Secondary education degree online

In the United States the number of high school graduates is growing and more of them, than in the past, are continuing on to obtain post-secondary qualifications in a wide variety of disciplines. At the same time, more working adults are returning to post-secondary educational organizations for additional qualifications that improve their job security and opportunities for advancement.

According to statistics from the U.S. National Center for Education, enrollment in post-secondary education is expected to grow by 15-20% to an estimated 18 million students in 2012.

Perspective on the Industry

The post-secondary options available to adult students are principally:

(1) not-for-profit, publicly-funded educational organizations like state colleges and privately-funded institutions such as Harvard; and,

(2) for-profit educational organizations that offer accredited diplomas and degrees geared to the special needs of adult students (generally considered those over the age of 24).

The for-profit firms compete with the not-for-profit sector on the basis of:

(1) providing a quality educational experience at a lower cost, and at more convenient times and locations;

(2) federal assistance for student tuition;

(3) career-oriented courses that can be designed in cooperation with employers; and,

(4) counseling, career placement and customer services.

For-Profit Growth

There appears to be a shortage of capacity in the post-secondary education industry. Applications for admission to non-profit organizations are up (despite increased tuition) and in the for-profit segment, revenue and earnings growth are forging ahead at exceptionally high rates.

Since 1999, revenue and earnings at a number of for-profit organizations have grown on average by more than 40% each year - often with earnings growth exceeding revenue growth.

These unusually high and consistent growth rates are the result of increasing enrollments across the spectrum of diploma and degree programs available through for-profit colleges and universities.

Programs include: associates, bachelors, masters and doctoral degrees in a variety of subject areas, such as business, education, healthcare, information technology, communications, culinary arts, fashion, media, trades, etc. Some firms also offer their programs outside the U.S. (e.g. Canada, Central America, and Europe).

Reward and Risk

Investors have noticed the attractive growth in this industry and have bid share prices for the leaders to exceptionally high levels. Price Earnings multiples of 40 times earnings (and higher) are not unheard of.

Buyers are willing to pay these prices because they know that for every year one of the high flyers can continue growing earnings by 40%, the stock can provide a terrific rate of return in today's low interest-rate environment.

However, any pause in reported growth - or even the suggestion of a slowdown - can cause multiples and prices to drop like a stone. Price declines during a day (or two) of 30%-50% are not unheard of.

Is Recent Growth Enduring?

Despite price volatility, if the forces driving revenue and earnings growth in the industry are enduring, there can be wonderful opportunities to double or even triple your money in, say, three to five years.

This special educational feature focuses on the kind of analysis required to decide whether or not to invest in the education industry at this time. If longer term growth prospects continue to look strong, then you might want to start building a position in one or a 'diversified' few of the leading stocks in the industry. Alternatively, if the risk of an enduring slowdown in enrollments is high, then watching for a more favorable buying opportunity could be the better choice.

Growth Trends in the Industry

The balance of the article identifies the leading trends and forces that will determine future revenue and earnings growth in the for-profit, post-secondary education industry.

New Technologies

The rapid development and deployment of computer-based: communications, manufacturing, record keeping, health care and many other technologies is forcing working adults to embrace the concept of life-long learning. It's a simple, new imperative in the workplace: 'keep up-to-date with the new technology for your job or risk losing it.'

And, employers are not relying on employee self-esteem to inspire upgrading to new skills. Increasingly, employers and regulators are mandating continuing education requirements. Getting a college or university degree and then 'coasting' intellectually during a 20-30 year career just won't do any more.

Outsourcing

Several major U.S. developments since the 1980s have created a situation where many manufacturing, service, clerical and management jobs are being outsourced either to illegal aliens (principally from Mexico); or, to Asia and other emerging nations.

For example, the growth in minimum and unionized wages have made U.S. workers the 'high cost' suppliers of many skills and services. At the same time that new technologies have increased the productivity of U.S. workers, that technology has been sold abroad making offshore production even cheaper than before. As a result, the number of 'good' jobs for people in the U.S. with only a high school education is on the decline.

In addition, foreign countries are encouraging U.S.-based, international firms to create jobs where they sell products. Now, instead of collecting just monetary tariffs, foreign governments levy 'job' tariffs on U.S. firms.

Skills Shortage

The leading edge of North American baby boomers has begun leaving the full-time work force. Shortages of skilled labor and talented management are widely anticipated. Accordingly, lots of advancement opportunities are expected for those with the highest qualifications and the best experience.

Growth in Supply

To meet the growing demand, for-profit organizations are opening campuses and training centers in new and existing markets in the U.S. and abroad.

Notably, for-profit facilities are quite modest in relation to traditional campuses at not-for-profit organizations. The latter typically include library, recreation and residence facilities. As well, for-profit facilities may only include classrooms in some locations, without local administrative resources for staff and students.

Funding for new for-profit facilities is provided by internallygenerated cash flow and generally modest borrowings. For example, the Apollo Group Inc. had $900 million in cash and short-term investments at the end of its second quarter.

For-profit firms also add to their supply of course offerings by acquiring other firms with attractive programs and/or locations. In addition, the acquiring firm may add its programs to those of the target to produce a more complete range of program offerings in the target's operating areas.

Profitability

In addition to relatively low-cost facilities, for-profits also have lower staffing costs than traditional education organizations because of:

(1) an abundance of part-time instructors (often with advanced degrees and years of practical experience);

(2) limited employee benefits;

(3) no sabbatical costs; and,

(4) no tenure constraints on staffing.

As well, for-profits raise tuition fees regularly with an estimated, average annual increase in the industry of about 5%.

Affordability

Generally, federal financial aid is available to students enrolled in qualifying, accredited educational programs offered by the for-profit education industry. As a result, the industry is regulated by federal and state authorities and by independent accrediting agencies.

To qualify for federal Title IV student aid programs, no more than half of an institution's students can be enrolled in distance-learning programs (the so called 50% Rule). As well, no more than 90% of funding can be provided through Title IV aid. These and other qualifications for federal aid are included in the Higher Education Act which is currently under review. In addition, employers often provide tuition assistance to students enrolled in for-profit programs.

Online Distance Education

Perhaps the most strategically-important influence on profitability is the enthusiastic introduction of online degree education throughout the industry. These high margin products have been instrumental in achieving the high rates of earnings growth noted earlier.

Online programs are offered in a variety of formats and can include some in-class experience at one of a firm's campuses.

The anticipated relaxation of the 50% Rule should increase enrollments in online programs and spur future earnings growth.

In addition, some firms are beginning to market their online university degrees internationally to serve:

(1) Americans living abroad who wish to advance their education; and,

(2) foreigners seeking the prestige of a degree from a U.S. university without incurring high travel and living costs, and without visa requirements. The U.S. is the most popular destination for international students studying abroad.

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