For-profit universities, such as University of Phoenix and ITT, have filled an educational gap since the mid 1970’s. Originally conceptualized as a vehicle for working adults to develop new skills and seek career opportunities, for-profit schools provided a less expensive and more focused alternative to attending two and four year colleges and universities.

At the height of their success, for-profit universities were very profitable; in 2010, Phoenix had over 460,000 enrolled students, with its parent company (Apollo Education Group) earning revenues of $5 billion.

As of early 2015, the University of Phoenix had 213,000 enrolled students, less than half of its 2010 numbers. In less than five years, how did the behemoth of for-profit universities experience such a sharp decline?

A Lack of Quality Education at For-Profit Universities

At their inception, for-profit universities had relatively strict admissions requirements to ensure the right demographic of applicants. For example, Phoenix only accepted incoming students that were over the age of 23, had previous work and collegiate experience, and worked full time. These requirements kept admissions numbers hovering around 100,000 students in 1995.

After Apollo Education Group went public in 1995, these numbers were too low for investors; therefore, admissions requirements were lowered, and more and more students flooded into the university’s campuses nationwide.

As a result of the IPO, as well as federal legislation that allowed universities to operate more of their courses online, many additional for-profit universities popped up in the mid 2000’s that followed the Phoenix business model.

As revenue soared, the quality of education at for-profit universities plummeted. With high volumes of students and less emphasis on stringent admissions requirements, over 100 campuses closed in late 2012 after enrollment dropped substantially.

Competition in the For-Profit Space

With President Obama’s recent proposal to make two years of community college free of charge, for-profit universities are likely to face increased competition.

Although more traditional universities have experienced significant hikes in tuition, for-profit schools have also upped costs. Tuition and fees at for-profit universities averaged over $15,000 a year in 2014, compared with just under $9,000 a year for in-state students at a 4 year college. Two year colleges and universities cost even less, at around $3,500 a year.

With a variety of less expensive in-state educational opportunities, less and less prospective students are turning to for-profit schools.

The Role of Debt in For-Profit University Enrollment

One aspect of the proposed presidential legislation for community colleges is providing funds specifically for students who are deemed responsible and dedicated, not simply every student that needs financial assistance. The program will require students that receive financial aid to maintain a 2.0 GPA, as well as contribute community service hours and work with a mentor.

These requirements have likely been set in place to help alleviate issues with students defaulting on their loans. A major issue amongst for-profit universities is the inability of its students to repay their loans in a timely manner, if at all.

Around 90 percent of Phoenix students use federal grants or loans to pay their tuition; of that number, only 36 percent of those students repay their loans, compared with 54 percent of students at traditional universities.

While for-profit schools initially saw large increases in enrollment as they weakened their admissions requirements, that growth was not sustainable. Students unprepared for professional coursework struggle to earn degrees. In 2008, for-profit colleges had graduated only 22 percent of their first-time, full-time students.

The Future of For-Profit Colleges and Universities

In early July, the University of Phoenix announced that the school system would implement stricter admissions requirements to prevent unprepared students from enrolling.

Whether the University of Phoenix brand and that of other for profits will recover, along with enrollment, remains an open question. Their original niche that targeted the working learner is now being filled by many non-profit, traditional universities, which have expanded their online degree programs. For the meantime, when it comes to for-profit degree programs, the best advice for prospective students is buyer beware.