Wall Street

S&P Says Weakened For-Profit Colleges Have a Grim Future


As another school year looms, some for-profit colleges face a make-or-break moment. Government and investor scrutiny on the industry is growing, while fewer students are enrolling. The combined pressures may be too much for some schools, according to a new report by Standard & Poor’s Rating Services.

The report explains that while the schools “are meeting a market need and providing education for millions of students, key performance indicators like student loan default rates and new student enrollments are significantly worse at for-profit institutions than at traditional public and private colleges.” S&P says some struggling schools could face the same fate as Corinthian Colleges, which the Department of Education forced to close or sell off its schools earlier this summer. “It appears as if the government is really focused on some of the worst performers,” Christopher Thompson, the primary credit analyst on the report, said in an interview.

While some schools with better student outcomes and less debt on their books will likely survive, S&P wrote that the Corinthian shutdown “does not bode well for other for-profit institutions that may be dealing with weak student outcomes in addition to their own corporate financial pressures.”

Because many of the chains are publicly traded, their struggles are out in the open, S&P says. “This can lead to more instances of weakly capitalized for-profits succumbing to the concurrent pressures of a declining stock price and limited access to government funding.”

Some schools borrowed money when times were flush and students were signing up in droves. Now debts are coming due just as tuition dollars—the primary source of revenue at for-profits—diminishes: Enrollment in the sector has fallen far faster than at public or nonprofit private colleges.

Earlier this year, S&P lowered the credit rating for Education Management Corp. (EDMC) after the for-profit, which owns the Art Institutes and Argosy University, disclosed that it may not meet its upcoming financial covenants. The New York Post reported on Aug. 22 that the company’s creditors may soon offer it a deal to restructure its debts in exchange for gaining equity in the schools.

In many ways, weak enrollment and government scrutiny comes down to the quality of the education—are students graduating on time? Are they finding jobs? Do those jobs pay enough for students to repay their loans? S&P says schools that don’t step up their game could have trouble. For their students, that raises a host of other issues. “What does that mean for their future employment?” Thompson asks. “Can they put a school on their résumé that doesn’t exist anymore?”

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Weise is a reporter for Bloomberg Businessweek in Seattle. Follow her on Twitter @kyweise.


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Companies Mentioned

  • EDMC
    (Education Management Corp)
    • $0.28 USD
    • -0.01
    • -2.84%
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