For-profit Schools Focus on Marketing

According to a Reuters report at the end of 2012, the biggest advertiser on Google is a for-profit school, the University of Phoenix.  Such expenditure on advertising and marketing to get students in the door is typical of for-profit universities.  These schools spend more on recruiting and enrolling students than on educational infrastructure.

The for-profit education industry blames a downturn in its fortunes for the need to increase marketing.  Stepped up federal scrutiny has also hurt enrollment as students worry that federal aid may not be available to them if they enroll.  Bad press, law suits and accreditation woes have also helped keep students away. As less expensive, accredited non-profit colleges enter the online realm – the thus far traditional bailiwick of for-profit schools, the market share for profit oriented schools has been eroded.

Critics say that intensive marketing at the expense of education has always been the driving force behind such schools.  The schools respond by saying they focus more on job skills than traditional education, focusing on giving graduates a practical leg up in their chosen field rather than a broader foundational education. Analysts expect some of the more familiar brands, such as Apollo Corp.’s University of Phoenix to “compete in the low-end of the market by building a second brand, which it would likely do by acquiring another college.”

The practice of boosting marketing and slashing costs to please investors raises flags from both business and ethical perspectives.  For profit colleges compete with traditional schools for students.  Schools, such as community colleges, see students as a source of sustainable funding to continue their educational mission.  On the other hand, schools such as the University of Phoenix see enrollees as a revenue source from which to derive profit.

While this is not an inherently problematic practice — the tens of thousands of students enrolled with University of Phoenix certainly speak to a level of customer satisfaction — it does make one wonder just how well the business’s customers (students) are being treated in the long run. The problem such schools have is that they offer an inferior (in an economic sense) product. The economic value of a degree from a for-profit school tends to be less than that of a degree from a traditional school, whether due to accreditation issues or public and/or employer perception. Moreover, the degrees from for-profit schools tend to be more expensive on a per-credit basis than courses from community colleges and many accredited public schools.

Rather than putting their dollars into creating a better product, schools are using their funds to beef up marketing.  This means that such schools are exemplifying a sales orientation, really, rather than a customer orientation.  Further, such schools compete for – and accept as a major source of revenue – state and federal financial aid dollars.  Students go into debt to attend such schools.  It seems a little less than ethical to coerce students to incur debt to attend a school that is more focused on separating a student from her money than in educating and graduating the student.

Meanwhile, nonprofits like community colleges and other public schools, must keep raising tuition to make up for shortfalls in both tuition and tax base.  At the same time, several for-profit schools are increasing marketing budgets while slashing other costs in order to lure more students.  This, for the most part is to satisfy investors, which such institutions clearly deem to be their most important constituents.

It seems that from a sales perspective, they are alienating their customer base to bolster stock price.  In the long run, this could prove to be a mistake.  By ignoring students and — as the federal government alleges — their employment prospects, for profits will continue to rankle regulators.  This in turn could affect for-profit schools’ ability to qualify for federal student aid.  Without such aid, students are less likely to be able to afford to enroll in a for-profit’s courses.  Fewer students means fewer revenues.  Fewer revenues means unhappy investors and lower stock prices: a lose-lose for all involved.

Comments

    • You know, I had read earlier that they were no longer going to guarantee free admission to everyone, but the extent to which the school was going to implement the policy hadn’t been decided yet. Thanks, Christiana, for the heads up — I really appreciate it and I’m sure we’ll be talking about this in a future post.

  1. I always enjoy your blog and writings, but this is an incredibly irresponsible article, which (from a purely Journalism standpoint) is forgivable, since you are not what society considers a “report the facts/truth” journalist, essentially.

    However, as someone whose blog many people turn to for insightful, articulate, and intelligent advice, you need to do actual research and use factual data on something this important, rather than just disseminate opinion or regurgitate the Cliff Notes of prior reports.

    I attended UoP for my MBA and — since I can be a wiseguy sometimes– I chose to research UoP and Apollo Group (and other for-profit colleges) for almost ALL my courses and projects, both individually and in study groups. Fascinating business models, across varied platforms.

    The shocking thing I found is that – contrary to your assertions above—Apollo does invest $$$ significantly in the student experience. While they do spend a fantastic $$ sum on marketing and promotion (understandable, given the propensity for negative press) they also have managed to reinvent themselves toward becoming the university of choice for the ever-growing adult learner population.

    How?

    For one investment, they purchased Carnegie Learning (yes, that Carnegie) and pioneered some highly sophisticated adaptive learning software to help each individual student get a personalized identification of their specific problem areas, and adapt to learn how each one learns best. Fellow alums stressed their ability to master certain classes (like Math!) that are normally a stress-inducing challenge.

    UoP provided with several financial planning options (and recently began offering the excellent iGrad ™ system) to help reduce the overall cost of attendance. One thing I was delighted to find at UoP was how often they encouraged me NOT to unnecessarily borrow more money than I needed, and helped me find scholarships and an employer discount. You mention the “per-credit-hour” cost comparing state colleges to for-profit colleges. [the degrees from for-profit schools tend to be more expensive on a per-credit basis than courses from community colleges and many accredited public school] While that is true, what you and most other people fail to consider is something that UoP gave me up front: the BOTTOM LINE total cost. Not just “per credit” but fees, parking, labs, books, resources, tutors, etc. All that stuff most adults MUST have at a traditional college ADD UP and often excessively. I will admit I was surprised but reassured when UoP told me how much debt/personal investment I would have at the end of it all, and how I could effectively manage that down. None of the state colleges I visited offered similar transparency, if they even knew all those costs at all (nor could they accurately predict when I would finish, or IF the classes I need were available – ugh, what a headache).

    Another huge investment UoP made in the student experience is their own internal social media network for students and alumni, called Phoenix Connection. Anyone can discuss good and bad points about their school anonymously online – but what other college provides the media forum to hold those discussions within the academic setting? I found career advice, class advice, networking prospects, and even personal support and encouragement (and honestly, some moderated negativity too).

    Finally, let’s look at one of those “dismal” graduation rates: UoP lists a 33% overall graduation rate – sounds dismal sure, but compared to both traditional and non-traditional students (national avg is approx. 40%) this is a shockingly good completion rate, considering most adult learners are balancing job(s) and family and extracurricular activities and volunteer work and bills with now add in years of online or on-campus school attendance and homework and everything else we deal with daily. (Wed sources: UoP 2012-13 Consumer Information Guide; ACE.org and NCES.ed.gov)

    Now, my reply is NOT an advertisement for UoP (though in proofreading this, it does sound like it!) nor am I paid for this, ha ha. But I do want you and your readers to do serious investigative research when choosing a college for yourself or your children. “For-Profit” is not a bad thing… no college is designed to operate “for-loss” – at least DeVry, ITT, Kaplan, and UoP do not drain the local economy; actually, they employ hundreds of private citizens who also pay taxes into the state and federal coffers. Business School 101: any quality for-profit organization will take a significant cut of that profit and re-invest it back into their paying customers’ experience… or those customers will find somewhere else to give their dollars.

    • I appreciate your opinion and readership, however, I have to disagree. Apart from the bits that are clearly opinion (and it’s a blog, so I get to do that), the statements in this post are pretty well backed up by fact. You may want to take another look at your analysis of Apollo’s business model in light of the following:

      Its stock lost 65% of its value in 2012 (http://finance.yahoo.com/q/bc?s=APOL+Interactive), and has yet to recover to even half of its high point from last year;

      A Senate investigation, as reported by Reuters, CNBC, etc. (see, e.g., http://m.nbcnews.com/business/profit-colleges-spend-big-online-advertising-1C7314340) stated, “Many for-profit colleges make decisions that prioritize their bottom line, even when those decisions limit their students’ opportunities for academic success.”;

      Due to a steep decrease in enrollment and falling profits, Phoenix announced last fall that it was closing nearly half its campuses and cutting 800 jobs by fiscal 2014 (http://www.insidehighered.com/quicktakes/2012/10/17/university-phoenix-closing-115-locations); and

      According to an Apollo Group release in February, its accreditation is being placed on probationary status (http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1hSFIwY0RvdkwyRndhUzUwWlc1cmQybDZZWEprTG1OdmJTOWtiM2R1Ykc5aFpDNXdhSEEvWVdOMGFXOXVQVkJFUmlacGNHRm5aVDA0TnpVd01qY3lKbk4xWW5OcFpEMDFOdz09JnR5cGU9MiZmbj1BcG9sbG9Hcm91cEluYy5wZGY=).

      But I’m sure the internal social network is real nice.

      • Yes, the stock is in the tank as many Ed stocks are now, but that is not an indication of the academic quality, more the economic climate the sector is in now. Good time to buy now, since it should recover w/in 2 years.

        Yes, the Senate investigation said “many colleges do things that limit academic success” but I was just stating that was not my experience, nor the experience of 700K alumni and I think almost 300K current students. I think UoP (mostly, not completely) bucks that trend.

        Campus closures: I think UoP grew too big too fast. Actually predicted that one in an MBA course, thank you (pats self on back). The student mix for UoP and now many major colleges is predominantly ONLINE learning — I am glad to see UOP finally getting back to their original business model that fueled their success – convenient Internet-based learning that meets the student at THEIR best option.

        Another common misconception. From what I read, the HLC-NCA accreditation is not at risk at all, nor is the academic quality called into question – quite the opposite, actually). It sounds more like the accrediting people have a problem with corporate governance, and UoP not having enough autonomy apart from the parent company (Apollo Group). I’ll bet that if they need to, UoP will cut most corporate ties w/ Apollo to sustain the academic integrity of the university. But UoP remains fully accredited, and I’ll bet my $20K MBA that they will remain so for the sake of those 100K students/alumni previously mentioned.

        The social network is nice; was not necessarily a selling point for me, but for someone looking to take advantage of that vast alumni network it provides some unique opportunities. Now if only they could figure out a way to sync their student body with alumni via LinkedIn, there would be something quite beneficial.

        Keep up the good work.

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