The Hard Reset for For-Profit Education

Apollo Group Inc., the largest U.S. for-profit college chain.
Joshua Lott | Bloomberg | Getty Images
Apollo Group Inc., the largest U.S. for-profit college chain.

After the market closed Monday Apollo group released news that its University of Phoenix's accreditation had been "reaffirmed" for 10 years by the Higher Learning Commission, which grants accreditation to colleges.

The news was viewed as a positive after the University of Phoenix, an online for-profit university, previously had been recommended for probation by a peer review team of the accrediting organization. Never mind that some of this was already mentioned on the company's last earnings call, several weeks ago, with further mention in its 10-Q, filed the same day.

But the release, which followed the Higher Learning Commission's final action letter, was by way of an SEC 8-K filing, the bare minimum legal requirement, rather than a trumpeted press release.

I believe it's almost always a red flag when an 8-K is used instead of a press release, especially with something as important as accreditation.

Apollo doesn't agree. Mark Brenner, senior vice president of communications and external affairs, says he believes the company has been "much more transparent" than any other company in the industry -- to the point of disclosing draft reports of the accreditation process as it has moved along. "I would argue we are the most transparent in the way we deal with the financial and investment community," he says.

To be sure, repeating what it has said in prior disclosures, the company included a full history of its road to securing its reaffirmed accreditation in its most recent 8-K. Here's a summary of the filing:

After explaining that its accreditation had been reaffirmed, Apollo gave a chronology of recent events, dating back to February 22, when a draft report of the Higher Learning Commission peer review team determined the University of Phoenix was not compliance with certain accreditation criteria. It recommended the school be placed on probation.

On May 6 the Higher Learning Commission convened a hearing to go over the matter, which included a review of changes the University had made to improve itself.

Then, on May 9, the University of Phoenix received a report that recommended its accreditation be renewed for 10 years -- phew! -- but hold the applause: The commission also recommended the University "be placed on Notice status for two years due to concerns" related to a variety of matters.

The good news: It wasn't full probation, which the company on its earnings call said has "less requirements of disclosure."

But still, any sanction isn't a good sanction. According to the company's 8-K, "Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components."

And for the next two years it must disclose the "notice status....with any statements regarding its HLC accreditation."

This "sanction," the company added, "could adversely impact our business."

Oh, and by the way -- tucked at the very bottom of the release: Apollo's smaller Western International University received the same accreditation reaffirmation and "notice."

My take: The hard reset of the business models of the for-profit education industry continues. Apollo is the biggest of all. Any sanction no matter how minor, is not good news, especially as mainstream universities increasingly go after Apollo and others with their own online offerings -- all of this while the entire world of higher education is undergoing an upheaval of sorts. The company can't be faulted for lack of disclosure when they make all required SEC disclosures. I just prefer the added bonus of a press release.

Correction: Earlier versions of this story contained misstatements of fact and mischaracterizations. The story has been revised.

—By CNBC's Herb Greenberg. Follow him on Twitter:@herbgreenberg and Google

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