Yesterdays Capital Round Table conference for PE investing in EDU was a full house.  It was good to see some many of the industry’s players together in one room discussing current issues & trends facing Education.  In addition, Anthony Miller Deputy Secretary and Chief Operating officer at the U.S. Department of Education was there to answer questions regarding current and pending legislation.  Tony was refreshingly honest when he said the the Department understands and acknowledges that for profit education providers are critical to reach America’s goal of education attainment.  He praised the continued innovation provided by the industry and welcomes more of the same.

2012 Issues to remember:

The Change

MOST Important The three rules – #1 Student Success, #2 Student Success, #3 Student Success

Long-term strong demographics and demand create a solid base for growth

Regulatory changes are largely complete in post-secondary while valuations remain at historic lows

Dramatic changes in traditional schools are underway

Real opportunities exist to build world-class companies

Great outcomes=Great businesses

The next conference for PE in EDU I believe is in June or July, it’s worthwhile to attend!

Shares of Career Education Corp plunged 42 percent to their lowest in more than 10 years on Wednesday, a day after its chief executive resigned amid findings of improper placement practices, and increased accreditation risks.

The company also reported disappointing quarterly results 10 days ahead of schedule and said the decline in new student sign-ups will not improve in the near term.

At least two brokerages downgraded the stock to their lowest rating citing too many near-term risks.

FORCED EXIT?

Though the company did not tie the placement discrepancies to McCullough’s departure, analysts say he was kicked out for that very issue.

“The compliance issues were probably the main driver behind the CEO resignation,” analyst Dobell said. “An issue with compliance and honesty, particularly given McCullough’s background, was probably more than the board was willing to tolerate and more than McCullough was willing to stand for.”

McCullough was well respected and credited for cleaning up Career Education’s reputation and streamlining its operations, according to Robert W Baird analyst Amy Junker.

New article by Michael Clifford on significant Ventures

Some would say that the for-profit postsecondary sector is on its last legs… DOA. Capitalism.” He calls this framework for success his Four Gospels of Higher Education:

Fifteen publicly traded education companies have seen their stocks decline by 33% on average since December 2009 versus a 5% increase for the S&P 500. Media accounts abound of allegations regarding improper practices at publicly traded companies, including marketing misrepresentation and fraudulent reporting of placement rates. Twenty state attorneys general are investigating for-profit institutions. No other sector has been as demonized as the for-profit sector has among state and federal politicians over the past several years.

to read the article in its entirety: http://significantfederation.com/eblast/2011.09.14/landing/

Last week we spent some time on the phone with a well-known industry short fund.  We discussed the industry as a whole, as well as specific issues facing the industry which were behind their premise that shorting the industry was a good play for the next few years. Topics such as gainful employment, new compensation rules, default rates and the power of non-profit brands extending into the online education were the main points.  Gainful employment in conjunction with 90/10 is in our opinion a biased illogical political move to hinder the growth of one industry segment for profit schools to the benefit of another nonprofit schools.  If the rule is sound & logical, why wouldn’t it

be industry wide, the answer is clear, it’s not a well thought out rule.  If the traditional colleges had to live within gainful employment you would see far fewer lawyers, doctors, economists, political scientists (maybe that’s a good thing) philosophers, literary scholars, teachers, artists, theorists etc.  Who’s going to fill the entry level positions?  Aren’t they stepping stones?  We guess they will be filled by graduates of traditional colleges with English, Liberal Arts & Art history degrees whose $200,000+ education clearly provided them with such a solid and relevant foundation.  Default rates, well they need to be managed, schools need to ensure that the engagement & value their student receive from the education provided them is compelling.  We need to utilize assessment to make sure students enter program they have real interest and a likelihood of success in.  And we need to screen for and provide the remedial assistance necessary for students to be able to be successful in their education.  Will the industry be able to manage them successfully, YES.  As for the value of brands, this is a topic which has been discussed for many years.

We all know a brand is valuable.  We all know having a brand is a huge advantage and can significantly reduce the marketing costs of student recruitment.  But the big caveat is “can”.  Most traditional colleges significantly lack the admissions infrastructure and wiliness to adapt as necessary to be competitive to succeed in the fast paced world of online  education.  The partnerships between traditional colleges and for profit enterprises have proven that they can work and achieve fast growth, but those are still few in number.  The real questions is when will we see an influx of these partnerships, and how much of an effect will they have on the for-profit EDU industry>

You should check out the new study by Sage that goes into detail about the all out war in media coverage against the for profit education industry.  Utilizing various methods of analysis the study shows that clearly there was a tipping point in the negative media coverage relating to the for-profit education sector starting in May 2010.  Some again wonder who was behind this media push (short sellers or democrats seeking headline media attention), others simply shake their heads at the jadedness of many of the media outlets, and how news once known as unbiased coverage is now political rhetoric.  Which ever way you fall on this it’s clear that the media is hush hush about all of the positives while they stand on their soap box to scream about anything negative regardless of the accuracy.  It’s also clear how politics of the democratic party and self interest driven media sound bites clearly have played a role.   Just another reason the average American is being further disenfranchised with the political system and it’s win at all costs mentality, rather than working to improve the lives of Americans, they all too much focus on what ever helps them gain headlines, soundbites and re-election.

Linke to the study: http://sgo.sagepub.com/content/early/2011/07/08/2158244011414732.full.pdf+html

We like & support the actions & efforts of APSCU

Dear APSCU Members:

Today your Board of Directors has authorized the Association to file a lawsuit against the United States Department of Education regarding its gainful employment regulations. Although this lawsuit is fairly complex, the basic contention is that the Department of Education has over-reached its authority on the gainful employment rules, which was not authorized by the Congress of the United States. This lawsuit represents a significant investment of time and money by the Association in order to protect our students and institutions of our membership, but we think that there are critical issues involved which, if left unaddressed, will prove extremely harmful in both the near and long term. We will keep you informed of the progress of this action.

In addition, last Friday the Association appealed the ruling of the district court judge on our prior lawsuit that sought remedies to the recently promulgated state authorization, misrepresentation and incentive compensation regulations. We won a significant victory with the judge’s overturning of the requirements of online institutions to obtain recognition and licensure in all 50 states. However, the Board, after careful consideration, believes that an appeal of the judge’s ruling against us in these other areas is important to the members of our Association.

These two legal actions, coupled with our highly active legislative agenda, demonstrate the commitment of the Board to protect our students and institutions from the unfair attacks of self-proclaimed consumer advocate groups, short sellers, trial lawyers, the Department of Education and certain senators. It is important to recognize that this is a long-term battle, a situation in which we need “all hands on deck,” and we need your continued participation and involvement to be successful.

Last week the staff sent out an assessment notice that had been approved by the entire membership at our Annual Business Meeting held in Dallas in June. We are aware of the burden that these additional legal expenditures will place on our institutions. However, we feel absolutely committed in the rightness of our struggle against our critics and detractors and the important difference staying the course will mean to our students.

We are making progress, we are getting the word out, we are effectively challenging each and every negative press story, and we will continue to protect our students’ rights to access the higher education institution of their choice.

Respectfully yours,

Arthur Keiser, Ph.D.
Chairman, APSCU Board of Directors

With all that’s going on with regards to compliance and schools taking more and more time to be selective in who they work with, will aggregators eventually give in to transparency?  This topic is one of many heated discussions.  I have been to multiple edu marketing  panels with the who’s who of the major edu aggregators and it seems to be split.  Some of them say that if forced to they will come around and identify all of their sources, others however refuse to and say they will never disclose every source for their leads.  They believe their lead quality speaks for itself and don’t believe transparency is necessary.   Well these firmare very protective of their sources and they do not want to be open for cannibalization, but if there is some type of vendor protection why can’t there be complete transparency.  Some believe its because of the use of call center generated leads which continue to be tossed into the pile of Internet generated leads for many of the lead providers both at the top and bottom of the food chain.  I think schools have the right to know where the leads are comming from PROVIDED they protect the lead sources from their vendors, non-circumvention, non-disclosure etc should help provide this protection.  Many of the most astute schools will agree to this in order to get the transparency they want.  What do you think?

ForProfitEDU would like to extend an exclusive invitation to you to attend The Capital Roundtable’s conference on Private Equity Investing in Education Companies, being held on Thursday, July 21 in New York City.

As a partner, we have the privilege to put your name on our VIP list, allowing you to register for a special rate of $995 — $400 off the standard registration price.

This day-long conference is being chaired by Daniel Black, Managing Partner at Wicks Group of Companies, and features 20 experts.

For registration or inquiries, just call Shaina Mardinly at 212-832-7333 ext. 0, or email her at smardinly@capitalroundtable.com.  Please be sure to mention our name.

For more details, click here:

http://www.capitalroundtablemail.com/masterclass/Capital-Roundtable-Private-Equity-Education-Conference-2011.html?&tag=forprofitedu
I hope to see you on July 21 for what promises to be a great day.

P.S. Since we expect this conference to attract a strong attendance, please register as soon as possible to reserve your seat.

With the start of the new year, Republicans are taking aim at the GAO reports accuracy.  It’s clear that the report provided a jaded view fueled by partisan politics.  We all agree that the bad apples need to be either removed or reformed, but by no means should we throw the baby out with the bath water. 

Here is a link to the Chronicles article: http://chronicle.com/blogs/ticker/new-republican-leaders-take-aim-at-gao-report-on-for-profit-colleges/29330?sid=at&utm_source=at&utm_medium=en

 The following are some snipets from the linkedin group on forprofit education:

 Here is one company that in my opinion has put their money where their mouth is. Congrats to Corinthian Colleges, Inc. (CCi) for putting on the armor and marching onto the battlefield!

We can only impact this with hard work. Thank you for the letter (I heard it was 80k, 68k of which argued against).

 • You need to look at trends on a global basis -and over a long term.
After 40 years in industry, I’ve noticed that a lot of people worry about where thengs are heading; but inevitably, they end up going somewhere unpredicted….and as the decades roll past, this all happens faster & faster.
I decided 10 years ago to cut loose from “government accredited education” and make our business of education much simpler…. provide the best learning experience, charge a reasonable price, take on board students and staff who are like minded, and don’t worry about the things that keep complicating the rest of the industry. This formula works. Politicians are never light on their feet….but small businesses are. Politicians are never going to kill “for profit education” ….they can try, but it is not in their nature to have any capacity to do so.

 • If you want to review nearly everything that’s appeared on this topic, go to:

http://www.intered.com/for-profit-regulation