The Education Sector: A Paradigm Shift

I have spent my entire professional life in a traditional academic setting where I have taught traditional-age students for the better part of 25 years. I am a product of, and am deeply ingrained in, the concept of the private nonprofit college and university. The American higher education system is the envy of the world, and those students who, immediately upon graduating high school, are fortunate enough to be able to attend a four-year institution on a full time basis and reside on campus reap enormous long-term benefits, both material and otherwise, from the experience.

It is of course a fact of life that not everyone is so fortunate. Many enter the work force immediately after high school or perhaps begin college but for a variety of reasons are unable to complete their degree. At some point in their lives, many of these people recognize the need to complete their education, and we see at present vast numbers of non-traditional students, i.e., working adults, enrolled in a variety of institutions and working toward their degree.

This is nothing new. There have always been such students who in years past would enroll in various continuing education programs (as they used to be called) offered by traditional colleges and universities. However, these students currently comprise a much larger percentage of the total student population than they used to, and it is very instructive to examine what is taking place in response to this phenomenon.

I am becoming increasingly convinced that we are witnessing a paradigm shift with regard to the manner in which degree programs are offered to working adults. This paradigm shift has two prongs. The first of these is represented by the explosive growth we have seen in the role played by for-profit education providers and a concomitant shift away from the traditional nonprofit college or university as the only viable option for obtaining a quality degree. The second has to do with the increasing presence of online options for adult students to the point where any institution, whether for-profit or not, which does not offer substantial online options to its adult students will not be able to grow or even sustain its programs for working adults.

As I have written before, I am convinced that the future of degree programs for working adults lies in the for-profit sector. There are three principal reasons for this. One is that traditional colleges and universities see as their principal mission the education of 18-22 year-olds. In these institutions, programs for non-traditional students are often created simply to provide a revenue stream to support what the school considers to be its principal mission, namely the education of traditional-age students. This creates an untenable situation for adult students who end up feeling marginalized within the institution. Moreover, since the revenue generated by the adult students is diverted to support other aspects of the institution, the programs for adult students do not receive the type of re-investment which is required to keep these programs current and vibrant.

The second reason has to do with the fact that the adult student market is one which is constantly evolving and which can be quickly affected in a profound way by various macroeconomic factors. Institutions which hope to serve this population need to be able to create and modify programs in response to these shifting conditions. The ability to be quick and nimble in response to changing conditions is something which is almost non-existent in the world of traditional colleges and universities. For all their social and political activism, these institutions are at their heart deeply conservative in the sense that change comes excruciatingly slowly. These institutions are organized in such a way as to make meaningful short-term and even intermediate-term change almost impossible. The kind of flexibility which is necessary with regard to serving adult students is not one which comes naturally to these institutions. A for-profit entity, if well-run and properly managed, is able to position itself much more adroitly in response to changing market conditions. Ironically, the profit motive, when harnessed by a well-run entity, can create a structure which does a better job of meeting the needs of adult students than that which is offered by the traditional nonprofit institutions.

Finally, I believe that the for-profits will ultimately triumph over the nonprofits when it comes to serving a working adult student population precisely because the nonprofits do not see the for-profit actors as a threat. Many faculty and administrators in traditional universities have a deep-seated conviction that no for-profit entity could ever provide a quality education. In this view, the mere fact that the profit motive is involved renders an organization incapable of educational excellence. It is axiomatic that by their very nature, the degrees obtained at such institutions will not be worth the paper they are written on. Therefore, it is in the nature of the not-for profits to dismiss the for-profit sector as irrelevant and certainly as non-competitors. In thinking about the competitive landscape for their non-traditional programs, the nonprofits simply do not factor in the for-profit sector. This point is made so well by Trace Urdan, in my view the most astute analyst of the education sector, when he writes that "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." He could not be more on target here. The nonprofits simply cannot fathom that they face a threat from institutions which are so unlike themselves. Not being seen as a threat by the nonprofits gives the for-profits a tremendous advantage over them.

The other prong of the paradigm shift has to do with the role played by online and hybrid courses in programs for adult students. Adult students are juggling work, family, and school, and will gravitate toward programs which allow at least a modicum of flexibility in the way a student pursues his or her degree. For some students a combination of campus-based and online courses will be ideal, while others may prefer a totally online structure. Of course, there will be many students for whom online courses are not attractive and who will prefer to stick to the traditional face-to-face format. However, it is becoming increasing clear that adult students respond well when at least some aspects of their courses are available via the internet so that, for example, they can access various aspects of a course during breaks in their working day. Some form of interaction at a distance, even in the context of a traditionally formatted course, is essential, and these hybrid courses are becoming increasing popular.

This fact has been recognized by both the for-profit and nonprofit players. In both sectors, we have seen an explosion of online and hybrid courses. The technological and human infrastructure required to support such offerings is no small matter, and many smaller and less-well endowed nonprofit institutions are simply not capable of the initial investment and ongoing support which is necessary to create and sustain an online delivery system. The for-profits, with their entrepreneurial bent, have an inherent advantage in being able to make the investments in capital, both monetary and human, which are required. But it is clear that whether the setting is a for-profit one or not, a degree program for working adults which does not offer substantial online options for its students will not thrive.

It is this double-pronged paradigm shift which has led me to follow closely and to write about certain players in the for-profit education sector. At this point, the ones which I find most attractive are Strayer Education (STRA), Capella Education (CPLA), and Blackboard (BBBB).

Strayer has distinguished itself as a stellar performer in the sector. It has not been involved in any of the misdeeds, either academic or financial which have plagued the sector in recent years, and it is pursuing a sound strategy of managed growth which is sensitive to the dangers of growing too quickly. The CEO, Robert Silberman, consistently makes the point that ultimately it is the academic quality of its programs which will drive the financial success of the company. To that end, he is determined not to allow the organization to grow more quickly than its human capital will allow. The aim is to protect the brand and to grow at a rate which is consistent with this. Strayer is located primarily in the Southeast and is just beginning to break out of that region. It has huge potential for future growth as it begins to move across the country. In my view, it is the most attractive player among those for-profits who offer a combination of campus-based and online instruction at both the undergraduate and graduate levels.

Capella is intriguing in the way that it has consciously differentiated itself from the other players in the sector. It utilizes an exclusively online delivery system and focuses primarily on graduate programs. This laser-like focus with regard to the delivery system and the educational programs offered gives Capella a significant level of differentiation from the other players in the sector, and it is this differentiation which forms an important cornerstone of the company's strategic plan for future growth.

Blackboard provides the technology which makes possible the delivery of online courses. It is by no means the only product available for this purpose but, with its recent purchase of WebCT, it is certainly the dominant player and it continues to show signs of strength among educational institutions of all shapes and sizes, including K-12 and colleges and universities, both for-profit and nonprofit.

Disclosure: Author has a long position in the above-mentioned securities.