Online-instruction leader to make key changes

Critics charge that for-profit schools are accepting unqualified students.
Critics charge that for-profit schools are accepting unqualified students.

In a move that might trickle down to the rest of the for-profit education market, the University of Phoenix—the nation’s largest provider of online college classes—says it will offer new students a free, three-week trial program to see if they are ready for its curricula and for online instruction in an effort to weed out those at risk of leaving school before earning a degree.

The announcement comes as the federal government ramps up its regulation of for-profit colleges and universities, an industry that critics say preys on many students and leaves them with hefty debt loads and meager job prospects.

But Apollo Group Inc., the company that runs the University of Phoenix, says this change—and others the company will make as it seeks to comply with new federal guidelines—likely will result in fewer opportunities for lower-income students.

The university also says it will take a big hit to enrollment—and its bottom line—as it tightens its admission practices.

The number of lower-income students enrolled at for-profit colleges has surged in the past few years. Big advertising budgets drew those trying to bolster their resumes as a hedge against high unemployment. But critics claim the schools are not helping students find better jobs, and they say enrollment counselors sign up many who are unprepared for higher education and for online instruction. When these students drop out, they are still stuck paying back their student loans.

Defaults on student loans have been rising, sticking taxpayers with the bills. So the government has proposed regulations that could limit for-profit schools’ access to federal financial aid if their graduates’ debt levels are too high or if too few students repay loans.

Besides offering new students a free trial program to see if they are ready for its University of Phoenix curricula, Apollo Group says it no longer will pay its counselors bonuses based on how many students they enroll.

“Now, they have to slow down enrollment and be less active in targeting these students. They have to go back to the more traditional students who are working adults,” said Matt Snowling, an analyst at FBR Capital Markets.

The Phoenix-based company also is monitoring 30,000 conversations every day between its employees and prospective students after a government report showed some for-profit colleges engaged in allegedly deceptive recruiting practices.

It is trying to attract more employer-sponsored students in its classrooms and to its online college classes—and it likely will end up with a wealthier student body.

“There’s going to be fewer associate students. Generally, associate students tend to be a lower-income demographic,” said BMO Capital Markets analyst Jeff Silber.

But the tighter admissions standards come at a cost. Apollo said it expects the number of new students enrolling in its programs to drop 40 percent in the next quarter, and the company withdrew its profit outlook for next year.

The news sent chills throughout the industry as investors worried that other for-profit schools would issue similar forecasts.

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