Strayer Education lowers tuition while cutting jobs and campuses

November 10, 2013

Strayer Education announced recently that it was slashing tuition, eliminating jobs and closing campuses as it tries to cut costs to deal with a recent falloff in enrollment.

For-profit education companies such as Herndon-based Strayer face a challenging environment these days. Tougher government regulations and an uneven economic recovery have put pressure on programs, and many students who once filled classroom seats are now opting for lower-cost online degrees.

The for-profit schools are also facing increased competition from state schools, which are launching their own online programs.

As a way to remain competitive and boost its enrollment, Strayer said it will lower its tuition by 20 percent for new undergraduate students starting in January. It is the second time this year that Strayer has addressed affordability. In May, the company launched a Graduation Fund initiative and froze tuition for currently enrolled students.

The Graduation Fund program rewards students while helping boost Strayer’s retention rates. For every three classes that students complete, they earn tuition credit that can cover up to 25 percent of the total cost of their undergraduate degree, or $14,200.

The lower tuition combined with the Graduation Fund program puts the cost of a Strayer undergraduate degree (about 30 courses) at $42,600. The company does not plan tuition changes at the graduate level. Nearly a third of Strayer students are in graduate programs.

“We believe one of the primary contributing factors to the lower enrollment levels among [unaffiliated undergraduate] students are issues relating to overall affordability,” Strayer chief executive Karl McDonnell said during a conference call last month to discuss the company’s third-quarter earnings with investment analysts.

Strayer’s enrollment has shown significant declines. Since reaching its peak of 60,700 students in the fall of 2010, undergraduate enrollment has fallen steadily the past few years. It was 43,192 this fall, down 17 percent from the previous year. New student enrollment declined 23 percent.

New student enrollment results “were not just weak in a normative sense, but they also continued a negative trend, which has worsened throughout the year,” Executive Chairman Robert S. Silberman said during the conference call.

One area of growth for the company is its corporate alliances. Strayer partners with companies such as Federal Express, Lockheed Martin and Verizon to offer training programs to employees. Strayer courted new companies and added 13 accounts in the third quarter. Students from corporate alliances now represent nearly one-third of Strayer’s total enrollment.

Strayer’s moves come on the heels of a lackluster third-quarter earnings report. Revenue for the period fell by 11 percent compared with a year ago, to $110 million. Net income in the third quarter was $3.1 million, or 30 cents a share, down 23 percent compared with the same period in 2012.

Despite surpassing analysts’ estimates with a per-share profit of 30 cents — the analysts had predicted between four and five cents a share — the company’s stock sank more than 20 percent immediately following the cost-cutting announcement. Since trading above $200 a share in 2009, Strayer stock has fallen to less than $40 per share.

In an effort to contain budgetary pressures brought on by decreasing its tuition, Strayer will reduce its workforce by 20 percent and close 20 campuses, mostly in the Midwest. The students at those campuses are being offered online courses.

Strayer’s workforce topped out at 4,020 employees in 2011. Last year, the company reduced its workforce nearly in half, to 2,120.

“The university remains fully committed to our mission of providing the highest-quality academic programs we can for our students,” McDonnell said. “Our belief is that a high-quality education combined with affordable tuition levels offer students the best opportunity to maximize the return they will receive on their educational investment.”

Kathy Orton is a reporter and Web editor for the Real Estate section. She covers the Washington metropolitan area housing market.
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