Bucking the Trend

Strayer restarts its campus expansion amid growing enrollment, federal deregulation and increased demand for skilled workers.

March 27, 2018
 

Strayer Education grew steadily before 2012.

The for-profit company had opened 80 new campuses, mostly in the eastern U.S., since 2000.

But that came to an end in 2013, when the company put a moratorium on expanding its footprint. Now, the 126-year-old for-profit institution, which caters primarily to adult students, is planning to open its first new campus this year. Strayer, like much of the for-profit sector, saw enrollment and revenue decrease over the past few years, particularly as federal regulations increased and the economy struggled to rebound after the recession. But Strayer has fared better than most and is growing again.

"We think that campuses are very important to the overall university strategy," said Karl McDonnell, Strayer's CEO, adding that the physical, on-the-ground campuses have a positive effect on outcomes and help recruit more diligent students.

Ten percent of Strayer University's online students live at least 25 miles away from a physical campus. When compared with the 90 percent of Strayer students who live near a campus -- even those who take only online courses -- McDonnell said this group of longer-distance students underperforms in their attendance, retention, completion, grade point averages and other metrics.

"The campuses help us select a more serious student," he said. "When we looked at it, we were somewhat surprised that it was true even among students who have never taken a class on campus [but live within 25 miles of one]. When hypothesizing how that can be, the only logical answer is the campus facility itself must help us attract a higher-quality student."

The company plans to open three to five new campuses this year, each enrolling about 50 students. The new campuses will be smaller than Strayer's traditional campus model and would require less investment and staff, McDonnell said.

The first new Strayer campus will open in Macon, Ga. The university is still finalizing the other new locations. McDonnell said Strayer also expects to open at least five more of those smaller campuses next year.

So, what's changed in the six years since Strayer opened a new campus? In 2013 the company wanted to see less ambiguity on regulatory oversight from the federal government , McDonnell said, and the economy's recovery wasn't as robust as past recoveries had been.

"We do have a little more clarity on the regulatory front," he said. "The present Department of Education has indicated they support something we have long advocated for, which is a unitary standard when it comes to regulation."

Republicans in the House of Representatives have been considering legislation as part of the reauthorization of the Higher Education Act that would end the separate legal definition of nonprofit and for-profit institutions. That would prevent regulation like the Obama-era gainful-employment rule, which would have led to sanctions that applied mostly to the for-profit sector. Under the Trump administration, the department paused that rule's enforcement to conduct a regulatory overhaul, which is still ongoing. The House bill, known as the PROSPER Act, also would ban the department from issuing new regulations targeting for-profit institutions.

"We support quite a bit of regulation in higher education," McDonnell said. "We've long been an advocate of a tight regulatory regime, but it should apply to all institutions across the board and not just one subset. That doesn't seem like a level playing field to us."

A change in regulations can't be the only reason to expand campuses, said Steve Gunderson, president and chief executive officer of Career Education Colleges and Universities, the for-profit sector's largest trade group.

"Certainly this department has taken constructive steps to step back and review these regulations thrown at us from the last administration," he said. "But nobody is going to invest in a school for two years. You don't want to invest now unless you have a regulatory policy that serves whether Trump or this administration is re-elected."

Instead, Gunderson said, there is a fresh demand for skilled workers and the institutions that can produce them.

"We count over 2,000 campuses that were closed between 2010 and last year," he said. "We had that kind of a dramatic reduction in facilities at a time when we're looking at a dramatic growth in demand for new skilled workers. We need 46.5 million new workers by 2025 … Many of our schools are looking at areas where there is a lack of high-quality postsecondary career education today and trying to fill that vacuum to meet that need."

Strayer is also back in a position where enrollment is increasing, as opposed to the declines it saw from 2012 to 2014, said Corey Greendale, an industry analyst and managing director at First Analysis, a private equity investment group. Strayer's enrollment increased 6 percent last year, to 48,144.

"They're certainly doing better than average, but they're not the only ones," Greendale said. "One thing Strayer did that has been helpful and stabilized enrollment … cut their tuition prices."

The company also offers a scholarship program through which students get a tuition-free course for every three courses they successfully complete. (The tuition-free courses must be one of 10 needed for students' degree programs.)

Strayer's move isn't indicative of how the rest of the publicly traded for-profit space is faring, said Ben Miller, senior director for postsecondary education at the Center for American Progress.

"My sense is Strayer typically has better outcomes than most other publicly traded actors," he said.

McDonnell said the expansion is unrelated to Strayer's plan to merge with fellow publicly traded for-profit Capella Education, which is an online university focused on adults. The two merged companies will be called Strategic Education and would enroll about 80,000 students combined.

"We're still in the early stages of planning integration with Capella," he said, adding that the merger remains subject to regulatory and accreditor approval.

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