Once touted as among the fastest-growing industries in the United States, for-profit colleges are facing steep competition from state universities in online programs, Bloomberg News reports. With increasing tuition costs, students are turning to cheaper state schools for online degrees, Bloomberg says, and companies like the University of Phoenix and the Washington Post Co.’s Kaplan chain are closing campuses because of a fall in enrollment and stock prices.

A report released in July by the Health, Education, Labor, and Pensions (HELP) Committee of the U.S. Senate found that most for-profit colleges charge higher tuition than community colleges or flagship public universities for comparable programs: On average, B.A. programs cost 19 percent more than at flagship public universities. The study also found, through an analysis of student data provided by 30 for-profit higher education companies, that for students who enrolled in 2008-09, more than half had withdrawn by mid-2010.

In the K-12 world, for-profit education has been a point of contention for years, facing fierce support and opposition from policy experts and educators across the country. Writer and researcher Diane Ravitch has often voiced her opinion against for-profits, including cyber charters and virtual schools, writing for Education Week, “I find myself uncomfortable about the very idea of making a profit by providing public education. Isn’t it–or shouldn’t it be–a basic public service available to all at public expense? Shouldn’t all the money go directly into improving education rather than paying exorbitant salaries and making money for shareholders?”

But private investors are still drawn to the $500 billion-a-year K-12 market. In the venture capital world, transactions in the K-12 sector reached a record $389 million last year, up from $13 million in 2005, Reuters reported in August.

K12 Inc., based in Herndon, Va., is one of the biggest players in for-profit precollegiate education. In July, my colleague Jason Tomassini reported that the company’s stock had dropped following the release of a scathing report, “Understanding and Improving Full-Time Virtual Schools,” by the National Education Policy Center, a nonprofit research organization based in Boulder, Colo.

One of key findings of the analysis was that students in virtual schools run by K12 Inc. were performing worse academically and dropping out of courses at much higher rates than their brick-and-mortar counterparts. The analysis stemmed from federal and state data sets for revenue, expenditures, and student performance across the 59 full-time virtual schools run by K12 Inc., Digital Education reported.

At the time, K12 Inc. countered the report in a press release, contending that it “provide[d] no evidence” to back up the claim that the company was falling behind. In its response, K12 Inc. said the NEPC used selective data that didn’t present the whole academic picture for virtual schools, including the tendency for students already behind grade level to enroll and ignoring academic growth, Marketplace K-12 reported then.

After the release of the July report, the company’s stock was at $20.82 per share after dropping as low as $20.25 around midday, Marketplace K-12 reported. As of Nov. 20, K12 Inc.’s shares closed at $16.27.