John Hechinger at Bloomberg News, a fantastic education reporter, wrote an excellent piece this past week about how state universities have come out swinging hard in round two of the online degree development phase. On the ropes: For-Profit Colleges. And for good reason. President Obama has been in favor of regulating the for-profit colleges and was just re-elected. His opponent - Mitt Romney - was in favor of de-regulating the industry. For-profits are looking at four more years of reform (better business practices) or die. The other, more important reason for investors to be wary of for-profit colleges at the moment is that more well-established state universities are able to offer degrees more affordably than for-profit colleges. Arizona State, for example, charges $442 per credit hour for an Internet bachelor’s degree (or about $11,000 per year) according to Hechinger. That compares to $585 per credit hour, or $15,000 per year, at the for-profit University of Phoenix. Hechinger gives for-profit schools credit for revolutionizing customer service in higher education. But he gives many examples of how their over-priced model is getting creamed by more limber state universities. U of Phoenix, Career Education Corp. and Kaplan are all cutting back and folding campus locations because of slumping earnings.

Hechinger writes:

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. (WPO)’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 AG. 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. As many as 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 University and the Massachusetts Institute of Technology are offering courses free online. For now, they don’t grant credit or count toward degrees.

Along with the competition, for-profit colleges’ have suffered damage to their reputations. In the past two years, the schools, which can receive as much as 90 percent of their revenue from federal student grants and loans, have faced scrutiny from President Barack Obama’s administration, Congress and state and federal prosecutors. The schools use high-pressure sales tactics to mislead applicants about costs and job- placement, leaving them with government loans they can’t repay, investigators have said.

Via Bloomberg News