Investors Cheer As Career Education Corporation Exits Career Education
To move forward, sometimes we have to hurt the ones we love the most.
Career Education Corporation's plan to transform its business was simple: stop providing career education. And so far, it seems to be working: in the first quarter of the company's "transformation plan," it beat analyst estimates, sending its stock shooting up more than 30% on Friday after results were announced.
In May, Career announced it would sell off or close all of its career colleges, including its Sanford-Brown chain, which paid a $10.25 million settlement with New York attorney general over allegations that the school had systematically deceived its students. Instead, it said, it would focus on its "University Group," a collection of online schools that have higher profit margins and enroll less risky students.
Career's transformation plan is a sign of the times in the for-profit college business, with companies increasingly shunting off the two-year degrees and certificate programs that contributed to booming business in the 2000s, particularly in the wake of the recession.
But now those programs are unattractive to colleges and their investors — seen as highly risky because of a regulatory crackdown on job-focused programs that graduate students with high debt levels and low earnings. The advertisements and enrollment tactics that schools like Sanford-Brown used to lure students into those programs, allegedly promising jobs and high wages that were never delivered, have also been the target of lawsuits by state attorneys general.
Career Education said it believed its transformation strategy would "position the Company for stability and profitability." Revenue and enrollment within its University Group increased last quarter, it said, and new student enrollment outside of its closing schools went up by 9%, far above analyst estimates.