Why is the University of Phoenix being sold?

One of the nation's largest for-profit colleges is going private in a $1.1 billion deal that executives hope could buoy the University of Phoenix, whose near-ubiquitous ads once seemed to herald the next big thing in higher ed.  

A group of investors led by Apollo Global Management LLC and the Vistria Group will take over the previously publicly-traded company, with hopes that going private could slow the University's rapid decline in enrollment. In 2010, Phoenix enrolled roughly 460,000 students across its dozens of campuses and additional online programs. Today, it has just over 220,000.

This is "a period of unprecedented volatility within our industry," Apollo CEO Greg Cappelli said in a statement announcing the move. The deal is subject to approval from shareholders, accreditors, and the Department of Education, and expected to go into effect by August. Tony Miller, COO of Vistria and a former Deputy Secretary of Education, will become Apollo's chairman. 

"For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance. This doesn’t need to be the case," Mr. Miller said.

For-profit models have gained notoriety as revenue-focused institutions that prioritize recruiting students over equipping them for successful careers. If leaders wish to turn that reputation around, they'll have to act quickly, given new regulations to keep the schools accountable for their federal student aid funding, which can constitute up to 90 percent of their operating revenue. Schools where graduates' loans repeatedly surpass 12 percent of their income, on average, are no longer eligible for aid.

Many companies have struggled since the rules went into place. In 2012, the University of Phoenix closed roughly half of its locations; Corinthian Colleges, Inc., another industry giant, sold most of its schools in 2014. 

For-profit programs boasted convenience for "nontraditional" students, such as parents or older workers, with flexible schedules and open admissions policies: at University of Phoenix, for example, only a high school diploma or GED was needed to enroll.

But students may be avoiding the schools as research about for-profits' costs and benefits becomes more available. 

"For-profits appear to be at their best with well-defined programs of short duration that prepare students for a specific occupation. But for-profit completion rates, default rates, and labor market outcomes for students seeking associate’s or higher degrees compare unfavorably with those of public postsecondary institutions," a Harvard study summarized in 2013. 

For-profit students represent just 13 percent of college enrollment, but 31 percent of all college loans, according to the Department of Education. 

"Dependence on student loans was not incidental to the for-profit boom – it was the business model," James Surowiecki wrote for the New Yorker this fall:

Since the schools weren’t lending money themselves, they didn’t have to worry about whether it would be paid back. So they had every incentive to encourage students to take out as much financial aid as possible, often by giving them a distorted picture of what they could expect in the future.

But as many education researchers point out, simply punishing for-profits into extinction misses an important point: despite sometimes dismal-results, for-profits enroll students who don't have other options, including a disproportionate number of minorities. The bigger issue, some say, is creating jobs and colleges to offer those would-be graduates better opportunities.

"The growth in for-profit colleges is the result of a choice we’ve made about how to fund higher education in this country," Harvard Graduate School of Education Associate Professor David Deming, who has studied for-profits' stigma, told the school's quarterly magazine.

"As long as the demand for highly educated workers continues to grow, and as long as state and local funding continues to decline, it will be hard for public colleges to produce enough graduates to meet the needs of employers."

To help individual students, the authors of the 2013 Harvard study have recommended increasing third-party counseling about college choices, to help applicants pick through institution's competing, and often inflated, claims about what they're getting for their tuition dollar. One similar approach is the White House's College Scorecard site, released this fall, which shows data about graduation rates, financial aid, and program offerings.

The site includes data on many of the University of Phoenix's campuses: at its New Mexico school, for example, which has one of the chain's highest graduation rates, 25 percent of full-time students graduated within six years. Ten years after graduating, the median graduate income was $53,400.