For-profit universities prosper

  @FortuneMagazine August 15, 2013: 7:11 AM ET
FGC02 grand canyon

On the Phoenix campus:8,500 students. Online: 47,000.


Bridgepoint Education
Fastest-Growing rank: 16
CEO: Andrew Clark
Headquarters: San Diego
Employees: 5,620 full-time and adjunct faculty; 3,900 in support and administration

Grand Canyon Education
Fastest-Growing rank: 63
CEO: Brian Mueller
Headquarters: Phoenix
Employees: 2,076 full-time and adjunct faculty; 2,831 in support and administration

Less than a decade ago Franciscan University of the Prairies and Grand Canyon University were tiny regional schools, struggling to pay the bills. Bill payment is no longer a problem -- both are for-profit institutions that enroll tens of thousands of students; most attend online. Private-equity-backed Bridgepoint Education (BPI), which purchased Franciscan University of the Prairies in 2005, has seen earnings nearly quintuple in the past five years, to $123 million last year. Grand Canyon Education (LOPE) bought its university in 2004 and has seen profits increase 10-fold since, to $69 million this year.

Such growth has meant big returns for shareholders, and Bridgepoint CEO Andrew Clark took home some $20.5 million (mostly in stock) in 2009, the year Bridgepoint went public. Returns for students are not as impressive: Graduation rates at for-profit universities are just 22% for a bachelor's in six years. At public nonprofits, it's 55%. Underprivileged students -- who are more likely to enroll in a for-profit -- can be left deeply in debt without a degree. Iowa Senator Tom Harkin slammed Bridgepoint recently, citing the fact that 84% of its two-year students and 63% of its four-year students who enrolled in 2008 had dropped out by 2010. Still, the company's stock jumped earlier this year after a regional accreditor reported that it had addressed some of those retention issues. The company is also under investigation by the attorneys general of four states. Grand Canyon has pursued a more modest expansion. J.P. Morgan analyst Jeffrey Volshteyn praised its strategy of building its name and credibility, including its sports teams joining NCAA Division I. CEO Brian Mueller says the company delivers high-quality education with no expense to taxpayers. "If investors get a reasonable return as a result, we say that's America," he says.

This story is from the September 2, 2013 issue of Fortune. To top of page

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