Is the Bloom Off the Rose?

Rapidly deteriorating share prices; rampant short selling; abrupt quarterly declines in new customers, revenue and profits; proliferating federal and state investigations; multiple lawsuits; critical Congressional hearings and reports; executive resignations and replacements; proposals for significant new industry regulations; and endless talk of loan defaults.

No, this article is not about the mortgage finance industry or the Wall Street investment banking collapse — although it could be. All these circumstances today surround an industry that for many people might conjure images of ivory towers rather than the steel and glass canyons of lower Manhattan: for-profit higher education.

Over the past three decades, for-profit colleges have designed and implemented a business model that propelled enrollment growth at six times the rate of other American universities. This outcome has occurred just as our economy demands that the U.S. produce significantly more workers with college credentials than we are now, and do so faster. To their credit, the for-profits have made a contribution to addressing our nation’s “graduation gridlock” by catering to the growing mass of working adult students, while traditional universities have made only modest efforts to accommodate them.

Even as public and private nonprofit colleges and universities have been cutting budgets, staff, faculty, classes, programs, and student resources — and still losing money — the for-profit sector has continued to grow enrollments and profits until very recently. It did so by focusing on education as a business, structuring educational offerings to focus on students as customers.

But when some forgot this principle and in fact exploited their students (as well as the American taxpayer), they began a process of killing their “golden goose." Today’s for-profit colleges have become captives, as well as beneficiaries, of the Wall Street money machines that created them. Many now find that their equity shareholders are turning their backs on them just when they need them the most — a modern “live by the sword, die by the sword” parable. What has gone wrong for an industry that until recently was flourishing? Is the bloom indeed off the for-profit rose?

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