Why Online Ads Won't Save These Educators

While students made New Year's resolutions, Apollo Group's (APOL) University of Phoenix has resolved to stay the same: It still has the biggest advertising budget for search. Looking at the numbers, the University of Phoenix seems like a marketing company, not an educator.

Source: Spyfu. Ad spend equates to the amount a company can spend per day, but it can be less depending on how many people actually click on the ads.

The amount of money companies budget to spend on online advertising per day is shocking. Increasing its budget by more than $100,000, the University of Phoenix spent almost half a million dollars a day on online advertising. It handily beat out insurance giant Geico (No. 2) and e-tailer of the world Amazon.com (No. 3) for the top spot. Fun fact: The University of Phoenix lost a total of 8,700 students this past quarter; its $162 million ad budget for the same period works out to $18,700 for each student who left or dropped out.

Meanwhile, DeVry bested Google (No. 11), which also has to advertise for its product lines like cloud storage.  Kaplan and ITT won over savvy online companies such as Expedia (No. 28) and eBay (No. 43). So what's the deal behind this industrywide trend?

For-profit education companies seem to think advertising will help refill their emptying online hallways. However, marketing can't change reality. Over the past several years, we've seen graduates from traditional four-year and for-profit colleges struggle to find jobs. Sadly, their for-profit counterparts have struggled more. Comparing the student loan default rate among graduates of for-profit colleges to traditional colleges, most for-profit graduates have a default rate above 10%. Looking at all the schools from the University of California system, we see that all but one college has a default rate above 4%. 

It seems that as the value of a for-profit degree declines, and their loan default rates remain high, the four companies' enrollment numbers have suffered.

Source: Most recent 10-Ks; ITT Technical's (ESI) last 10-K was in 2011.  

And the declines have been massive -- as you can see above, over the last fiscal year enrollments have dropped by 14% to 23%. Since releasing its last 10-K, the University of Phoenix shed another 37,200 students (10%), for a reported total of 319,700 students this past quarter.

You might think that these enrollment numbers are a temporary blip, and that increases in online advertising will solve the enrollment problem. However, Spyfu -- a search analytics company that tracks Adwords on Google -- shows that Phoenix, Devry, Kaplan, and ITT Technical have maintained comparably high levels of online advertising for the past three years. So any increases in student enrollment from advertising will probably be short-lived.

But the whole industry isn't doomed just yet. If you're looking for a real winner, Bridgepoint Education (ZVO) may be it. Though Bridgepoint's default rate is 10% -- higher than Corinthian Colleges' industry-low 5.6% -- the company increased its enrollment numbers over the past three years (Corinthian's enrollment has declined.) Just last year, Bridgepoint's increased by 11.2% to 86,642 students -- showing that you don't need to be a good advertiser to be a profitable education company.