Apollo Group Inc. which owns, amongst others, the University of Phoenix (with its 225,000 full time students) and BPP University College has issued predictions of a large drop in student enrollment in the US. It's left investors - and the rest of the for-profit education sector - reeling.
With BPP - bought by Apollo in July 2009 for a whopping $600 million - recently becoming a proper university, the future seemed rosy. Courses are full, and firms are flocking to make BPP their exclusive LPC provider. But with news of an expected 40% drop in student enrollment - plus reports of legal trouble in Oregon and Florida - are choppier waters ahead?
Apollo chasing a student yesterday
Problems lie in the - some might say cynical - recruitment of low-income students. Especially those eligible for large amounts of federal aid: this makes up 83% of the sector's income, so it accounts for the overwhelming bulk of Apollo's revenue. More impoverished students = more money in the bank, and to hell with the reality of unsuitable students graduating into low-paying jobs with terrifying amounts of debt (which they often default on anyway).
However, this federal aid is coming under pressure, with Congress looking at tightening up the system in the months ahead. The result will be recruiting far fewer (presumably financially and academically) poor students. And of course reducing headcount will necessarily lead to a drop in income, so it was no surprise when shares dropped about 25% last week, rapidly followed by Apollo's competitors (including the owner of Kaplan). Check here for the latest price, should you want to invest.
No news yet on whether BPP - or any other sausage factory - will limit the recruitment of students onto its law courses who have precious little chance of a career in law.
A spokesman for Apollo said,
"It's important to emphasize that while we do expect to see a reduction in new enrolments in the first quarter of FY2011, this reduction is specific to University of Phoenix. This outlook provided does not include new student enrolment projections for our global subsidiaries.BPP has been and will continue to be a critical centerpiece of Apollo Global's expansion strategy to provide greater access to global student demand. We continue to believe that it has significant potential both now and into the future."
With BPP - bought by Apollo in July 2009 for a whopping $600 million - recently becoming a proper university, the future seemed rosy. Courses are full, and firms are flocking to make BPP their exclusive LPC provider. But with news of an expected 40% drop in student enrollment - plus reports of legal trouble in Oregon and Florida - are choppier waters ahead?
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Problems lie in the - some might say cynical - recruitment of low-income students. Especially those eligible for large amounts of federal aid: this makes up 83% of the sector's income, so it accounts for the overwhelming bulk of Apollo's revenue. More impoverished students = more money in the bank, and to hell with the reality of unsuitable students graduating into low-paying jobs with terrifying amounts of debt (which they often default on anyway).
However, this federal aid is coming under pressure, with Congress looking at tightening up the system in the months ahead. The result will be recruiting far fewer (presumably financially and academically) poor students. And of course reducing headcount will necessarily lead to a drop in income, so it was no surprise when shares dropped about 25% last week, rapidly followed by Apollo's competitors (including the owner of Kaplan). Check here for the latest price, should you want to invest.
No news yet on whether BPP - or any other sausage factory - will limit the recruitment of students onto its law courses who have precious little chance of a career in law.
A spokesman for Apollo said,
"It's important to emphasize that while we do expect to see a reduction in new enrolments in the first quarter of FY2011, this reduction is specific to University of Phoenix. This outlook provided does not include new student enrolment projections for our global subsidiaries.BPP has been and will continue to be a critical centerpiece of Apollo Global's expansion strategy to provide greater access to global student demand. We continue to believe that it has significant potential both now and into the future."
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