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For-profit Career Education Corp. to close 23 campuses

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For-profit college giant Career Education Corp. announced that it will close 23 of its 90 campuses and eliminate 900 jobs after the company reported a net loss this quarter of $33 million and a 23 percent drop in new student enrollment.

The company, which owns six campuses in California, has not said which of its campuses will close, but stated in a disclosure to the U.S. Securities and Exchange Commission that it wants to invest in campuses that have the strongest likelihood of delivering solid job placement rates for students and are the most efficient.

The company has not yet notified the campuses that will close but will begin to in the next 30 days, Chief Financial Officer Colleen O’Sullivan said in a conference call Friday.

In California, Career Education runs the California Culinary Academy in San Francisco, the International Academy of Design & Technology in Sacramento, the Brooks Institute in Santa Barbara and Ventura, and two Le Cordon Bleu campuses in Los Angeles and Sacramento.

Career Education is among several publicly traded for-profit education companies downsizing amid steep declines in enrollment and profits. The University of Phoenix said last month that it will close 115 locations, and Corinthian Colleges Inc. disclosed earlier this year that it will close three Everest College locations and sell four others.

“When I arrived, I said this year would be a year of transition for both the sector and for Career Education. That turned out to be an understatement,” CEO Steven H. Lesnik said during the conference call. “In fact, the year wasn’t just transitional; it was transformational. Those companies that don’t transform will see the shrinkage of the last two years continue.”

The moves illustrate how tighter regulation of the for-profit education sector has thrown a wrench into its business model, which was focused primarily on enrolling huge numbers of new students every year, said Kevin Kinser, a professor of higher education policy at the University at Albany, State University of New York.

The U.S. Department of Education, for example, last year expanded a ban on incentive compensation – paying admissions representatives or recruiters based on the number of students they get to enroll.

“To the extent that was an effective strategy for increasing new enrollments, that is kind of what blows a hole in their business model,” Kinser said.

In addition, students are increasingly wary of taking on student loans – a factor that affects for-profit colleges because they tend to have higher tuition than other institutions and get the lion’s share of their revenue from federal financial aid, Kinser said.

Career Education has seen total enrollment drop 22 percent since last year, from 104,400 students to 81,600 in 2012.

In the past couple of years, the company has faced a number of regulatory and legal challenges. Career Education revealed it had inflated job placement rates for its graduates, attracting scrutiny from accreditors.

When the company released its new job placement rates – which officials said are accurate – most of them had rates that fell below the minimum rate of 65 percent required by the the Accrediting Council for Independent Colleges and Schools.

In California, the International Academy of Design & Technology in Sacramento lost eligibility [PDF] for Cal Grants this fall because 20 percent of student borrowers were defaulting on federal student loans. In order to be eligible, colleges need to keep their loan default rates below 15.5 percent.

Last year, six campuses owned by Career Education failed to comply with a federal regulation that requires colleges to get no more than 90 percent of their revenue from federal financial aid. Those campuses were Sanford-Brown College campuses in Georgia, Massachusetts, Connecticut, Missouri and Virginia, as well as Missouri College.

And in 2010, Career Education agreed to pay $40 million to settle a class-action lawsuit in which former students said the California Culinary Academy had misled them with its claim that 97 percent of graduates got jobs in the field.

After a major shake-up of its management team, the company is focusing on improving compliance, Lesnik said. The company plans to reorganize remaining campuses to focus less on getting students in the door, he said.

“Our goal is to no longer put disproportionate emphasis on starts and population,” he said. “Our goal is not only to provide high-quality career-focused education, but to evaluate where there are identifiable employment needs that coincide with our program offerings and students’ education.”

Jamienne Studley, president and CEO of the nonprofit Public Advocates, said the shift shows that all the effort that's been poured into policing the for-profit college sector is paying off. Public Advocates was among the supporters of AB 2296, which expanded disclosure requirements for for-profit colleges in California.

"We obviously have to watch the outcomes that they deliver and the student reports of what the effectiveness of the programs will be to judge if those claims are really true, but I think it's a hopeful sign," Studley said.

Filed under: Higher Ed, Daily Report

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