For-profits educational institutions are under increased scrutiny as stiff regulation, declining enrollments, limited capital and poor post-graduation performance have overshadowed the benefits offered by the for-profit segment for America’s nontraditional students.
School operators of today’s for-profit colleges are faced with a depressing fact: enrollment peaked in 2010, and isn’t expected to rebound any time soon. Most postsecondary colleges in the education segment rely on government funding and revenue from student tuition, whereas nontraditional pupils rely heavily on Pell Grants and Title IV financial aid to support their postsecondary education. However, against the backdrop of diminished financial aid prospects as a result of more strident regulatory oversight by the Department of Education, the post-graduation picture for these institutions’ students hasn’t been a pretty one. Default rates are high among graduates who also typically earn less than their nonprofit or privately educated counterparts.
Similarly, many banks that once helped to finance for-profit colleges have exited the sector at a time when more schools are being denied access to Title IV funding, leaving some with little option but to close. Corinthian Colleges Inc., one of the largest for-profit higher education organizations in the United States and Canada, made headlines in 2015 when it pursued a different tack: filing bankruptcy. It’s an option that isn’t readily to available to most institutions, though, because declaring bankruptcy eliminates access to the Department of Education’s Title IV funding. Unfortunately, many for-profit institutions are facing bleak prospects at this time.
As dismal sounding as the for-profit education landscape has become in recent years, there is room for hope. For-profit schools can also take steps to strengthen their own operations.
Here are five ways to do so:
For-profit schools are financed by the U.S. Department of Education. However, most of these schools cannot get through the school year without turning to their revolving credit facilities for working capital in lieu of generating adequate cash flow due to under-absorption of fixed campus costs. The using of a 13-week cash forecast can help operators to better forecast short- and long-term cash flows, preserve liquidity, and ultimately, conserve revolver availability.
Improvements in cash management can also be made when the school’s finance department works closely with its financial aid group to ensure that its loan processing and collection resources are operating in a coordinated fashion.
