The conference was held on September 14, 2006 and was sponsored by BMO Capital Markets. There were two tracks at this conference, for-profit colleges and everything else. I attended the college track until I had to leave for a dentist appointment. And yes, that was significantly worse than listening to the presenters.
Below are the highlights of reports from the different colleges, but there were some common themes across all of the presentations.
- Students are finding it harder to afford college. The for-profit colleges are finding that they are increasing their tuitions by about 5% a year, which is less than the increases of the not-for-profit colleges. Students are finding that the government grants and loans meet a lower portion of their expenses.
- The adult market does not have the pent-up demand that it did. U of Phoenix really was able to grow extremely rapidly by serving non-traditional students, who want more flexibility in their schedules and courses. Others have moved into the market and these people have more options. Could this mean that prices will be moving down?
- Every organization is looking at online courses. A few of the for-profit colleges have been able to grow by focusing on this market, but now everyone is looking for this area to fuel growth.
- Most students are Certificate or Associates, but Bachelors students are more profitable. For-profit colleges face pricing pressure for Associate and Certificate programs from Community Colleges, who charge less. But, the for-profit colleges charge less for a Bachelors degree than do private colleges and most state schools. One strategy is to matriculate students into short programs and then help them upgrade into Bachelors programs or becoming life-long learning customers.
- Limited International Vision. While there is faster student growth outside the US than inside it, and while the overall market may be larger, few for-profit colleges are looking for international expansion as a prime strategic focus. Two exceptions might be Laureate (whom I did not hear) and Apollo.
- For-Profit Schools have a marketing advantage. For profit schools see their advantages at being better marketers and having more ability to change to the demands of the marketplace. In the not for profit schools, academics win against marketing every time.
ITT Educational Services
Kevin Modany, President
ITT operates 87 colleges with 44,000 students.
75% of students are associate degree, 24% bachelor; while 10 years ago it was 90% associate degrees.
They view one of their key advantages is that they offer students an easy path to a private lending source; because Title IV funding is frozen at the same levels, public funding is meeting a smaller percentage of student needs.
ITT operates at a 24% operating margin, while it was at 6% in 1994. This is significantly above any of the other colleges presenting.
They believe they can continue to maintain price increases to increase the revenue per student by 5% per year.
The largest opportunity for growth is for adults, not the traditional high school students and the do the majority of their marketing through TV ads.
They have some online courses and are looking for expansion, but not rapid expansion.
Universal Technical Institute (UTI)
Kimberly McWaters, President
UTI is best known for their automobile mechanics schools.
UTI has 16,000 students. 60% from high school, 40% adults. 75% are in auto or truck programs.
The US has projected that there is a 60,000 person shortage in automobile mechanics, but UTI believes this is overstated, because a lot of the shortage is just short term as mechanics move between jobs. There seems to be a 1.5% annual growth in jobs.
The highest paying jobs are with the automobile manufacturers and dealers and UTI claims to have close relationships with the automobile manufacturers, placing something like 40% of their graduates in those jobs. 85% of their graduates have jobs upon graduation.
They say that one of their biggest obstacles is the need for funding for their students.
Lincoln Educational Services
David Carney, Chairman
Lincoln has 19,000 students in 37 campuses. 85% of the students have jobs on graduation. They have 11.4% operating margins, which is better than the last few years, but not where they want them.
They see that the market where they have the least competition is in skilled trades, like HVAC (heating, ventilation, and air conditioning) and electricians.
Their chief challenge is financing for students. Another challenge is that with a low unemployment rate, more people chose jobs over more school.
They have invested $2 million in expanding their online capabilities.
Ron Taylor, CEO
DeVry serves 47,000 students in 81 locations in North America. Their operating margins are around 8% and expect that to grow into the high teens over the next few years.
Accounting seems to be the most popular major of Bachelors students, possibly due to Sarbannes Oxley. Tech has been the hardest hit major over the last 2 years, but seems to be stabilizing. There is a high demand for game and simulation programming courses.
DeVry’s Ross school is the largest supplier of new physicians in the US, and they had a 63% growth in 2006 from 2005. The campus is actually on Domenica.
They offer about half of all undergraduate programs with an online option.
One of their profit growth strategies over the next few years is to capitalize on their real estate holdings.
To attract new students, they are concentrating their spending on Internet based leads.
Brian Mueller, President
They serve over 300,000 students. The average age of a U of Phoenix student is 36.
The typical U of Phenix student was a middle class, white collar worker, seeking a degree for advancement. But, this middle class is shrinking and the new target populations do not have the financial resources. These new students also need more support to survive. They are trying to overcome these obstacles with AXIA college, where there is a trade-off with larger class sizes, but more support. They are requiring the instructors to be available to the students for at least 20 hours a week synchronously. For marketers 30% of their evaluation is based on long term retention of students. Even with all of that less than 15% of younger students have been graduating; the goal is to increase that to 40% over the next few years.
In the past, their advantages have been that they were one of the first to focus on the adult learner and second that they were one of the first to offer a wide variety of online courses.
Now, one of their advantages in national growth is that they have lobbyists in every state and an abundance of lawyers. So they have the legal clout to be able to expand nationally.
Their goal in 100,000 leads per month. In March 2007, they expect to have 2700 online marketers, 2200 ground marketers (to meet prospects locally). Turnover of marketing staff is a big obstacle. In order to provide the marketing staff the compensation that will encourage them to stay, they need to increase the caseload. A person was expected to handle about 250 students, to earn at the higher wage levels (around $60,000 a year) they need to be able to handle about 450 students. Their competitors are not paying at those rates.
Instructors earn between $1,000 to $1,500 per course for a 5–6 week course. At AXIA, someone teaching 5 classes at once of 20 students each would be considered at full level and that person would earn about $80,000 a year.
Internationally, they are interested in expanding in Mexico, Brazil, China, and Chile.