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Enrollment Slide and Cost Cutting May Signal Strategy Shift at U. of Phoenix


The Chronicle of Higher Education - October 17, 2012

On the surface, it might seem that the latest round of cost cutting and enrollment declines signals more bad news for the University of Phoenix and for proprietary colleges in general. But some observers of for-profit colleges say the moves reflect broad shifts in strategy and an effort to put the university's academic house in order.

The Apollo Group, which owns Phoenix, the nation's largest for-profit college, announced on Tuesday that it was slashing $300-million in costs, largely by closing 115 campuses and other locations. While those campuses serve only about 4 percent of the university's students, they represent about 40 percent of its square footage, according to the First Analysis Securities Corporation.

Apollo also announced that it was cutting 800 positions, about 5 percent of its work force.

Despite the drop in students and revenues, the company anticipates that its enrollment will be growing again by the end of the current fiscal year, said Mark J. Brenner, senior vice president for corporate communications and external affairs at the Apollo Group. "You make hard decisions with thoughtful input and move forward, putting the student at the center," Mr. Brenner said.

Part of the cost cutting involves adjusting the size of the company to reflect the declining enrollments. The number of new students at the University of Phoenix fell nearly 14 percent in the fourth quarter of the fiscal year that ended on August 31, as did overall enrollment. Students seeking an associate degree declined by nearly a quarter, the company reported.

Those figures are worse than many analysts had predicted, and add to the 19-percent drop in enrollments that the University of Phoenix suffered in the previous fiscal year.

The university continues "to be plagued by fewer new students, which translates into lower enrollments over all, and a tightening of profit margins," said Kevin Kinser, who studies proprietary colleges as an assistant professor of educational administration and policy studies at the State University of New York at Albany. "This is not a temporary anomaly but a worrisome trend," Mr. Kinser wrote in an e-mail.

Steven Gunderson, president of the Association of Private Sector Colleges and Universities, the for-profit sector's main trade group, said the enrollment declines across the industry stemmed from the sluggish recovery of the economy. While students flocked to for-profit colleges at the beginning of the economic downturn, they are reluctant to spend more money on their education until they are more certain that there will be jobs waiting for them, he said.

Growth Online and Abroad

Closing physical campuses means that the company expects to shift more students and new enrollments to strictly online or blended courses, Mr. Kinser said.

First Analysis echoed that interpretation, saying it expected many students affected by the campus closures to move online or to another location.

Mr. Brenner said Apollo was investing $1-billion in a new online-learning management system, and spending millions more on a portal that will connect some 2,000 businesses to the university to provide job and skills training. The latter will also serve as a place for students to connect with potential employers, Mr. Brenner said.

In addition, Apollo is putting more emphasis on expanding its international operations in order to escape regulatory burdens in the United States, Mr. Kinser said. In its fourth-quarter report, the company noted that it had purchased an investment group's $43-million share in the Apollo Global venture.

"International markets represent interesting growth opportunities," First Analysis also concluded.

Mr. Brenner said Apollo wanted the "opportunity to control our own destiny on the global side" and to be able to offer its services to the 250 million people across the globe who need access to high-quality postsecondary education.

Over all, however, the changes mean the Apollo Group is realizing that its business model won't work without a strong academic model, Mr. Kinser said. The job cuts do not affect members of the instructional staff, he said, and the university has begun several efforts to attract and retain better-qualified students.

Mr. Gunderson said regulatory pressures and a push for accountability are also forcing proprietary colleges to be choosier in recruitment.

"There is a tension between open access and completion, and the schools are taking the steps to more carefully determine who to enroll based on indicators that show they are likely to complete," he said.

Mr. Brenner said the regulatory pressures had actually improved the University of Phoenix. "The heightened interest in measuring outcomes has made us a better institution," he said. "It's allowed us to focus on what our students need and what will make them successful."