His for-profit campuses offered an attractive alternative: diplomas with national recognition, and online classes they could take from home.

The University of Phoenix has three Hawai'i locations: a Honolulu campus and a Kapolei and Mililani learning center.

But recently the Arizona-based company has struggled to return the kind of profits expected from an education pioneer. Traditional universities have flooded the market for Internet classes, and the company has accumulated millions of dollars in bad debt as it turned to younger students to fill classrooms.

The Apollo Group Inc., which oversees the University of Phoenix, said Tuesday it doesn't expect the double-digit revenue increases it enjoyed in previous years.

Company President Brian Mueller said investors should expect more modest, single-digit growth for some time. "It can be higher than that ... in the next 12 to 18 months. But the high single digits is a long-term number."

Market analysts have been scratching their heads over Apollo's financial health for a year as the company investigated improper stock grants and restated earnings reports.

On Tuesday, the company had some tough news.

It said in government documents that sales figures have shrunk, increasing only 10 percent in 2006 compared with a 25 percent boost in 2005. At the same time, Apollo's bad debt expenses have soared, going from $31 million in 2004 to $102 million in 2006.

OFFICIALS SCRAMBLE TO BOOST ENROLLMENT

Trace Urdan, a senior analyst with the San Francisco-based investment bank Signal Hill, said the pressure for profits has company officials scrambling to boost enrollment. In previous years, the company relied on mid-career adult students who could get their employers to pay for classes.

By turning to younger students, "you're basically competing against every junior college and community college that's out there," Urdan said. "The dropout rate is very high, and so you have to spend a lot more to maintain that level of enrollment."

It's a questionable move, Urdan said, given that Apollo has spent heavily to establish the University of Phoenix brand as a quality institution that's equivalent to a traditional university.

The company spent $43 million more in the second quarter to promote its educational services, a 34 percent increase from the same period in 2006. It also agreed to pay the Arizona Cardinals $154.5 million over the next 20 years to put the University of Phoenix name on the team's stadium in Glendale.

By filling out its student body with the larger pool of younger, less dependable students, Apollo is sending a second message that "they're chasing after growth for growth sake," Urdan said.

"One of the areas we've had difficulty understanding is why they've not attracted the same student that's been so successful to them in the last 20 years," said Gary Bisbee, an analyst with Lehman Brothers Inc. in New York.

"Having to go to students with somewhat less academic backgrounds clearly is leading to higher bad debt expense, as well as lower student retention," Bisbee said.

AN INTERNATIONAL EMPIRE

Since he founded the University of Phoenix in 1976, Sperling's company has expanded into an international empire.

His Apollo Group offers classes at 100 campuses and 162 learning centers in 39 states, Puerto Rico, Washington, D.C., Canada, the Netherlands and Mexico. It also operates the Institute for Professional Development, The College for Financial Planning Institutes Corp. and Western International University Inc.

But traditional universities and college campuses are now targeting the industry Sperling revolutionized. Many offer their own online courses at a cheaper price, subsidizing the cost with government grants that are not available to for-profit companies.

The company also is coming off a turbulent year. It had to recalculate its financial records amid the discovery that company officials improperly granted stock options. Apollo CEO Todd S. Nelson, Chief Financial Officer Kendra B. Gonzales, and University of Phoenix President Laura Palmer Noone resigned in the shake-up as an independent group checked the company's books.

On Tuesday, investors learned that Nelson received a severance package worth more than $32 million when he left on June 30.

The company's shares dropped 8 cents to close at $48.91 on Tuesday.

Still, Bisbee said that Apollo's new sales goal is a sign that the company has taken a long, honest look at itself. There are still millions of mid-career adults out there who want to complete their degree, he said, and Apollo is in an excellent position to take them in.

"Clearly, it's a lot more challenging than it was 15 years ago," he said.

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