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For-Profit Education Sector Reporting Massive Enrollment Drop

Posted on Thursday, Jan 13th 2011

The for-profit educational sector has had a tough year with the tightening of government scrutiny of loan default rates, media publicity highlighting poor education, and tighter controls being levied by the Department of Education for federal student aid. All of these measures have impacted student enrollments. Earlier last week, education institutes revealed their winter enrollment statistics, and the numbers were gloomy. Strayer Education reported a 20% drop in winter enrollment, DeVry a 5% drop, and Apollo a 3.8% drop in degreed enrollment. Even the S&P 1500 Education Services subindex fell significantly in the past year. After having touched a 52-week high of $139.10 in April of last year, the index dropped to $81.04.

Apollo Group’s Financials
For Q1, Apollo Group’s (NASDAQ:APOL) revenues of $1.33 billion grew 5% over the year and managed to exceed analyst expectations of $1.26 billion. The earlier announced reorganization has also helped them to control costs. EPS of $1.61 was significantly higher than previous year’s $1.54 and the market’s expected $1.35.

During the quarter, however, the number of new students signing up for classes fell 42% to 56,500. A year ago, the company had reported 14% growth in the number of new students signing up for classes. Degreed enrollments fell 3.8% over the year to 438,100.

Apollo’s Enrollment Forecast
Starting in July of this year, the Department of Education will tighten its purse strings around the $145 billion it says it has for total aid available to students. According to the 90:10 rule, a maximum of 90% of a for-profit education organization’s revenues can be funded by student federal aid. In fiscal 2012, Apollo expects to cross the 90% limit, and curtailing of federal aid will not only lead to increased tuition rates but could also hurt student enrollment significantly. At the end of  2010, Apollo reported 88% of revenues as being funded through federal aid. This was higher than the national average of 84% being funded by federal aid.

Apollo’s Focus Areas
In the previous quarter, Apollo has focused on three key activities. First, due to regulatory concerns, they eliminated the bonus linked to enrollment for all of their admissions professionals and other employees. Second, at the University of Phoenix, they rolled out University Orientation nationwide as mandatory requirement for incoming students with limited college experience. The initiative is expected to increase student retention and performance scores. Third, on the marketing side, they continued to refine their digital marketing efforts by managing the affiliate channel more closely to better identify students with more transfer credits and those pursuing advanced degrees, who are more likely to succeed at their universities and thus improve overall scores.

The stock is trading at $41.86 with a market capitalization of almost $6 billion. It touched a 52-week high of $66.69 in April of this year.

Meanwhile, industry leaders Apollo and DeVry are now targeting federal dollars reserved for veterans services. According to a report published by the Committee on Health, Education, Labor, and Pensions, 18 education companies were expected to receive $175 million in Defense Department aid in 2010, compared with $40 million in aid forwarded to the institutes in 2006. The companies were projected to receive $286 million in 2010 through the Department of Veterans Affairs, compared with $26 million in 2006.

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