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An annual financial document filed last week with the federal government by National American University shows the Rapid City-based for-profit college is in a fiscal downward spiral, dwindling from over 8,000 to 5,600 students in two years.

According to its Securities and Exchange Commission annual report filed Sept. 13, NAU posted an operating loss of $11.5 million in the 2018 fiscal year that ended May 31. The school has seen a 30 percent drop in enrollment in its undergraduate and graduate classes across 24 campus locations in 10 states and online since 2016.

Leadership has scrambled to right the ship, consolidating campuses, downsizing admission staff and even selling two company aircraft that could raise $2.3 million. The company's document offers few bright spots, given the added scrutiny of the for-profit college industry by the federal government and a good economy.

"We believe the decline in student enrollment and revenue is the result of the regulatory scrutiny of the industry and the current economic environment," the report states. "Similar to our peers, many working adults have chosen not to attend school."

Requests for comment from NAU's chief executive officer and president, Ronald Shape, were not returned. 

A company stock that was well over $2 a share a year ago was selling Friday for 80 cents a share. The drop in value, though, could grow more dire if NAU falls short of meeting stringent Department of Education standards and loses access for its students through valuable federal student loan pools.

"Obviously, Title IV funds are the lifeblood of National American University," said Dahn Shaulis, an industry watchdog. "With the Trump-DeVos administration, I would think the odds would be pretty low (for losing eligibility), but I could be wrong. Most schools in financial trouble end up on the Heightened Cash Monitoring List, which may delay funds." 

While the nation's top education regulator has taken a decidedly friendlier stance toward for-profit institutions in talking points, many proprietary colleges, including some with household names such as ITT Technical Institute, have folded or combined since the Department of Education during the Obama Administration ratcheted up scrutiny of the for-profit post-secondary industry.

Regulators reacted to high default rates of students who claimed they'd been swindled by flashy ad campaigns for academic programming that was light on substance and did not lead to jobs that could pay off steep loans. According to federal records, from 2016 to 2017 more than 100 for-profit colleges closed.

NAU, however, as a smaller for-profit college with a deeper history than most, has survived. But the latest SEC filing shows NAU's revenue has declined by 30 percent in two years, down from $95 million to $74.8 million. During the same period, the value of its assets, including real estate — as it has combined campuses in Texas and Minnesota — has lost nearly half its assessed value from $60.6 to $35.4 million. The document reveals face-to-face, online and hybrid classrooms are all losing students.

One of the few parts of its business that appears to be making money is its local real estate business, Fairway Hills Developments, which built a 24-unit luxury apartment near Arrowhead Country Club earlier this year.

What now endangers a business such as NAU that offers more than 450 programs ranging from medical assisting to paralegal and even a doctorate in education is access to federal Title IV funding, and the SEC report seems to suggest this artery could also, if conditions worsen, close.

Multiple times throughout the 115-page report, NAU specifies that for any number of reasons — from new industry rules built around debt-to-earnings ratios to gainful employment — the school could lose certification with the federal student loan program operated out of the Department of Education, meaning students would not be able to receive federal student loans for their classes at NAU. The school, according to its own financial document, receives more than 80 percent of its income from the Title IV federal student loan program.

The Obama administration passed regulations requiring schools to stay under a 90/10 threshold, meaning more than 10 percent of its funds needed to come from sources beyond what is essentially a federal bank.

Another regulation rates a school's financial responsibility on a scale running from -1.0 to +3.0. In 2018, NAU posted what they say is a preliminary +1.3 number. This puts them in an "alternative zone" that brings added scrutiny.

"If we are unable to meet the minimum composite score or to comply with the other standards of financial responsibility and could not post a required letter of credit or comply with the alternative bases for establishing financial responsibility, then our students could lose their access to Title IV program funding," the report says.

The report goes on to state that loss of such funding, which might set up a loss of accreditation by the Higher Learning Commission, would mean a "dramatic and adverse decline" in revenue. 

One potential easing of the pain — if not an outright fix — of the financial woes for NAU could be the reauthorization of the Higher Education Act, now stalled in Congress. Every five years or so, Congress is supposed to update the Higher Education Act of 1965. But the last time that happened was in 2008. The current bill, called PROSPER (Promoting Real Opportunity, Success, and Prosperity through Education Reform) by its chief author, Rep. Virginia Foxx of North Carolina, appears to do a number of things the for-profit college industry would like, such as wiping away Obama-era regulations on gainful employment rules and extra governmental support for students suing colleges.

A spokesperson for the U.S. House Committee on Education and the Workforce noted Rep. Foxx continues to have "positive" conversations with House members about the bill but an article in "Washington Monthly" puts the chances of it passing before midterms at "near zero."

For its part, NAU, a publicly traded company with a board of directors who can receive stock dividends, states in its Sept. 13 SEC filing that they face unfair competition from public and private non-profit colleges and universities that have "instructional and support resources superior to those in the for-profit sector" and may benefit from "access to government and foundation grants, tax-deductible contributions and other financial resources generally not available to for-profit schools." But the school also acknowledges that even a reauthorization of HEA might not help help them, and with midterm elections potentially leading to a shift in party leadership in Congress, it is unclear what any bill might look like in its final form.

"We cannot predict with any certainty the outcome of the HEA (Higher Education Act)," the annual report from NAU states. 

NAU has sought out innovative delivery methods for its educational programming, starting online classes in 1998, and seeking populations of students underserved by traditional colleges. NAU Canada Online has offered learning environments tailored to students' schedules and expanded the school internationally. The college also operates a campus on Ellsworth Air Force Base near Rapid City and is part of its recently developed College of Military Studies.

But further innovation will need revenue, says the company.

"We may not be able to compete successfully against current or future competitors and may face competitive pressures that could have a material effect on our business, financial condition and results of operation," the Sept. 13 report reads.

As revealed earlier this week in a release of enrollment data from the South Dakota Board of Regents, fewer students are attending a traditional public college or university in the state than last year. Enrollment at the state's higher learning institutions has stalled since 2010, the waning years of the Great Recession, which sent many recently laid-off working adults back to college for retraining.

What has emerged since NAU and other colleges were bursting at the seams has been slow if steady job growth in the U.S., which means fewer students are looking to pay for the high cost of a college education.

NAU, which opened in 1941 and operates in South Dakota, Colorado, Indiana, Kansas, Missouri, Nebraska, New Mexico, Oklahoma and Minnesota, has more than 1,110 full- and part-time faculty and still serves more than 5,000 students, a vast majority online, making it one of the largest post-secondary institutions headquartered in the state.

But the path forward appears fraught with difficulty. In April, the federal government signed onto a whistleblower lawsuit filed by former administrator and instructor in the paralegal program for NAU in Minnesota Brian Gravely, who has alleged NAU fired him for reporting what he "in good faith believed to be legal violations," the lawsuit states. Gravely also alleges NAU broke the U.S. Department of Education's 90/10 rule, defrauding students and taxpayers.

A similar lawsuit filed by a former employee, alleging wrongful termination for reporting fraudulent behavior by administrators at the now-defunct Globe University, resulted in the attorney general of Minnesota suing the school and winning a judgment, weeks before the for-profit school went out of business.

"NAUH could go in many directions from here, but their future looks somewhat bleak," Shaulis said. "They will need to make some drastic moves, more campus closings, and maybe someone will take them private." 

The school's next move may come soon. The annual shareholders meeting for NAU is Oct. 9 at the Holiday Inn-Rushmore Plaza.

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Contact Christopher Vondracek at Christopher.Vondracek@rapidcityjournal.com.

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