What Company Earnings Reports Tell Us About Gainful Employment Regulations

While industry lobbyists cry wolf by claiming that proposed gainful employment regulations will destroy post-secondary options for poor and minority students, for-profit college earnings reports to Wall Street tell a different story. None of these companies is telling its investors that the new regulations will shut down their programs. Instead, their real concern is that fewer students are choosing to enroll. Last week Strayer reported that enrollment dropped by 20%. Apollo (University of Phoenix) also reported a 42% decrease in new enrollments.

It’s still a profitable business and students still have many, many options for degrees and certificate programs. So, why the millions spent on advertising and lobbying to fight the regulations?

Simply put, fewer students means fewer paying customers, leading to lower earnings that cannot support the previous stock valuations. But, while the proposed regulations are not perfect, they are a step towards a critical goal: to drive a big change in the incentives for colleges.

Just as our country realized that we needed to change the incentives in the home mortgage industry away from giving out as many $400,000 mortgages as possible, we’ve also realized the fallacy in setting up a system that rewards colleges for signing up the most students for federal loans. The regulations are an attempt to change the incentives for companies away from a numbers game and towards a focus on the outcomes for these students.

And, despite the rhetoric, it may be starting to work. University of Phoenix and Kaplan are adjusting their business model to try to improve the student experience by allowing students to first “try” classes before committing. When you see companies no longer touting just enrollment growth, but also graduation and other measures of student success as reasons to invest, then we’ll know that we’ve got the incentives right.

Tagged as: For-Profit Education, Gainful Employment, HBCU's, Student Loans