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Apollo Education Group in the Regulators' Crosshairs

Source: Apollo Education Group.

Fresh from crushing for-profit educator Corinthian College into oblivion, the Department of Education is ready to turn its sledgehammer on industry leader Apollo Education Group (NASDAQ: APOL  ) .

In a filing to the SEC submitted after the markets closed Monday, Apollo announced that it had received notification from the regulator that an investigation into the way it handles federal aid will commence Aug. 4 and will initially cover the financial aid years 2012-2013 and 2013-2014.

Long a target of politicians and activists who've chafed at the notion that education can or should be run for profit, Corinthian College came under SEC scrutiny last year with a probe of its student recruitment practices and compliance with Education Department financial-aid rules. Much was made of its aggressive tactics, but it wasn't until Education stepped in back in January with allegations of falsification of data that the demise of the educator gained speed and culminated with a negotiated settlement last month that will lead to its dissolution.

Now the agency is turning its attention to Apollo, not nearly as egregious a practitioner as Corinthian, allegedly, but worse than, say, Strayer Education (NASDAQ: STRA  ) or Bridgepoint Education (NYSE: BPI  ) , which passed regulator scrutiny.

In a set of proposed (but not adopted) regulations, Strayer and Bridgepoint had no programs that failed the department's standards while Apollo had several substandard ones. In comparison, half of Corinthian's programs were considered substandard, and it had the largest number that actually failed. It should also be pointed out that ITT Educational Services (NYSE: ESI  ) has the largest percentage of programs that are falling short of Education's goals; 57% of its programs come up short, with a small percentage, 3%, falling below standards but not qualifying as "failed."

The risk for Apollo, of course, is that irregularities are found and the probe widens. That was part of the problem Corinthian faced, as it uncovered problems on its own and addressed them, but then it had Education deem those actions to be an admission of guilt. Of course, it didn't help that Education alleged Corinthian wasn't being fully cooperative or forthcoming with its investigation, though the institution said the problem was that the department kept asking for more and more data while expanding the scope of what it was seeking such that it ended up assigning 100 employees solely to complete that task. 

The industry as a whole, though, is at risk. As the institutions have changed their recruiting policies, which were charged as being too aggressive, enrollment figures have declined. New degreed enrollment at Apollo's flagship University of Phoenix dropped by 13%, to 33,900, last quarter, and degreed enrollment decreased by 16%, to 241,900, compared with the same period a year ago, leading to a 14% decline in operating profits.

Even among institutions not under the microscope, like Strayer, enrollments have declined. Total enrollment was down 10% year over year, to 41,327 students, while Bridgepoint's is down 18%, to 64,495 students. ITT hasn't seen the same kind of falloff yet, as it reported total enrollments were down 6.4%.

Even so, Apollo is still focusing on growth and is expanding internationally, while at the same time working with business and industry to develop programs and certificates to build a more prepared workforce. Since that ought to be the goal of higher education to begin with, whether for-profit institutions or public ones, it's a notable endeavor.

But first Apollo Educational Group will need to get beyond this new probe by the Education Department and counteract the negative perceptions being generated by the persistent investigations into its own operations as well as those of the industry at large.

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Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 10, 2015, at 10:47 PM, KayakerRW wrote:

    Rigrodsky & Long, P.A. Announces A Securities Fraud Class Action Lawsuit Has Been Filed Against Bridgepoint Education, Inc.

    Rigrodsky & Long, P.A.March 4, 2015 7:48 PM

    Bridgepoint is a for-profit provider of postsecondary education services. The Complaint alleges that throughout the Class Period, defendants made materially false and misleading statements, and omitted materially adverse facts, about the Company's business, operations and prospects. Specifically, the Complaint alleges that the defendants concealed from the investing public: (1) that the Company had applied improper revenue recognition methodology to assess collectability of funds owed by students; (2) that, as a result, the Company's revenues and financial results were overstated; (3) that, as such, the Company's financial statements were not prepared in accordance with Generally Accepted Accounting Principles ("GAAP"); (4) that the Company lacked adequate internal and financial controls; and (5) that, as a result of the foregoing, the Company's financial statements were materially false and misleading at all relevant times. As a result of defendants' alleged false and misleading statements, the Company's stock traded at artificially inflated prices during the Class Period.

  • Report this Comment On May 25, 2015, at 11:44 AM, MattWriter wrote:

    Everything is getting so computerized. Students can even go to and get whatever help with their home assignments as they can only wish for. We could not imagine any of that 10 or so years ago. Now it is a reality. It is something that we are gradually switching to. Soon enough, there will be no need in buildings for colleges and universities. This is sad, you know. I wish the progress was not that fast though.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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