Strayer Education: The Money Making Do-Gooder

A faculty colleague of mine recently reacted to my article on Strayer (STRA) by noting that I had “gone over to the dark side.” What shocked him was my acceptance, and indeed, active promotion, of a for-profit provider of educational services. In his view, the mere fact that an organization is for-profit renders it incapable of providing a quality education.

This attitude is pervasive in colleges and universities across the country. Only a non-profit entity is capable of providing a good education since any organization which functions on a for-profit basis must necessarily succumb to bottom-line pressures. Therefore, such an organization will look to cut any corner possible and will market itself by offering an easy and effortless solution to those in search of a degree. Basically, so this view holds, such an institution is capable of little more than entering into a shoddy bargain with its students, namely, give us your money and we’ll give you a degree requiring little or no effort on your part.

Given this attitude toward profit-making entities, I guess one would have to conclude that the various vaccinations we routinely give our children to protect them from dreaded diseases and the numerous wonder drugs which sustain life for millions of people could not possibly have been developed by profit-making organizations. After all, the profit motive in and of itself renders an organization incapable of providing a quality product or service. Anything produced by such an entity will be shoddy, substandard, and without value.

It is course true that the education sector has been beset by a variety of scandals which feed right into this world-view and which undercut the efforts of those players who aspire to establish a solid and respected brand name. But the tendency to succumb to short-term gain at the expense of long-term quality is a potential problem in any commercial enterprise. If an automobile manufacturer cuts corners and produces shoddy vehicles in order to make a fast buck, does that mean that, in principal, no for-profit automobile company is capable of producing a quality car? Of course not, and ultimately the market will reward the maker of quality and punish the shoddy player since consumers will vote with their dollars.

In the educational arena, the customers are the students and the employers who eventually hire them. Those schools, whether for-profit or not, who turn out less than competent graduates will, sooner or later, find their students shunned by prospective employers and will find it increasingly difficult to recruit new students. Those schools, again whether for-profit or not, which produce a quality product (there’s a phrase likely to raise eyebrows among my academic colleagues) will experience increased interest from prospective students. Although it may take a while, the market generally does a good job of separating the wheat from the chaff. I recognize that most of the readers of Seeking Alpha need hardly be reminded of the virtues of capitalism, but as I indicated at the outset, I am struck by the fact that so many in my profession take it as an article of faith that such a system is inherently incapable of quality in the area of education.

For the reasons I stated in my earlier article, I am convinced that the future of degree programs for working adults lies in the for-profit sector. While that sector has seen its share of cutting corners and going for the fast buck, there is one player in the sector, Strayer Education, which gives every indication of understanding the importance of building a solid brand over time and establishing a reputation for quality among students and employers. Strayer knows that it is good business to produce a good product.

This point is made over and over again by CEO Robert Silberman in the quarterly conference calls. Not only has Strayer not been implicated in any of the corrupt practices which have plagued the sector, but it recognizes that the maintenance of academic standards is essential to its success as a business. Strayer understands that it is ultimately the academic quality of its programs which will determine its success as a company. If Strayer continues to adhere to this principle, it will in time become the dominant player among for-profit providers of education. As it generally does, the market will reward quality in the long run.

Strayer also stands a good chance of defeating the competition which comes from adult programs provided by the not-for-profit sector. The not-for-profits take little note of the for-profit providers because they simply cannot fathom that a for-profit entity could possibly offer a product which would be competitive with theirs. As Trace Urdan, writing for R.W. Baird, observed: "We have heard of community college and small university actors who have been oblivious to the arrival of a for-profit competitor to their market." Not being seen as a threat by the not-for-profits gives Stayer a tremendous advantage over them.

Strayer is well-poised, through its adherence to the principal of quality and through its measured but steady growth, to dominate the market for adult students, a market which shows every sign of a long-term upward trend.

Disclosure: Author has a long position in STRA

STRA 1-yr chart