Enrollment, earnings fall at Strayer as for-profit degree purveyors struggle

February 19, 2012

Herndon-based Strayer Education became the latest for-profit higher-education company to post continued declines in income and enrollment last week, as the industry struggles with economic and regulatory pressures.

Many online-degree purveyors saw demand explode at the dawn of the recession as laid-off workers sought new skills. But as the economic recovery plods along, balance sheets across the industry are suffering.

“Students are nervous about borrowing the money, even though the dollars are available to them,” said Trace Urdan, an analyst with Wunderlich Securities.

Strayer reported on Feb. 16 that profits last year fell 19 percent to $106 million compared with $131.3 million in 2010. Total enrollment for the 2012 winter term declined 12 percent to 50,432 students compared with 57,608 students in the same term last year.

“It’s not practical for an adult who has responsibilities and dependents to enroll in a university at a time when their primary objective is looking for a job,” Robert Silberman, Strayer’s chief executive, said in an interview.

“The enrollment will ebb and flow,” Silberman said. “It doesn’t really matter to us in the long run.”

The company’s declines were made less severe in part by enrollment growth in two key categories: graduate students and students from corporate programs. Strayer, like many for-profit educators, has been actively courting corporate partners. Those students often receive tuition assistance from their employer and may be more motivated to complete their degree.

Urdan, the analyst, said graduate enrollment at Strayer appeared strong even without the corporate partnerships. “Clearly they’re also attracting individuals off the street. That’s certainly an encouraging sign for them,” he said.

The challenges are not unique to Strayer. Other for-profit education companies, such as Capella, Apollo Group (which owns University of Phoenix) and Kaplan Higher Education, have also seen earnings and enrollment drop. Kaplan is owned by The Washington Post Co.

Last summer, federal regulators took issue with the academic caliber and recruitment efforts at some for-profit education providers after an investigation suggested that many graduates struggled to land jobs and repay loans.

New requirements have forced many companies to examine the degree programs they offer, sometimes shortening the time to graduation or cutting them altogether. Some firms also have changed the way they compensate recruiters.

“I don’t think that those regulations really had much to do with the enrollment downturn right now,” Silberman said. “I think the publicity around investor-funded education was quite negative a year ago. That had a short-term impact.”

Silberman and the analysts said Strayer was largely untouched by changes imposed on others in the industry.

“For Strayer, [the decline is] probably more about the economy than most things. Strayer really hasn’t done much in some of the policy rules change that went into place last July,” said Brandon Dobell, an analyst at William Blair. “They, unlike a lot of schools . . . weren’t all that exposed.”

To compound the industry’s woes, bricks-and-mortar institutions pose a greater threat. Once slow to adopt online-only courses and academic programs, many universities now view them as a viable source of revenue.

“Our main focus is running a university,” Silberman said. “It happens to be run by a publicly traded company, but really it’s just another source of capital. From our standpoint, universities are a long-live asset and we’re comfortable with the variability that comes with enrollment.”

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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