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November 22, 2012

For-profits losing to better-rated state schools charging less

Keri Trimble, 33, an employee at a utility call center, was shopping for an online college so she could take classes at night and on weekends.

Trimble rejected Apollo Group's University of Phoenix, the dominant player in the market for selling Internet degrees to working adults. Instead, she chose Arizona State University's program, which typically charges almost 30 percent less.

"The cost was outrageous," said Trimble, of Sacramento, Calif. Too, "I didn't think that graduating from the University of Phoenix would give me the respect that comes with a degree from a traditional four-year college."

Competition from state universities' expanding online programs is pummeling for-profit colleges, once among the fastest-growing U.S. industries. The companies, including University of Phoenix and Washington Post Co.'s Kaplan chain, are closing campuses as enrollment and stock prices plunge. With outstanding student loans totaling $1 trillion, some potential customers are turning away from the schools out of concern about cost and quality.

It's a potent threat because publicly traded for-profit colleges drew 59 percent of their enrollment last year from online-only students, according to estimates from Deutsche Bank. At the University of Phoenix, the figure was three-quarters.

More than 80 percent of the U.S. population will have access to less expensive online programs from their own state universities by the end of next year, up from 62 percent this year, predicted Paul Ginocchio, an analyst at Deutsche Bank in San Francisco. Up to a third of those students would have gone to a for-profit college if the alternative didn't exist, he said.

Private universities are also invading the online arena. Last week, a group including Duke, Vanderbilt and Brandeis universities, said it would offer online classes for credit. Harvard and the Massachusetts Institute of Technology offer courses free online, though they don't count for credit or toward degrees.

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