For-profits are waking up and smelling the coffee. After several years of undeserved record growth, enrollment is slowing at for-profit universities. This, coupled with a changing regulatory environment, is causing the for-profit sector to re-think their strategies and make some changes…and fast.
One regulation, which is already scheduled to go into effect, will make it harder for colleges to “manage” their rates of student-loan defaults because defaults will be measured over a period of three years after a student graduates or leaves school, instead of two. The other is the proposed “gainful employment” rule that could require colleges to eliminate or restrict enrollment in programs where students graduate with high levels of student-loan debt relative to what they earn. For-profit colleges have lobbied heavily against the rule, and the Education Department has delayed issuing a final version of it until early next year.

In order to stop the trend of decreases in enrollment (some enrollments are dropping as much as 40%), for-profits are moving as quickly as the can. “Rarely does an industry change abruptly,” as this one has, says Jerry R. Herman, an analyst with Stifel Nicolaus. But he notes that the previous few years were unusually heady for the industry, with annual enrollment growing by about 17 percent in 2008 and by 28 percent in 2009, versus the historic growth rate of about 10 percent to 11 percent.

Rising unemployment rates, enrollment caps at budget-squeezed public colleges, an “accommodating” regulatory climate, and the ability to pay enrollment counselors partially on how well they landed students all contributed to the “unsustainable growth” of the past couple of years, he says. “It was a friendlier world.”

Guess that’s over now!