what we’ve told people who we are responsible to: first our students, our employees, our shareholders.

We’ve said we are going to do the right thing for students. We are going to get it right. We are going to make sure that we are treating them like our brother, son, sister or daughter.

We’re going to make sure that they are getting a good education and they are doing it at price point where they don’t have to go way outside and borrow lots of money from family members or third-party lenders.

Q: Executives at for-profit schools talk a lot about competitiveness.

A: Just watching the president’s (State of the Union) speech just resonated with me so much. I mean, what does he say? He has said that we have got to be more competitive in the world in terms of educating our workforce.

We have 132 million people in our labor force over the age of 25. Two-thirds of them do not have a bachelor’s degree. . . .

And if you look at other countries . . . I have been fortunate enough to travel both at Credit Suisse and here to lots of different countries, China, Latin America, India and parts of Europe, and I’ll tell you emerging countries are investing a lot in education. . . . So my concern is how are we going to compete globally in the United States? We are losing our competitive edge.


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