It’s not all sunshine for for-profit universities
Tom Dougherty, CEO – Stealing Share
8 September 2014
For-profit universities must beware
The fact that a few of the leading for-profit universities are seeing their stock prices rise may seem like good news, but a deeper look demonstrates that most are heading down the wrong, well-worn path.
For example, Strayer’s shares have risen 75% over the last year, the first bounce it’s seen in five years. In that span, the price had dropped 70%.
“It’s a route heading into disappointing returns again for the for-profits.”
But the reason investors are interested again is because those online universities are cutting costs and lowering tuition. This is basically the equivalent of a business like, oh, Circuit City laying off workers, putting everything on sale and, soon enough, closing its brick-and-mortar stores.
This has been the basic problem with for-profit universities for years. In fact, a few years ago, we published a study on universities as a whole, including examining the for-profit ones, and came to that same conclusion.
As we noted then, “For-profits seek to strike a cord with low-income potential students looking for degrees to change their life’s circumstance.” That’s gotten them into trouble in the past with investors and government regulators alike. As CNN reported today, “Critics of for-profit colleges argue that they prey on the poor by over promising and under delivering on career prospects after graduation.”
So, basically, the rise in shares for for-profit universities (DeVry’s shares have risen 20% while Capella has jumped 13% in the past three months) is because of the same exact reasons why they were in trouble in the first place: Lack of depth among degrees (cutting costs) and preying on lower income students (cutting tuition).
It’s a route heading into disappointing returns again for the for-profits. It’s just being done a little more drastically. The for-profit universities need a different approach or their reputations – and bottom lines – will take a hit again.
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