For-profits educational institutions are under increased scrutiny as stiff regulation, declining enrollments, limited capital and poor post-graduation performance have overshadowed the benefits offered by the for-profit segment for America’s nontraditional students.
School operators of today’s for-profit colleges are faced with a depressing fact: enrollment peaked in 2010, and isn’t expected to rebound any time soon. Most postsecondary colleges in the education segment rely on government funding and revenue from student tuition, whereas nontraditional pupils rely heavily on Pell Grants and Title IV financial aid to support their postsecondary education. However, against the backdrop of diminished financial aid prospects as a result of more strident regulatory oversight by the Department of Education, the post-graduation picture for these institutions’ students hasn’t been a pretty one. Default rates are high among graduates who also typically earn less than their nonprofit or privately educated counterparts.
Similarly, many banks that once helped to finance for-profit colleges have exited the sector at a time when more schools are being denied access to Title IV funding, leaving some with little option but to close. Corinthian Colleges Inc., one of the largest for-profit higher education organizations in the United States and Canada, made headlines in 2015 when it pursued a different tack: filing bankruptcy. It’s an option that isn’t readily to available to most institutions, though, because declaring bankruptcy eliminates access to the Department of Education’s Title IV funding. Unfortunately, many for-profit institutions are facing bleak prospects at this time.
As dismal sounding as the for-profit education landscape has become in recent years, there is room for hope. For-profit schools can also take steps to strengthen their own operations.
Here are five ways to do so:
For-profit schools are financed by the U.S. Department of Education. However, most of these schools cannot get through the school year without turning to their revolving credit facilities for working capital in lieu of generating adequate cash flow due to under-absorption of fixed campus costs. The using of a 13-week cash forecast can help operators to better forecast short- and long-term cash flows, preserve liquidity, and ultimately, conserve revolver availability.
Improvements in cash management can also be made when the school’s finance department works closely with its financial aid group to ensure that its loan processing and collection resources are operating in a coordinated fashion.
A careful review of a school’s fixed costs associated with faculty, campus facility utilization, building leases and vendors can help school operators to improve fiscal management and implement cost-savings programs. Property leases can often be re-structured with landlords to ensure continuity of campus operations at terms favorable to postsecondary institutions.
For-profit schools should consider the pricing of education programs carefully. Tuition and scholarships that are discount-structured in nature can help attract more students. The establishment of athletic teams and a traditional campus theme can also be used to increase student affinity for an institution. Being creative and taking a smart approach to tuition and curriculum will bolster pupil retention and translate into improved profits.
For-profit schools spend a lot on advertising and recruitment to drive student enrollment. There are typically opportunities to increase the cost efficiencies of existing marketing plans. For example, a third-party digital marketing firm could be employed to assist schools with improving the quality of the online leads that an institution receives, helping to reach target audiences more effectively and increase conversion rates at campus-based schools. Innovating attractively priced courses with flexible undergraduate degree programs can help to benefit existing enrollment incentives and marketing programs.
Campus-based programs can be revamped to incorporate more online modules and provide greater flexibility for students that may not be able to attend campus-based classes or have more interest in learning via the internet. Technology can also be used to track students’ progress and flag those that are at academic risk to prevent drop-outs and maintain enrollment levels.
Schools must re-evaluate their curriculum offerings to make sure the programs are aligned with the job market to improve post-graduation student outcomes. Highly focused, career-oriented programs will serve to enhance the employment prospects of for-profit students. Partnering with area businesses, too, is another way to develop courses that are suited to the needs of local businesses and offset costs.
Administrators and program directors should concentrate course and degree programs within subject areas with the highest job placement rates and most favorable gainful employment scores. Conversely, they should consider eliminating those programs with poor prognosis for employment and spend their resources where success is most likely.
Joseph D’Angelo serves as partner at Carl Marks Advisors, where he focuses on working with company management across a wide range of industries, including higher education and for-profit schools, specialty finance and lending, manufacturing, software, and telecommunications industries, to develop and implement business plans that restore top-line growth and increase enterprise value.
Editor’s note: An earlier version of this article contained an erroneous reference to a specific institution as a for-profit college.