With the 505+ page document the government put out many are still scratching their heads.  Many comments are whirling as people speed read the proposed rules. 

Click: http://www.ed.gov/news/student-aid-rules-protect-borrowers-and-taxpayers

to visit the page then look for the box on the right with the link to the document notice of proposed rulemaking.

e look forward to catching up with many of you.

Clearly there were some negative comments made from former employees of a few schools, but overall the segment appeared not completely biased.  What is clear is the necessity and role the for-profit play in helping America again reach the goal of being the nation with the highest college graduation rate.  For-profits spend much more on marketing and utilize more aggressive admissions tactics, but clearly it is what’s needed to gain the attention and help drive the decision to go to college for a growing sector of the population which are not well suited to traditional institutions. 

Other than a few bad employees, some questionable tuition cost benefit equations at a few institutions and some programs of questionable value,  the industry as a whole is providing a beneficial service to the under-served segment of our population. 

I would hope that what comes out of the Govt. sessions addresses only the problems specifically and helps pave way to increased growth opportunity for the majority of the quality institutions.  Using a machete instead of a pair of pruning sheers would be a huge mistake, which would backfire on the educational goals we all share…

I have heard most if not all of the arguments & viewpoints against the way for-profit schools market.  I have heard all of the name calling, the comparison to the subprime lenders, the predatory marketing tactics, the hundreds of millions being spent by schools and the deceptive/ misleading advertising practices.  For an uneducated or ill-informed individual,  it’s easy to see how some jump on the bandwagon.  However, let us not forget that whenever one listens to only one side of a story or argument it’s easy to fall into alignment.  What bothers me, in addition to the one-sided arguments being made, is the complete lack of thinking things thru.  The fact that some elected officials are too quick to make changes, many simply for change sake, is just news-bite governing.    When did we all of a sudden decide to switch to a fast break style government?  When did ready fire aim become the best practices promoted by some leaders within the department of education.  Is it really reform if the changes that result backfire on the ultimate goal?    Why don’t people think things thru anymore?  What about the ripple effects caused by these aggressive proposed changes?  I thought one of our top goals as a country was to increase the percentage of Americans with a college degree?  Shouldn’t government work to improve the advancement opportunities for those who need it most.  I am all for closing any firm or firms who are systematically practicing & promoting non-compliance, fraud or deception, I am not however in favor or thoughtless knee jerk decision making that effects an entire industry.

 I was a Political Science Major and a logic minor in college.  Talk about an internal conflict within one’s own education…  It’s sad that in today’s screwed up political climate it seems like an either/ or equation, do I want to be in politics or do I want to be a logical person!

How is it that schools spending large sums of money on advertising are determined to be doing something bad?  What about the reinforcement value of the “go to college”  messaging, the education awareness they generate, and the outreach into areas not targeted by tradition schools?

 Why is it bad for lead providers to provide prospective education seekers with non-incentivized compliance approved forms for individuals to request information directly from schools who want to talk to them about potentially becoming a student.  Isn’t that a value?  

 It’s Interesting that you never hear about the positive aspects resulting from the unprecedented awareness created from the influx of educational advertising over the last decade. 

Here is one:

Recent Pew research center study:

 The most detailed study to date of the 18- to 29-year-old Millennial generation finds this group probably will be the most educated in American history. But the 50 million Millennials also have the highest share who are unemployed or out of the workforce in almost four decades, according to the study, released today by the Pew Research Center.

Pew’s analysis includes its own data, such as a new survey of 2,020 adults, including 830 Millennials, conducted by landline and cell phone last month. It also analyzes data from other sources, such as the Census, which shows 40% of those 18-24 were in college in 2008, a higher percentage than any previous generation at those ages.

**

So if you are a misguided politician you read the above excerpt and say: 

See those for profit schools are suckering more people to go to college than ever before, and if those people weren’t suckered into getting a degree they would not have any student loans…  Also, what good is a degree, look at their graduates, they are unemployed…

I would argue that obtaining a college degree is not ever a bad idea!  I would also argue that they are unemployed because of the current economic debacle we are currently facing. 

A logical person however may read the same excerpt and say:  

Wow, I am glad to see the increase in college educated people within the most recent generation, hey maybe it’s because of all the increased awareness resulting from the influx of advertising to those people over the last decade or maybe from the outreach from the proactive colleges.  It’s unfortunate to see so many of them unemployed, but then again over 10% of our country is unemployed, the economy sucks.    

Anonymous

Mark Kantrowitz has written a piece that’s worthwhile reading.  Click the link below to view Marks piece:

http://www.finaid.org/educators/20100301gainfulemployment.pdf

LeadsCon Las Vegas 2010 takes place February 23rd and February 24, 2010. Join for two full days of unforgettable learning and unparalleled networking.

Register: http://www.leadscon.com/leadscon-las-vegas-2010/register.html

PE Investing in Education Companies –

                  How to Differentiate Your Strategy

                  To Be Successful in This White-Hot Sector

This exclusive conference features an expert group of 20 panelists who all have specialized insight about PE investing in the education industry. You’ll be hearing from GPs, investment bankers, consultants, and more — all coming to share their real-world knowledge and candid observations.

But attendance is limited! For today’s special rate, call Samantha Feldman at 212-832-7333, ext. 0. Or visit: http://www.capitalroundtable.com/masterclass/mc_2010-01-14.html to register online!

By attending this full-day MasterClass on Thursday, January 14, you’ll learn how to take full advantage of today’s flurry of deal activity, and how to position your current portfolio companies to be more competitive and more profitable.
• You’ll learn where enrollment is heading in 2010, and what types of programs continue to be in great demand.
• And you’ll receive a thorough grounding on the evolving state and Federal regulations that affect both new deals and current portfolio companies in the K-12 and post-secondary sectors.
• And you’ll hear the implications of the trend toward traditional non-profit colleges increasingly becoming a force in online education.
• And you’ll learn how there may be excess capacity in career-oriented programs after the economy recovers and unemployment begins to decline.
• And you’ll understand what types of new business models are making inroads in the K-12 world.
• And much much more…
If you want more information, please call Dana DeMattia now at 212-832-7333 ext. 102, or send an email to ddemattia@capitalroundtable.com  Or, visit http://www.capitalroundtable.com/masterclass/mc_2010-01-14.html to register online!

P. S. You’re going to be in great company – here are names of some of the speakers who’ve already signed on:

Philip A. Alphonse, Sterling Partners
Jeffrey S. Barber, TA Associates Inc.
Jay Bartlett, Parthenon Group LLC
John A. Bates, Arlington Capital Partners
Daniel L. Black, Wicks Group of Companies LLC
Christina Erland-Culver, C/H Global Strategies LLC
Mark E. Jennings, Generation Partners LP
Andrew E. Kaplan, Quad Partners LLC
Robert Lytle, Parthenon Group LLC
Michael P. McQueeney, Summer Street Capital Partners
Edward P. Meehan, Arcady Bay Partners
Bradley Palmer, Palm Ventures LLC
Scott A. Perricelli, LLR Partners Inc.
Jacqueline Reses, Apax Partners LP
Carlo Salerno, BridgeSpan Financial LLC
Joshua N. Schwartz, East Wind Advisors LLC
Raymond N. Shu, GE Commercial Finance
Jeffrey M. Silber, BMO Capital Markets Corp.
Britt Trukenbrod, William Blair & Co. LLC

Don’t forget space is limited, so visit: http://www.capitalroundtable.com/masterclass/mc_2010-01-14.html to register online now!

I think it is finding those firms who understand the current postsecondary climate and have a plan for addressing the various concerns the sector faces as a whole.

More specifically, there are some serious issues with retention and completion initiatives across all postsecondary institutions.

Regarding the for-profit sector, the DOE is going to attempt to legislate stricter regulations if student loan default rates maintain current levels. There is a move afoot by the DOE to include a ‘gainful employment’ rule, which would force for-profits to adhere to a standard tying degrees earned to a result in employment that would ensure student loan payback. There is enough of a conundrum with retention issues and the DOE’s heavy handedness of the for-profits could be disastrous.

With regard to the public sector, the problems are just as serious. With tax revenues dropping, there are faculty layoffs and furloughs, courses being dropped, and students being turned away from schools. But alas, the Obama bucks will save the day! We’ve all heard about the American Graduate Initiative, where Obama and his administration are seeking to fund $12 billion to Community Colleges to graduate 5 million students over the next 10 years.

By the way, for-profits are noticeably absent from the mix, although they do a better job at graduating students. Is it possible the government is now trying to do away with for-profits by socializing education further?

So, I think there are opportunities that private equity firms should look for in the above relative to retention and degree completion. Too many students are heading back to school that are ill equipped and under-prepared in many ways. There are some firms out there addressing these issues. The key issue is to find those who have a pulse on the problem and who are in development of real solutions.

Happy holidays!

Paul

Bruce, over the last year I have had consultations with over 35 PE firms, some with indepth knowledge of the EDU industry most with no more than a big fund & surface industry information. I would say many PE firms should spend more time and bring in more experienced people to help them really learn about the EDU market, it’s been around for over 100 years and it changes rapidly. I also believe that many firms who are flushed with funds swing too fast with the wind and the flavors of the month, and do not take the time to plan a detailed strategy for the sector rather than just buying something to be in the game. I think that clearly some get it and are building profitable long term enterprises within segments of the sector but most move a little too fast. In addition I agree with what “the Doc” had said at the BMO conference about what scares him about the EDU industry being inexperienced & inadequate management being thrusted in power as the result of the frenzy in EDU and making headline type mistakes which may sour the milk for the rest of us.

 Hello Bruce: In my role as a broker for career colleges, I deal with PE firms every day. Many want to enter the Ed space. I think it is critical that they employ, pre-purchase or shortly after, an experienced operator of career colleges. I actually find that most PE firms are trying to be well informed and want their investment to be sound and successful. They have a healthy respect for default and 90-10 challenges facing the for-profit sector.

On the other hand, most want to exit the space in 5 years of so, thus they don’t have a tremendous amount of time to develop the company over a long period of time. An experienced operator will help them avoid making a critical mistake in the name of quick profits. It is that raised profit that will be important when they take their investment to market in the future, thus allowing them to “hit a home run.”

Also, more “home runs” experienced in the sector will shine the spotlight on the industry, and the numerous detractors will use the extraordinary profits and gains as a weapon against current operators. Sad, but true. The detractors (ex. Maxine Waters, et al) won’t let the facts get in the way of their pursuit.

The facts support continued support of the for-profit sector.

Hello Bruce,

Great question, thanks for posting.

I have consulted with several private equity groups that made an investment in the for-profit higher education industry. First, private equity groups with experience in for-profit education investment tend to do a better job with the following: 1. Selecting the right investment; 2. Conducting due diligence; 3. Hiring the right management team and 4.Understanding what questions to ask before, during and after the deal has closed. A private equity group that comes up short in its appreciation for the complexity and nuance of for-profit education may end up in a “money pit” (especially if it gets any combination of 1-4 wrong). That said I agree with Bruce and think we should expect stricter regulations from the US-DOE. Specifically, the 12-safe harbors are in potential trouble from the DOE’s Negotiated Rulemaking committees.

The profit motive in higher education can work quite effectively if managed with tight internal controls. For instance, the manner in which benchmarks and goals are established, communicated and managed makes a world of difference. Get this part right and you succeed or fail on your merits. Get it wrong and you create (as I mentioned above) your own money pit, or worse. I have concluded that private equity groups investing in for-profit higher education should be prepared for a more hands-on approach to understanding the business and monitoring its management team.
One critical issue facing new investment in for-profit education is the market itself. Shifting demographics over the next decade indicate a reduction in qualified students with the ability to pay and an enormous growth in academically and financially challenged students. The ability to deliver on alternative scheduling, delivery models and even alternative pedagogical models may distinguish those with the greatest market share. Increasing societal diversity, academic remediation, job placement and alignment between educational cost and salaried result (by program) are issues that will continue to rise and present challenges for new and existing institutions and investors.
Best of luck!

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ForProfitEDU.com Launches First Annual Lead Generation Benchmarking Survey Online Members of the higher education community are invited to participate in benchmarking study to identify current trends and best practices in lead marketing

Wednesday, December 2, 2009 – New York, NY – ForProfitEDU.com announced today the launch of the First Annual Lead Generation Benchmarking survey for the Higher Education sector, sponsored by Sparkroom. The survey, which is open to individuals that are directly involved with marketing in higher education, will examine where schools are focusing their online marketing efforts, what tools and tactics are most effective, and what challenges exist in this area. All survey participants may register to receive a free report with the results of the survey upon completion. According to BMO Capital Markets Equity Research, sales and marketing expenses run above 25% of revenues for the majority of companies in the for-profit education space, with a growing proportion of that spend happening in online marketing. Despite this, there are very few objective resources that marketers in the education market can reference to get a better handle on the use of online marketing in the sector.

This survey will offer a clear set of benchmarks, while identifying current trends and best practices for marketing professionals. The survey takes approximately 5 minutes to complete, and can be accessed online at https://surveys.itracks.com/survey/AHELMBS 

 It will be open to respondents until December 16, 2009 and a report on the results will be made available to participants in January.

About ForProfitEDU.com

ForProfitEDU.com is a leading website resource for all those who work within, around or are interested in the For-Profit EDU industry. The site offers networking, research, consulting, news updates and commentary from members of the For-Profit EDU community. Contributors include those from the school side, as well as those that work at related services firms including the investment community (investors, analysts, venture firms & PE firms), marketing & advertising professionals, educators & curriculum development, career services & other related service providers. ForProfitEDU also provides research and consulting services to schools & other service firms within the industry. Areas of expertise include Advertising, Lead generation, Marketing Strategy & Execution, Admissions, M&A, Raising capital, Market research and Partnering to create & grow online schools.

About Sparkroom

Sparkroom delivers innovative solutions to direct marketers, including its comprehensive Lead Performance Management software and services. Sparkroom Lead Deliver and Lead IQ deliver a hosted business intelligence platform to give direct response marketers the tools and expertise needed to measure, manage and optimize their lead acquisition spending across every direct response channel. Sparkroom’s software, which it hosts and delivers to its customers on-demand, enables customers to capture, store and analyze information generated by their lead buying activities and to gain critical business insights into the performance and efficiency of marketing and sales initiatives and other business processes. Founded in early 2007, Sparkroom is privately-held, with funding from private investors and Matrix Partners. For more information, visit www.sparkroom.com .

Media Contacts pr@sparkroom.com

1) Tying Title IV eligibility to a “gainful employment” metrics including cost of program , loan debt, and income after graduation. (apparantly to be applied to vocational programs only)

2) Getting rid of all 12 incentive compensation safe harbors . 

ED’s proposals for gainful employment standard will determine the appropriate levels of debt allowable for each vocational program/degree offering and thus may effectively result in tuition caps 

Eliminating all 12 safe harbors could restrict a school’s ability to utilize 3rd party call centers for qualification & hot transfer and potentially diminish internet generated starts, thus stalling enrollment growth. 

Still much speculation and uncertainty…