Capella Education Company: Heavy Reliance on Title IV Loans a Major Concern

| About: Capella Education (CPLA)

About the company

Capella Education Company (NASDAQ:CPLA) is an exclusive online postsecondary education services company. It provides various doctoral, master’s and bachelor’s degree programs in behavioral health and human services, business management and technology, and education and public service leadership through Capella University.


Capella Education Company was founded in 1991 as a Minnesota corporation. In 1993, the company established a wholly-owned university subsidiary under the name The Graduate School of America. In 1999, it changed its name to Capella Education Company, and in November 2006, it went public.


The company experienced favorable growth over the years. It was one of the early players in the for-profit education industry as it was founded in 1991. From 2005 through 2009, it increased its revenues, operating income, and net income every single year. Return on equity and net profit margins followed the same trend.


It is evident that the market for postsecondary education is strong. Online education is the fastest growing segment in the education market. By 2025, at least 60 percent of our population will require postsecondary education.


The entire for-profit education industry is not popular with investors because of regulatory concerns. Any regulatory changes are risky because for-profit education companies rely on Title IV loans to generate revenues. Any changes in Title IV programs can be detrimental to the entire industry.


While I like many of this company’s characteristics, its heavy reliance on Title IV loans is a major concern.