Tuesday, January 08, 2013
Burying the Lede
(Hat-tip to Sarah Pavlus for highlighting this one.)
Sometimes I remember that we academics read differently than most people.
Bloomberg news yesterday ran a story about the University of Phoenix, in which it reported drops in quarterly earnings and share price as a function of a drop in enrollment. The headline reflected net income and enrollment. But the real news was buried in the fifth paragraph:
The company is also expecting to receive a draft report from its accreditor, the Higher Learning Commission, said Gregory Cappelli, Apollo’s Chief Executive Officer, during a conference call with analysts and investors. He said the company believes it will be placed on notice, which would require follow-up reports and action.
Whoa. In my world, that’s stop-the-presses news. (Okay, I’m old. What’s the internet version of stop the presses?) The Higher Learning Commission of the North Central Association is planning to place the country’s largest for-profit college on notice? And it’s likely enough that the CEO was comfortable revealing it on a conference call with investors?
That’s huge. That’s way more interesting than this week’s share price.
Stock prices fluctuate; it’s what they do. But a potential loss of accreditation -- which would come after “notice,” admittedly, but that’s what the “notice” is about -- would mean a loss of eligibility for Federal financial aid. That’s the lifeblood of Phoenix’ operation. It literally would not survive without students having access to that money.
The rest of the story returns to the stock price, which, to my mind, is a grand exercise in point-missing. If Phoenix were to lose its accreditation, this week’s stock price would quickly become a memory.
The story doesn’t give a reason for North Central’s prospective notice; we’ll have to wait for the folks who understand higher ed to get in there and find that out.
In the for-profit world, the demarcation between the regionally accredited and the rest is effectively the demarcation between major and minor league. The few who have attained regional accreditation aren’t shy about it; they treat it as validation, which, in a way, it is. And it’s a hunting license of considerable import. (That was why certain for-profits spent much of the early 2000’s buying the accreditations of failing nonprofits, essentially treating them as taxi medallions. I’m told that the accreditors eventually clamped down on that, which is all to the good.)
My hunch is that the for-profits have peaked. Their model brought certain efficiencies -- some thoughtful, some ruthless -- but ultimately couldn’t get past the same issues that plague traditional higher education. Convenience and occupational relevance are valid selling points, but they’re relatively easily copied. And it’s hard to compete on price when one sector is both taxed and unsubsidized while the other is subsidized and untaxed. Now that many publics offer online programs with vocational relevance, and at much lower cost to students, I’d expect to see some panic in the for-profits. And since for-profits have neither endowments nor appropriations to cushion the blow from lost tuition, the fall could be hard.
There’s much more to this story, and I look forward to seeing it unfold. I just hope that future reports don’t bury the lede quite so egregiously.
Did you know that the University of Phoenix has a stadium?
Any chance the regulator is concerned about outputs (learning) rather than inputs?
If inputs, isn't that fairly easily cured with a little money?
It's not so much a matter of comfort as it is of liability - withholding material information from investors is pretty serious, and the SEC sends several people to prison for this every year. And there is also substantial civil liability.
There are a lot of proprietary schools experiencing similar difficulties, including Proprietary Art School, where I teach part-time. Over the past year, our enrollment has steadily declined. I wonder what the causes might be? Perhaps it is simply because as the economy improves even a little bit, more and more prospective students are able to find jobs and fewer of them choose to go to college. Or perhaps the problems are more serious than that—maybe students are finding that a degree from a proprietary school such as ours isn’t really worth all that much in today’s job market, and that they could get just as good a deal at the community college across the street for a fraction of the cost.
Glad to see that the accreditors are tightening up, at least a little bit. For a while, I imagined that accreditation was a very easy process and was almost automatic, that you could even accredit a ham sandwich:-) And that once you had accreditation, it was almost impossible to lose it, unless you did something really stupid or really bad. But is interesting to read that the accrediting agencies are clamping down on the practice of proprietary schools buying out failing schools just to get their accreditations, and that schools running slipshod or shady processes just to save a little bit of money are being put on notice that unless they run tighter ships they could lose their accreditations.
I wonder how the accrediting agencies view a situation in which a large fraction of a school’s teaching is being done by adjuncts or part-timers. I have heard that the accreditors require that a certain minimum fraction of the teaching at the school be done by regular, full-faculty rather than part-timers, but I don’t know what this minimum fraction is. This fraction might actually be rather small, requiring only that each department have a minimum of just one full-timer.
Higher ed is definitely not a growth industry nowadays. First the weaker and more marginal proprietary schools will go down the tubes, followed shortly thereafter by some of the larger and more powerful of the for-profit schools filing for bankruptcy. Then the higher-ed disease will spread to the community colleges, and then next to the lower-tier SLACS and to the less prestigious of the research universities. Soon, just about the only schools that will be left in business will be the snootiest of the SLACS or the highest-level R1 universities. In the not too distant future, most higher-ed learning will consist of students sitting in front of computer terminals, taking MOOC classes from some remotely-sited superstar professor.
ArtMathProf asks "I wonder how the accrediting agencies view a situation in which a large fraction of a school’s teaching is being done by adjuncts or part-timers."
We got a hint of a newer answer to that question in the problems reported this summer for the university owned by the sponsor of the Bridgepoint Education Holiday Bowl in San Diego. You can look it up on IHE.
I'll also add that I suspect my CC is not the only public college seeing some drops in enrollment as the financial aid rules tighten up and we come out of the Depression. The effects of negative growth must be even worse at a proprietary school, especially if its business model assumed growth.
The statement doesn't say much -- only that there's a regularly scheduled comprehensive review, the visit has been completed (148 campuses and locations over three months!). "In the coming months, the findings and evaluations of the review team will be presented to the Commission’s decision-making body for final action. In keeping with Commission policy and practice, no outcomes of the evaluation are deemed official or made public until the conclusion of the process."
The process would ordinarily involve the institution under review getting the "Draft Report" and having opportunity to reply. A final report then goes to the HLC Board. HLC would typically not report anything publicly until it reports Board action, after the next regularly scheduled meeting after the reply period.
The language the Apollo Group used about the expected draft report was being put "On Notice." That's not the same as losing accreditation. It means that deficiencies were found on one or more accreditation standards that if uncorrected could lead to loss of accreditation. Typically, a institution would then have, say, two years to correct the issues and submit a report documenting the actions taken. "On Notice" is worse than just renewal, obviously, and worse than just having to submit a report, but not as bad as being placed on probation (which is not as bad as loss of accreditation, also obviously).
Until we know more, we don't know more. (Also obviously.)
SEC filing says Phoenix expects to be put on probation, not merely on notice, for being inusufficently independent in governance from its parent corporation, The Apollo Group. The Visit also raised concerns about assessment, reliance on federal financial aid, graduation rates, and other matters.