School Closings: Why These Colleges May Have to Shut Down

Source: Thinkstock

Source: Thinkstock

Corinthian Colleges, once one of the largest chains of for-profit schools in the country, is bankrupt. The company filed for Chapter 11 protection on May 4, 2015, one week after it shut down its 28 remaining campuses. Less than a year ago, more than 70,000 students were enrolled at the school.

In a statement, Corinthian execs blamed the “current regulatory environment” for the closure. The chain had floundered after the U.S. Department of Education cut off access to federal student aid and the Consumer Financial Protection Bureau (CFPB) and several states filed lawsuits claiming the school used a grab bag of tricks to convince students to enroll and take on ruinous amounts of private debt to finance worthless degrees.

“We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school,” said CFPB director Richard Corday in a statement.

Corinthian’s collapse was dramatic, and it may be just the first for-profit school to fall. The for-profit college industry as a whole is struggling with declining enrollments and new rules designed to make sure that students are able to find work after they graduate. Investors are also on guard. The Securities and Exchange Commission recently charged ITT Educational Services, a major for-profit college chain, with fraud, claiming it concealed from investors serious problems with the student loans it offered.

All in all, things aren’t looking good for an industry built on making money on people’s hopes for a better life, with several other private college chains now struggling to survive. Whether the schools operated by the following three companies will be around for much longer will depend on their ability to prove that they’re actually helping students, not just selling them a pipe dream.

Source: Thinkstock

Source: Thinkstock

1. Career Education Corporation

Like Corinthian Colleges, Career Education Corporation operates many “career colleges,” which typically offer degrees or certificates in fields like criminal justice and medical assisting. Advertisements like this one for the company’s chain of Sanford-Brown Colleges focused on its “short-term” and “hands-on” offerings designed to prepare students for specific jobs and “get their career back on track.”

The problem? Many students weren’t actually able to find well-paying work after completing their studies and job placement figures provided by the school were bogus. The Obama Administration’s new “gainful employment” rules, which require schools to show that the average student isn’t paying more than 8% of their total income in loans after graduation, would have hit the chain hard. So, in early May, the company announced that it would wind down operations at 14 Sanford-Brown campuses.

In addition, Career Education Corp. has either sold or is trying to sell several other career colleges it owns, including Briarcliffe College, Brooks Institute, Missouri College, and the Le Cordon Bleu Colleges of Culinary Arts. The company plans to focus on its two universities: Colorado Technical University and American InterContinental University, which enroll 75% of the chain’s students, according to PBS.

“Declining student enrollment and financial losses at our career college campuses, combined with the ‘gainful employment’ regulations issued last year factored into our decision,” said Ron McCray, chairman and interim CEO of the Illinois-based company, in a statement. “The future direction and core offering of career education will be driven by degree-oriented, higher education offered through our regionally accredited universities.”


2. Education Management Corporation

Education Management Corporation is a big player in the for-profit education industry. The company owns The Art Institutes chain, Argosy University, South University, and Brown Mackie College. In total, it serves about 112,000 students around the U.S.

Like Corinthian and Career Education Corp., many of Education Management Corporation’s schools focus on career education and training, which means that it will have to comply with new gainful employment rules if it hopes to continue to have access to federal student aid money. But the chain faces other problems as well. It recently completed a massive debt restructuring and eight of its 11 board members resigned, according to a report in the Pittsburgh Business Times. In October 2014, the company voluntarily delisted itself from Nasdaq.

Then, in early May, the company announced that it was eliminating 25% of its Art Institutes campuses. Fifteen of the company’s 52 campuses will eventually shut down, affecting 5,400 students, according to PBS. Whether the cutbacks will be enough to turn this struggling chain around remains to be seen.

Source: University of Phoenix Official Facebook Page

Source: University of Phoenix Official Facebook Page

3. Apollo Education Group

We’ve told you before about some of the problems facing Apollo Education Group, which owns the University of Phoenix and several other schools. Enrollment at the University of Phoenix, which is the largest for-profit university in the U.S., has fallen 50% in the last five years. Its stock now trades at about $17 a share, down from over $30 a share at the end of 2014.

Like other for-profit schools, U of P is facing questions about its high tuition, aggressive recruitment and marketing strategies, high rates of student loan defaults, and low graduation rates, according to a report in The Atlantic. Plus, state universities and non-profit private schools have stepped up their online offerings, attracting many students who might otherwise have considered the University of Phoenix.

Despite the chain’s slumping fortunes (it lost $33 million in the second fiscal quarter of 2015 alone), there are still more than 200,000 students enrolled at the University of Phoenix. While the future may be a bit rocky, there’s no sign that the school will shut its (virtual) doors any time soon. However, its dominant role in higher education may gradually shrink.

“While we still believe that Apollo is an important player in the for-profit education market, it does not command a competitive advantage amid tightening regulation and stout competition from traditional higher-education institutions,” wrote Morningstar analyst Rodney Nelson.

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