It's been a long time since investors had reason to feel optimistic about the prospects at for-profit educator Apollo Group (NASDAQ:APOL). Thursday's earnings report once again failed to provide reassurance -- but investors flocked to the stock anyway. By close of trading Friday, the shares were up 15% on what was, in all honesty, not-so-great news.

For its fiscal third quarter 2007, Apollo reported:

  • Revenues up 12%, in comparison with fiscal Q3 2006 revenues up 12%.
  • Total enrollment of degree-seeking students also up 12%, with especially strong growth in both its highest-revenue students (those seeking doctorates, up 26% year over year) and its lowest (those seeking associate degrees, up 55%).
  • Explosive growth in revenues from associate degree-seekers in particular, with a 10% tuition hike boosting revenues for this class of customers by 66%.

Unfortunately, as fast as enrollment and revenues grew, Apollo's expenses outran them:

  • Spending on instructional costs and services increased 13%.
  • Marketing costs rose 18%.
  • General and administrative expenses leapt 52%.

Bernanke was wrong
Probably the most shocking expense, though, was the bad debt expense as a portion of revenue. It's risen to 4.7% for the quarter compared to last year's 3.7%. I don't know about you, but to this Fool, the rise in bad debt among Apollo's associate degree-seekers suggests that the credit crunch -- which Fed Chairman Bernanke assures us will not spill over from the subprime mortgage sector to affect the rest of the economy -- is doing just that. We're seeing a striking range of companies now reporting credit-related "issues," everyone from Accredited Home Lenders (NASDAQ:LEND) to homebuilders like D.R. Horton (NYSE:DHI) and Toll Brothers (NYSE:TOL), to cabinet makers like American Woodmark (NASDAQ:AMWD), to home furnishers like Furniture Brands (NYSE:FBN). And now the biggest name in for-profit education says it, too, is finding its customers strapped for cash. Not good.

Remember Apollo
Remember Apollo? This was a column about Apollo. Anyway, after all the expenses were tallied up, Apollo's profits sat flat against last year's numbers: $0.75 per share.

One last note before we close: President Brian Mueller characterized the firm's liquidity as "strong," justifying an increase of the "share repurchase program to up to $500 million." I can't argue with Mueller on liquidity -- the firm has just under $1 billion in cash, equivalents, and short- and long-term marketable securities, against under $100 million in long-term debt. It can easily run its buyback program with just cash on hand. Also, free cash flow remains strong at $336 million year to date.

That said, Mueller reiterated the firm's long-term goals as including: "mid-to-high single-digit revenue growth" and "low double-digit annual operating income and free cash flow growth." Considering that the firm fell short on two out of three of those goals last week, I can only imagine that the investors who bought shares hand over fist on Friday were grading Apollo on the curve.

Want to learn more about Apollo? Get it straight from the (last) CEO's mouth:

Fool contributor Rich Smith does not own shares of any company named above.