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By Peter Wahlstrom, CFA | 11-14-2011 12:00 AM

Strayer: Demand for Education Still Outstrips Supply

Hope for economic security continues to drive working adults to post-secondary education, says Strayer CEO Rob Silberman.

Pete Wahlstrom: Hi, I'm Pete Wahlstrom, associate director of consumer cyclicals here at Morningstar. Today, with me I have Strayer Education's CEO and chairman, Rob Silberman.

Thank you very much for joining me today.

Rob Silberman: Glad to be here.

Wahlstrom: So, before we jump into a couple of the more granular topics, for those who are not totally familiar with the Strayer Education story, could you talk a little bit about the company's development and progression over the last, let's say, decade when the campus situation was probably a lot different than it is today?

Silberman: Yeah. When I took over 10 years ago, it was essentially a Washington, D.C., organization. It had been for more than 100 years. It was a very well-regarded, working adult focus, business-oriented university. What we've tried to do over the last 10 years is take what had been so successful for more than 100 years in Washington, D.C., and expand it throughout the entire United States. We're only about a third of the way there in terms of geography. We've just now gotten as far west as Chicago, as a matter of fact it's our most western, at least northwestern, location at this point. But we've gone from 12 campuses to 92 during that 10-year period and our student population has grown from about 10,000 to about 55,000.

Wahlstrom: If I remember correctly, you're going to open up eight new campuses in 2012, which will get you the century mark.

Silberman: That's exactly right.

Wahlstrom: It really bodes well from a long-term supply-and-demand perspective. As I think about Strayer, you seem to not only have a very good core group of mature campuses, but you also see pretty big expansion opportunities out west.

Silberman: Well, our view has always been that there is a fundamental demand for education. That at the post-secondary level, it seems to be the fulcrum at which people have a certain amount of economic security versus none. There just is not a great supply of opportunities for working adults. Strayer University has always been focused solely on working adults from its founding.

So our curricula, our locations, everything about our pedagogy is designed to deal with a 30- to 40-year-old student, and we've been sort of patiently and deliberately rolling that out into new markets. From a demand standpoint, yeah, we are fundamentally bullish. We think that demand for education continues to grow. The real tricky thing is making sure that you're providing a high-quality supply. That's really where we spend a lot time focusing on.

Wahlstrom: Yes. Certainly, over the last couple of years, there has been increased regulatory scrutiny or Congress and Department of Education concerns about what sort of individual is actually coming to enroll in some of these post-secondary educations institutions. But actually if I think about it, the community college articulation programs and corporate relationships that Strayer have, have helped to offset some of that potential softness in traditional student enrollments. Is that fair to say?

Silberman: That's absolutely fair. For a long time we've thought of community college graduates. Adults who go back to community college and earn associates degrees are among our finest students frankly. They just do better academically. So, a large number of our students come in with the associates degree and enroll at Strayer to earn their bachelor's degree in their third and fourth year. As you mentioned we have more than 100 articulation agreements with community colleges whereby, once a student is enrolled and matriculated at the community college, once they graduate, they matriculate automatically into Strayer University, as well.

On the corporate side, again if you're geared toward serving working adults, one of the best places to find them is where they work. So for decades we've had relations with large employers who send their employees to Strayer to complete their college or even to get a graduate degree. In many cases, those employers pay us directly which is obviously good from a credit standpoint for the university. But more importantly those students who come to us, having being sponsored by their employer, tend again to be much stronger students.

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