There's a lot of talk going on about the ACLU's lawsuit alleging discriminatory hiring practices at the Pittsburgh Bureau of Police. I have a column about it in today's issue, and the Post-Gazette editorial board opined on it as well.
Here's the thing that has been left out of the discussion so far: None of this is a surprise. Today's dismal hiring rates were set in motion more than 20 years ago, and just about everyone who was paying attention -- including the guy who made it happen -- saw what was coming.
In fact, as spelled out here yesterday, the lack of diversity will almost certainly get worse, because recent recruiting classes are less diverse than the roster of veterans they are being added to. So how did those veterans get on the force in the first place? And why is that no longer happening? That's what we look at below.
First Education Management Corp. froze wages to avoid layoffs. Then they laid off employees and closed down an online branch in Phoenix. None of those actions, however, could stave off even more layoffs at the downtown for-profit educator.
According to multiple sources inside the company, more than 50 but fewer than 100 employees were laid off Wednesday from various locations in the city. EDMC operates its downtown headquarters, the Art Institute of Pittsburgh and online education facilities in the Strip and in Greentree.
The layoffs came the day before the company's quarterly earnings report. According to filings with the U.S. Seurities and Exchange Commission, the company reported net quarterly revenues of $639.2 million, down more than nine percent from the same time last year. The company says the loss “was primarily driven by a 9.3% decline in April 2012 student enrollment as compared to April 2011.”
For the fiscal year the company reported a smaller loss over the previous year of 5.7 percent. Net revenues were $2.76 billion compared to $2.89 billion in 2011. Even more stark is the company's loss in cash flow. Two years ago there was so much cash on hand that the company started a program to buy back its own stock – at a cost to date of nearly $300 million. On Thursday the company reported it had just $10.9 million cash on hand compared to $399.7 million the year before. According to its filings, EDMC paid out $210 million to issue a letter of credit with the U.S. Department of Education to allow the company continued access to federal financial aid programs.
The company also reported drops in enrollment in the fourth quarter. Overall enrollment at the company's online and brick and mortar schools for the quarter was down nearly 11 percent over the same quarter last year. As of June 30, 2012 total enrollment across all brands – Art Institute, Argosy University, Brown Mackie College and South University was 124,600, down from 139,800 a year ago.
The online programs, where the bulk of the company's layoffs have taken place this past year is down a whopping 19.4 percent over the same time last year. Part of those numbers are very easily attributed to a steep drop in new student enrollments of slightly more than 20 percent. None of the brands did well attracting new students. Enrollment at the Art Institutes – which has its flagship school here in Pittsburgh – is down more than 18 percent. Enrollment at Argosy is down a whopping 26.7 percent, down 21.2 percent at South and 15.9 percent at Brown Mackie.
“The current environment is unprecedented in the number of challenges that we face but at the same time offers amny positive opportunities,” outgoing CEO Todd Nelson said on Thursday's conference call. “The primary reasons for the decline in enrollment are tuition and concerns about debt.”
Nelson said, however, that he believes EDMC will continue to be an important player in providing post-secondary education because of the quality of the product that the school provides. He pointed to gainful employment data provided by the U.S. Department of education that shows that graduates from EDMC schools earn about five percent more than graduates from similar programs at other schools.
While that can be considered an achievement, it's certainly not one to be taken without a cautious eye. At the end of July, 5,000-page two-year audit of the for-profit education sector led by U.S. Sen. Tom Harkin labeled the for-profit sector “and abject failure.”
According to the Post-Gazette:
Issued Monday, the scathing 5,000-page document blasts the for-profit education industry for recruiting too aggressively, for spending more on marketing than teaching, for producing too few graduates, for charging significantly higher tuition than comparable public schools, for tying salaries to recruitment and for giving prospective students unrealistic impressions of potential post-graduate employment and earnings.
Students are ill-equipped to repay the loans because most fail to complete their degree programs, while others graduate to find low-paying jobs in the fields they studied, the report found.
Default rates are 22.5 percent for students at for-profit schools, compared with 9 percent for students at other schools, and their loans are typically more because tuition is higher.
An associate's degree in web design and interactive media from the Art Institute of Pittsburgh, for example, costs $47,410, according to the report. Community College of Allegheny County offers the same degree for $6,800.
...EDMC is a rare exception, spending more on instruction than it banks as profit, according to the report. It spent $3,460 per student on instruction in 2009, while its for-profit competitors spent between $892 and $3,969. Still, EDMC spent even more on marketing than teaching: $4,158.
The company, which will release it's annual report at the end of August, is in a current state of flux. On Aug. 15, Nelson leaves his post as CEO to become the chairman of the board, replacing longtime chair Jock McKernan, who will remain as a director. Ed West, the current chief financial officer will step into Nelson's role as CEO.
McKernan is the former governor of Maine and husband of retiring Maine Sen. Olympia Snowe, a marriage that has also been a point of controversy for the company. Nelson, as often been the lightning rod for critics who have questioned his running of EDMC coming off his tenure as CEO at the University of Phoenix where he and the school were successfully sued for the way the school paid its frecruiters.
Additionally, EDMC is fighting a U.S. Department of Justice lawsuit over the company's student recruiting practices. If EDMC loses the case, it might have to repay billions of dollars in federal financial aid given to its students.
And if things couldn't get much worse, as of thise writing, the company's stock price – which was nearly $30 a share in January – was trading at $3.14 a share.