Apollo Group: Focus On Associate's Degrees Hurt Other Programs

Apollo Group Inc. (APOL) is reviewing its growth plans for its associate's degree, saying the program diverted resources from other education offerings and hasn't performed as well as expected.

"I wouldn't say it was a mistake," Gregory Cappelli, co-chief executive of Apollo and chairman of Apollo Global, the company's international arm, told Dow Jones Newswires Thursday. "Probably it ended up taking a great deal more of the resources of the team to work with the associate's program. Probably we had to put a disproportionate amount of focus in this area."

Cappelli said growth in the bachelor's, master's and doctoral programs fell below internal goals as Apollo expanded into entry-level degrees, an initiative that began in 2004.

Forty-four percent of the 458,600 University of Phoenix students were in associate's degree programs in the most recent quarter, up from 20% in 2006.

Apollo last fall announced a pilot orientation program to help weed out students who likely wouldn't succeed at the associate's program. The school pays for the three-week program, which covers topics such as time management and navigating the school's library and is conducted at both the online school and at bricks-and-mortar campuses.

Cappelli said the company is "getting the results we were looking for" and plans to roll it out on a wider scale, potentially for all students wishing to enter with fewer than 24 credits, or the equivalent of one year of college experience.

Siphoning off students means Apollo's enrollment growth will slow and frustrate some investors. However, Cappelli said it is worth the cost, adding that the long-term benefits will outweigh short-term enrollment losses.

He defended the company's role in American higher education, saying it shouldn't be lumped in with the "job shops" recently targeted in a "Frontline" documentary on PBS and by the Department of Education for inappropriate business practices.

"You can't force a bad product on consumers for 40 years," Cappelli said, adding that students "vote with their feet" and University of Phoenix wouldn't have grown so much if it didn't provide legitimate education.

He noted that Apollo doesn't acquire new schools just to get coveted regional accreditation, a practice that is becoming more popular in the industry as struggling small schools need financing and some for-profit institutions look for more regulatory legitimacy. Regional accreditation is considered more elite than national accreditation, with schools including Harvard and Stanford holding such status.

Still, Cappelli said Apollo will be affected by potential rule changes making their way through the Department of Education. The company's schools may need to cut back on some nursing, teaching and law-enforcement classes if one regulation, a draft of which is expected later this spring, goes into effect. That rule proposes a cap on the ratio of debt to income with which students can graduate, an attempt at tying college courses to so-called gainful employment.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271, melissa.korn@dowjones.com

Apollo Education Group, Inc. (NASDAQ:APOL)
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