Are Students Turning Away From For-Profit Universities?

With enrollments and revenues dropping, the CEO behind Strayer University explains how for-profit institutions can lower costs for students and respond to rapidly changing workplaces.

About one-quarter of Strayer University students enroll because their employers have partnered with the university. Many students pursue graduate-level degrees. Both facts may help explain why Strayer graduates tend to fare better in the labor market than graduates of some other publicly traded, for-profit education institutions.

As the Education Department gears up to regulate career programs, it has its eye on for-profits. Community colleges and for-profits tend to serve similar populations, but for-profits charge much higher tuition. They also account for 13 percent of college students but nearly half of all student loan defaults, according to the Education Department.

Strayer serves about 43,000 students nationwide, both through online and on-campus programs. About 35 percent of students are eligible for federal Pell grants, and about two-thirds are nonwhite; a year's undergraduate tuition currently costs $15,495. With regulation pending and enrollments dropping — Strayer announced last fall that it will close 20 campuses in response to declining revenues and enrollment — what's the path forward for the institution? National Journal asked Strayer Education Chief Executive Officer Karl McDonnell about Strayer's future. Edited excerpts follow.

Career programs — at both for-profits and private nonprofits — are under a lot of pressure to improve two things: student debt loads and postgraduation earnings. With regard to student-debt loads, does Strayer University have any initiatives in place to make tuition more affordable?

We do — in fact I think we've really been a leader in that respect. First, just a little background. The median debt for a Strayer University graduate is in the low to mid-$20,000 range, so call it $23-24,000. We also know — via surveys that we do with our graduates, but also with data that the Department of Education has released — that Strayer graduates do very well. Depending on the program, they have salaries in the high $40,000 to low $60,000 range. So for individuals making that salary on about $23,000 in debt, there's a very tangible payback.

That notwithstanding, we continue to see that affordability is a big issue confronting many families, many students, and we've done two things on that front. About a year ago, we introduced the Strayer University Graduation Fund, which allows a student to basically earn their entire senior year of college. We don't just want to deal with affordability, we also want to try get as many of our students through to graduation as possible. What we'll do to support you is for every third course you complete as part of your degree program, we will essentially grant you one of your last 10 courses in your senior year to be taken for free.

The other thing that we did in late 2013 is we reduced our undergraduate tuition by about 20 percent. When you combine those two programs — the graduation fund and the reduced undergraduate tuition — we've reduced that cost by almost 45 percent in the span of a single year. We also work very hard with our students when they're enrolling in the university to make sure that they're being thoughtful around the amount of debt that they're taking on.

What about steps to improve employment prospects, or starting salaries?

About 25 percent of our students come to us from institutional alliances, which in large measure are educational alliances we have with about 250 Fortune 1000 companies. They send us their employees and we offer them further discounted tuition. The vast majority of students who come to Strayer are already employed, so we don't have a placement function the way that a vocational school might have. But we do do a lot of work with employers to make sure that we're offering their employees a high-quality degree affordably.

A lot of colleges are taking a harder look at their graduation rates, including gathering data on what might help students graduate. What seems to help Strayer students?

When you're thinking about graduation rates, you really have to think about them in various segments of students, because there's massive variability. And so for example, graduate students have very high graduation rates — both here at Strayer and nationally. The graduation rate for our graduate students is, you know, probably 70-plus percent, and they also have incredibly low [student loan] cohort default rates. So graduation rates at the graduate level are essentially a nonissue. Then you have students who have been to college before, they just didn't finish their degree — and they actually have very high graduation rates too, as well as very low cohort default rates.

Where you have the lowest graduation rates, both at Strayer as well as nationally — state schools and community colleges — are for students that have never been to college before. And you see that — you see graduation rates for that segment of students that are very low, below 20 percent.

There are some early indicators of success on that front. For example, we know that if an individual earns their first math credits within the first two terms that they're enrolled, that is a very strong predictor of future academic success. And so we put a lot of effort into trying to provide coaching and tutoring for mathematics; we've adopted adaptive learning labs to help with math. But we also have a policy that if they haven't acquired those math credits within the first six months, they can't continue in the university. We essentially, for academic purposes, basically expel them. Because what we don't want is to have a student who has, you know, perhaps the perseverance to want to keep trying, but doesn't seem to have the ability at that point to be successful.

Strayer saw enrollment drop by 11 percent last year — the third straight year of decline. Nationally, fewer high school graduates went on to college last year than in years past. What are some of the forces that might be driving down higher education enrollment?

Clearly you've got a very sluggish recovery to the recession that we had in 2008. And so there's a fair amount of uncertainty around employment, and we hear that a lot from our students. And at the same time, you've got actually more and more state institutions becoming willing to offer educational programs to working adults, which is historically something they had not done. It's good for students, in the sense that they have a lot more choices available to them, but I think that's had an impact on at least Strayer's enrollment.

It's interesting that you think job insecurity is holding people back from pursuing more education. Didn't we see an increase in college enrollment during the recession, because people found it harder to find jobs? Did you see a trend like that at Strayer?

I've definitely seen it at Strayer, and heard it from students. But I also think that the nature of work is evolving. Technology replaces jobs faster than it creates them, and that's not a trend that's going to reverse. People are weighing the investment in time and money for a college degree, when there's some uncertainty around what the nature of my job might look like in six years, because that's how long it would take a student going part-time.

Particularly if you're offering career-oriented degree programs.

Absolutely. And it's a fair question, actually, on the part of a student to be asking. Throughout history, it's sort of been taken for granted that a college degree is a very good value, and we continue to see that vis-à-vis lower lifetime unemployment and higher lifetime earnings. But in some sectors and some industries, the gap between college graduates and noncollege graduates is shrinking. And I think there's clearly implications for higher education institutions in that data, which is that we always need to be offering programs that are relevant to people in their career programs, and teaching skills that are in demand of employers.

There was a research study put out last year by McKinsey that showed this shocking disconnect between employers and educational institutions. Educational institutions believe they're doing a great job preparing graduates to enter the workforce; only 20 or 30 percent of employers would agree with that.

How do you see Strayer evolving, given both the possible Education Department regulation and the changing nature of work?

We think regulatory oversight is very healthy, and we accept the fact that education is and should be heavily regulated. And so we welcome scrutiny, be it from our accreditors, or state licensure agencies, or the federal government. We might have a different view of how it should be implemented, but we actually think that the intent of the regulatory environment is good.

We're really trying to take advantage of the coming big-data revolution, and working to take the data and information that we have on how our students learn to custom-tailor interventions and lesson plans, and adaptive learning sessions. Not planning curricula for 40,000 students, but how you could micro-tailor information down to particular classes, and segments of students — and then using that information in a predictive way to know when a student is most likely to get stuck. If you know with some level of precision when somebody's going to be stuck, you can be much more proactive about how you reach out to them, and in what ways you reach out to them. That's a big part of the future of higher ed: using analytics and research to adapt learning to individual learning styles.