Death of a Diploma Mill: University of Phoenix Going Down in Flames?

Death of a Diploma Mill: University of Phoenix Going Down in Flames?

The troubled online university might have finally been dealt dual deathblows as they announced an FTC investigation and a 54% drop in enrollment.

SAMANTHA ALLEN   07.31.15;  11:15 PM ET

A phoenix is a bird that rises from the ashes, but the University of Phoenix is a diploma mill that may soon go down in flames.

On Wednesday, University of Phoenix’s parent company Apollo Education Group announced that the business and marketing practices of the for-profit school are now under investigation by the Federal Trade Commission (FTC).CNNMoney reports that Apollo will “cooperate fully” with the FTC investigation, which requires them to provide the federal agency with documents on their finances, marketing, accreditation, and military recruitment practices from the last four years.

Apollo’s stock (APOL) predictably took a nosedive following the announcement.

For the University of Phoenix, which is the largest for-profit higher education institution in the U.S. with an emphasis on online programs, a federal investigation is the latest in a long series of disasters that could topple a once-thriving enterprise.

With this latest investigation, University of Phoenix is under particular scrutiny for recruiting veterans. The Associated Press reports that the school’s online program has collected over $488 million in tuition and fees from veterans, not including the hundreds of millions in GI Bill money that individual campuses have collected. Over the last several years, the school has come under fire for allegedly soaking up this GI money while leaving veterans strapped with debt.

New federal rules require schools with career-training programs to produce graduates who can repay their student loans in order to receive federal student aid. For a school that already has notoriously low graduation rates, this bar may be out of reach.

According to Department of Education data, the University of Phoenix online campus has a graduation rate of 7.3 percent and a loan default rate of 19 percent—5 percent higher than the national average. A report from the Center for Investigative Reporting (CIR) claims that 24,000 Iraq and Afghanistan war veterans were enrolled in the online program last year.

Earlier this month, that CIR report prompted Senator Richard Durbin to askthe Department of Defense to investigate allegations pertaining to the school’s recruiting on military bases.

In response to Wednesday’s news of the FTC investigation, Durbin released a statement saying, “I wish I could say I am surprised by the news that the FTC is investigating the University of Phoenix for unfair and deceptive practices, but these allegations are all too familiar when it comes to the for-profit college industry.”

The investigation also comes after a long line of financial defeats for the for-profit school.

In 2012, University of Phoenix shuttered 115 of its physical locations and laid off over 4 percent of its staff. These closings came on the heels of a damning 2010 report by The Education Trust (PDF) that found the school had a six-year graduation rate of only 9 percent for students seeking a bachelor’s degree.

Student debt, on the other hand, seems to be a fairly reliable outcome for University of Phoenix students. In 2013, USA Today listed several of its campuses as “red flag” schools for posting graduation rates that were significantly lower than the rates of students defaulting on their loans—in Metro Detroit, for example, graduation rates were just 10 percent, but over 25 percent of students defaulted on their loans.

The school has also come under scrutiny for its enrollment of veterans in the past. Last July, the state of California asked the University of Phoenix to halt veteran enrollment in seven of its programs to prevent violations of the Veterans Affairs 85/15 rule, which requires that programs do not enroll more than 85 percent veterans. The rule is intended to prevent schools from exploiting federal aid for veterans.

This seemingly endless stream of bad news has taken its toll on the school’s bottom line: tuition. According to a CNNMoney report from March of this year, University of Phoenix enrollment has dropped from 460,000 students five years ago to 213,000—a precipitous 54 percent dip.

Apollo declined further comment to AP about the FTC investigation into the University of Phoenix and has not released further statements. The federal government, on the other hand, has already warned that other for-profit schools with poor performance numbers could be next.

In a July statement, U.S. Secretary of Education Arne Duncan said: “The clock is ticking for bad actors in the career college industry to do right by students. We know many have taken steps to improve or to close programs that underperform, but we believe there is more work to be done across the board so students get what they pay for: solid preparation for a good job.”



Don’t Buy Apollo Education, Diploma Mills Doesn’t Have Any Future

Shark Traders

Don’t Buy Apollo Education, Diploma Mills Doesn’t Have Any Future

Jan. 17, 2016 7:58 AM ET

About: Apollo Education Group, Inc. (APOL)


Rumors about a possible sale of Apollo Education Group at $1 billion caused its stock to gain around 14% over the last week.

The company operates in a declining industry, and regulators have made it pretty much impossible for it to continue operating with its current business model.

The company’s Q4 2015 shows an alarming burn rate, and investors should take caution even in the short run.

Apollo Education Group remains a vulnerable investment candidate, and we strongly recommend investors not to buy the rumors.

Company Overview

As a private educational service provider, Apollo Education Group Inc. (NASDAQ:APOL) offers a range of degrees to students, including undergraduate, graduate, certificate and non-degree educational programs and services.

Most people would not recognize the company Apollo Education Group, but they would probably recognize its flagship educational institution, one of the most prominent online universities, University of Phoenix.

Unlike most online educational service providers in the United States, Apollo Education Group is not a new company by any means. It was founded in 1973 by Dr. John Sperling, a true visionary who had foreseen long ago that the educational landscape in America was changing from traditional young college goers to a more diverse demographic that needed the applicable education to improve their lives.

Shortly after forming the company in 1976, they opened the University of Phoenix, and it now operates a handful of educational institutions, such as Western International University, College for Financial Planning (CFFP), Universidad de Artes, Ciencias y Comunicación (UNIACC) in Chile, Universidad Lationoamericana (ULA) in Mexico, and BPP University College (BPP) in the United Kingdom.

Besides operating these prominent institutions, Apollo Education Group also operates Carnegie Learning, which is a publisher of research-based curriculums from Carnegie Mellon University.

Apollo is a Fallen Star

x_apol revenue2
Figure 1: Apollo Education Group’s Revenue Chart Says It All

Although the company was founded in an era when bell bottom pants were still considered cool, its top line shone the most after four decades in the business, in the first quarter of 2010. In Q1 2010, Apollo Education Group’s revenue topped at $1.35 billion.

Back in early 2010, its flagship university had more than 450,000 enrolled students, and by March 2015, this number declined to just 213,000. As a result, over the last five years, the revenue has declined by more than 56%.

It was not only Apollo Education Group that has turned into a meteorite, but the whole for-profit education industry has suffered over the last five years due to being accused of providing low-quality education at a high cost.

Prior to 2010, most of the educational institutions run by the company had an open admission policy, which means anyone who met the educational requirement could enroll without any questions asked.

Critics of the for-profit education industry alleged that this open door policy was causing tax payers losses, because the institutions took in any student who qualified for federal student loans and grants, and these students often dropped out or could not find a job after graduation.

The level of employability of students who graduated from for-profit educational institutions was so low that most of the graduates defaulted on their student loans. According to a CNN article, almost half of the student loans were defaulted on by students who went to for-profit institutions in 2013, and they only represented 12% of the total student population. Critics even called Apollo Education Group’s flagship institution, the University of Phoenix, a diploma mill.

In response, the Obama administration took some severe actions against the whole for-profit industry, after calling some of the marketing tactics “predatory.” As a result, Apollo Education Group and its competitors saw declining enrollments.

In May 2015, one of the company’s competitors, Corinthian Colleges, filed for Chapter 11 bankruptcy in the United States, and industry experts started to speculate if other for-profit educational service providers would go under as well.

Downsizing of the Meteorite Did Not Work

The declining top line of Apollo Education Group caused its $137.5 million positive cash flow in the end of Q3 2013 to fall towards only $13 million at the end of Q4 2014, representing a 90.54% decline.

x_apol revenue2
Figure 2: Apollo Education Group’s Cash Flow from Operations Declined by 115% Since Q3 2013

The falling revenue prompted management to cut costs on all fronts, and its cash flow went up temporarily in the next two quarters. They decided to close 24 sites of the University of Phoenix in August 2015 due to the continued downturn in profits. However, that did not turn the tide.

In the last quarter, ending November 30, 2015, Apollo Education Group’s cash flow reached -$18.87 million and the return on equity (TTM) declined to -5.65% compared to 18% in Q3 2013.

x_apol revenue3
Figure 3: Apollo Education Group’s Burn Rate is Alarming

The company’s latest financials shows that its expenses have gone up, while its cash and equivalents have gone down. Investors should take extreme caution while considering investing in this stock.

Apollo Education Group Might Be Sold Very Soon

On January 11, The Wall Street Journal (WSJ) reported that New York-based private equity firm Apollo Global Management is exploring the possibility of buying Apollo Education Group. Although both companies are named Apollo, they are actually not related. The WSJ article claimed that the deal may value Apollo Education Group at $1 billion.

On January 11, APOL was trading at $6.34 per share, which translated into a market capitalization of $685.1 million. Hence, if these two Apollos actually make the deal, it would offer secondary investors a 45.96% upside potential. Since WSJ ran the article, the stock price of Apollo Education Group has climbed to $7.22 per share, representing a 13.88% increase over the last week.


Since Apollo Education Group started making profits from its online programs, the distance learning landscape has gone through tectonic changes. A lot of top universities are now offering free online educational programs for people who are genuinely interested in education than simply getting a degree from diploma mills.

The popularity of Massive Open Online Course (MOOC) has given birth to a lot of new-age companies that even offer certifications. For example, students from around the world can now participate in online courses at Coursera, edX, and Udacity, often for free. Coursera offers most of its courses online for free, where students only need to pay a token fee of $50 get a certificate once they pass the course. Although students cannot earn university-level degrees with MOOC, they can certainly get a university-quality degree for free.

The rise of freelancing, often termed as the gig economy, has also made it difficult for companies like to Apollo Education Group to sell their diplomas, because employers who prefer to hire freelance workers often recognize these type of MOOC certificates, where traditional employers required formal undergraduate or graduate degrees.

The bottom line is that unless Apollo Education Group finds a buyer who is willing to pay a premium, there is no solid reason to think the company’s market valuation will go up anytime soon. The business model that it relied on till 2010 is now virtually non-existent. Especially after government regulators started taking away the funds this company relied upon to turn a profit.

Although the $1 billion potential sale would provide significant upside to investors, we would like to suggest to readers that they exercise extreme caution when considering buying stocks of Apollo Education Group. Both the long-term and short-term prospects appear to be doomed, and the only factor that is causing the recent uptick is the rumors of a possible sale of the company.

Apollo: Quadruple Or Nothing?

Dec. 16, 2015 1:06 PM ET

 About: Apollo Education Group, Inc. (APOL), Includes: COCOCOCOQSTRA

Disclosure: I am/we are long APOL, STRA, AGX. (More…)


Revenue and enrollments have not come in great lately and the trend will likely continue, but from a purely operational perspective, Apollo is highly attractive. It trades for net cash.

A lot could happen outside the operations to make Apollo a big loser including regulatory action or a massive reduction in student lending.

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