by James A. Bacon
Perhaps the most interesting company headquartered in Virginia today is Herndon-based Strategic Education Inc. The company made a brief splash in the news yesterday when it announced a deal to acquire two Australian investor-funded universities for $643 million in cash. But the company, which generates roughly $1 billion a year in revenue and is poised to disrupt the higher-education sector, has generated remarkably little media attention.
The for-profit company owns Strayer University, which enrolls more than 5,000 students at its Virginia campuses; Capella University, an online college; the Jack Welch Management Institute, which delivers online business education; an engineering school for women; software coding schools; and Sophia Learning, which delivers low-cost, self-paced courses for college credit, among other enterprises.
Like nonprofit colleges and universities, Strategic Education is being forced to re-evaluate its business model in the era of COVID-19. The epidemic has negatively impacted both Strayer’s and Capella’s summer academic-term enrollment. However, the company is far more flexible and decisive than nonprofit institutions, many of which are still dithering over whether to hold classes this fall or switch to online learning.
As Executive Chairman Robert S. Silberman said in a recent earnings conference call:
The coronavirus pandemic is … highlighting some of the significant advantages of our academic model and our comfort with online academic technology. … We will almost certainly make permanent our transition of Strayer University to a fully online model, similar to Capella University. While we will still maintain physical locations in our geographic markets for academic support, faculty coordination, international student classes, and brand building, we will be able to significantly reduce those existing campus footprints and their associated costs.
Strayer is charging tuition comparable to that of public universities — $1,480 per course, or $14,800 for a full year-long course load. That compares to, say, Virginia Commonwealth University, which charges $14,830 for two semesters of in-state undergraduate tuition and mandatory fees. Unlike public universities, Strayer is not supported by millions of dollars in state aid for higher education. Indeed, it pays taxes. (Capella’s online courses are even less expensive, the equivalent of $12,330 for a 30-credits-a-year course load.)
While academic costs increased to serve growing enrollment in 2019, Strategic Education achieved $50 million in reductions to non-academic, corporate, and administrative operating costs last year. Cutting administrative overhead — what a concept!
Strategic Education’s primary market is adults who want to acquire skills and earn degrees, but its Sophia Learning enterprise is aimed at traditional undergraduates. For now, Strategic Learning is partnering with existing institutions rather than delivering direct to students. The learning platform has 150,000 registered students. The courses are free for now, but the company expects to implement a modest charge soon.
Online learning is still relatively new, and educators are still figuring out how to make it effective. Strayer has been investing in a new Strayer Studios course format. Documentary filmmakers work with faculty members to build story-driven narratives around case studies. The approach has shown preliminary improvements in completion rates, grade point averages, and student reviews. States Silberman in a 2019 letter to shareholders:
We use the term “binge learning” to describe our objective. We want the academic material to be so interesting that the student literally cannot turn it off.
Perhaps the biggest difference between Strategic Education and the nonprofit educational sector is that Strayer and Capella are focused on delivering value to their customers, the students, not the demands of internal constituencies. The company strives to deliver results at a competitive price. I got no sense from my admittedly superficial review of Strategic Education web resources that the company is consumed with the implementation of social justice ideology. In Virginia 52% of Strayer’s student body of 5,420 is black. The primary concern, it appears, is equipping its graduates with the skills they need to get good jobs. Some might say that that’s the ultimate form of social justice.
In 2019, reflecting the earning environment before COVID-19, Strategic Education increased its operating profit margin to 19.5% from 14.7% in 2018. Clearly, the educational model is financially sustainable. Indeed, in a functioning capitalist system, the company’s high profit margins should send a signal that online learning has room for more competitors and more innovation.
Nobody’s perfect. Many educators are convinced that an online education can’t possibly measure up to an in-person education. But as many public institutions shift to online learning during the COVID-19 crisis, the differences fade to nothing. Indeed, Strategic Education, which has made a greater investment in online learning than almost any public university, might have the edge. I, for one, won’t be surprised if Strayer, Capella and Sophia eat the lunch of traditional institutions.
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