For-Profit Career Education Gives Universities Growth Lesson

By James Flanigan

April 25, 2004 12 AM PT

Investors pushed some of America’s fastest-growing companies to new highs on Nasdaq last week -- hot stocks that sell for 40 to 60 times earnings per share, ratios that recall the technology-drunk ‘90s.

But these shares are not in high tech. They’re in higher ed -- or, more specifically, what used to be called vocational schooling and now is termed career education.

Apollo Group Inc., Career Education Corp. and Corinthian Colleges Inc., among others, teach courses ranging from auto repair to healthcare to business management.

Almost overnight, it seems, they have become sizable companies. Apollo Group’s University of Phoenix operation, for example, boasts more than 225,000 students. The company will take in more than $1.6 billion in revenue this year, up from $610 million four years ago.

Corinthian Colleges, based in Santa Ana, has expanded since its founding in 1995, partly by acquiring other trade schools. It has 59,500 students and will have generated about 800 million in annual revenue when its fiscal year ends June 30.

What accounts for such rapid growth?

It helps that higher education of all kinds -- a $290-billion-a-year enterprise in the U.S., split between public and private colleges -- has been seeing rising enrollments thanks to the so-called echo of the baby boom. This year, 13.7 million people will attend college, up from 12.2 million a decade ago.

It also helps that the nature of the workplace is changing. Half a century ago, explains David Moore, chairman of Corinthian, only 20% of the U.S. labor force performed what could be considered skilled work. But today, employers demand that 65% of their workers be able to use computers and other advanced devices.

“It used to be that to be an auto mechanic, you grew up tinkering with carburetors,” says Moore, a retired Army colonel who supervised training in the military and then ran a community college in Flint, Mich. But now, Corinthian’s auto repair school in Laramie, Wyo., “is half computer courses because today’s garage is full of diagnostic machines and electronics.”

Indeed, most for-profit schools are not places where the mind is encouraged to flourish for its own sake. Rather, they pursue industrial efficiency, often requiring faculty to teach from a standard, company-issued textbook. Their classes are directed to mastering specific employment needs, be it accounting or the tasks of a surgical technician.

It is a formula that befits an age of angst over job security, with many people feeling the need to upgrade their credentials -- or otherwise possibly find themselves mired in long-term unemployment.

“We don’t offer liberal arts,” says Todd Nelson, Apollo’s president and chief executive.

For this reason, few would ever confuse for-profit schools with a traditional college campus. Most offer no-frills classes in leased office space and without quadrangles or athletic fields or sorority houses.

What’s more, the for-profit centers are geared toward serving a community that is busy with full-time or part-time jobs. “Our students,” says Nelson, “are older working people.”

And yet, for all the inherent differences between for-profit colleges and major universities, the latter is clearly learning lessons from the former.

USC, for instance, is talking up the prospect of using the Internet to foster long-distance learning.

“These technological developments,” says Provost Lloyd Armstrong, “provide new means for delivering higher education.” Similarly, Harvard University is looking to online education as a way to give out more mortarboards without having to invest in bricks and mortar.

In this respect, these august institutions are taking a page from none other than Apollo Group. Its University of Phoenix Online unit has 100,000 students, making it the largest college in the world doing all of its teaching over the Internet.

Another big user of online teaching: Los Angeles-based Abraham Lincoln University, so named because the former president once took a correspondence course in law. Founded in 1996 by Korean immigrant lawyer Hyung Park and local attorney Edward Green, the university helps many qualify for the bar exam through an interactive setup (including streaming video) in which students and lecturers can communicate.

Some speed bumps may lie ahead for the nation’s for-profit colleges, which together ring up $12 billion in business annually. Corinthian, for example, depends on federal grants to its students for 82% of revenue -- and that’s an area in which federal spending is flat at best. Others face federal scrutiny over possible abuses in student recruitment and graduation rates.

Some, meanwhile, question the very notion of turning academia into a corporate activity. A chief aim of higher education is “to challenge the established political, economic and social structures in any society,” says Thomas McFadden, the president of Marymount College, a two-year school in Rancho Palos Verdes that helps students qualify to finish out their junior and senior years at UCLA and other leading universities.

“A for-profit entity has to ensure a good return on the investment of its shareholders,” McFadden says. “Is that legitimate goal compatible with free, unfettered and, at times, critical analysis of a society’s established structures?”

Yet despite such concerns, the trend seems clear: When it comes to school colors, more and more are waving dollar green.

James Flanigan can be reached at [email protected].