2010 PLS Career Summit: Seth Reynolds, Parthenon Group
Pearson Learning Solutions Summit T HE PARTHENON G ROUP Boston • London • Mumbai • San FranciscoStudent Value Proposition and Gainful Employment December 2010
For-profit education is under attack fromall sides! T HE P ARTHENON G ROUP• CDR• Gainful employment• Incentive compensation $26B U.S. For-profit • “Sub-prime goes to college” PSE • The next big short • Public sector competence • Commoditization of online 2
The Good News Despite what is in the press, the sector’s underlying value proposition is strong… T HE P ARTHENON G ROUP Funding Per Positive Dollar Gain in Annual Student Outcomes 5 Years Outcome Income Post-Enrollment (2-Years and Less (2-Years and Less (2-Years and Less Institutions, 2001) Institutions, 2007) Institutions, ‘02-’05) 100% $30K $30K Still Enrolled $27.6K $26.7K Dropped $25.3K Other out Other Income 80% Dropped Gain 7.3 $22.5K out Federal $20K Funding $20K Transferred Income 60% Gain 7.9 State/Local Funding Transferred 40% Pre-enrollment Certificate $10K $10K Income 20.3 Tuition and Fees Pre-enrollment Certificate Federal Income 14.7 20% Funding Tuition and Associate Associate Fees 0% $0K $0K Public Private Sector Public Private Sector Public Private SectorNote: * Graduation Rate = grads / (grads+ dropouts); Positive Outcomes = (grads + transfers) / (grads + transfers + drops)Source: NCES BPS 1996-2001; Parthenon Analysis 3
The Good News …And, there is a long term need for private sector education as they are driving expanded access T HE P ARTHENON G ROUP Low-Income Student Non-White Student Age 25 and Over Student Enrollment Growth, 2004-08 Enrollment Growth, 2003-07 Enrollment Growth, 2003-07 20% 20% 20% 17% 15% 15% 14% 15% CAGR („03-‟07) CAGR („03-‟07) CAGR („04-‟08) 13% Age 25 10% 10% 10% and Over Non-white Enrollment Low-income CAGR Enrollment Enrollment (03-07) CAGR CAGR 5% (04-08) 5% (03-07) 5% 3% 0% 0% 0% -1% -2% -5% -5% -5% Public Sector Private Sector Public Sector Private Sector Public Sector Private SectorNote: The upper limit of the lowest quintile was $18,500 in 2004 and $20,712 in 2008.Source: IPEDS 2003 & 2007; NPSAS 2004 & 2008; U.S. Census Bureau 4
The Not-So-Good News Proposed ‘gainful employment’ regulation summary of impact estimates T HE P ARTHENON G ROUP Revised Estimate After Original ED Estimate Incorporating Proposed Methodological Adjustments Subject to GE Subject to GE All Schools All Schools Regulation Regulation % of Students 4% 14% 16% 30% 9% 31% 5% 26% 37% 51% 31% 33% 49% 5% 48% 11% Ineligible Restricted Eligible w/ Disclosure EligibleSource: United States Department of Education Missouri Gainful Employment Analysis; BLS; US Census Bureau; BPS; NPSAS; Parthenon Analysis 5
The Not-So-Good News Proposed ‘gainful employment’ regulation student transfer assumptions T HE P ARTHENON G ROUP U.S. ED Transfer Assumptions Adjusted Transfer Assumptions 307,000 1,000,000 100% 100% Switch Programs Not relevant after the first year at Same School Complete Program 80 80 Switch Institutions 60 60 within Sector Switch Programs at Same School Switch Sectors 30% of these programs fail GE 40 40 Switch Institutions within Sector Leave Postsecondary 20 20 Education Switch Sectors Already budget and capacity constrained Leave Postsecondary Education 0 0 ED Transfer Assumptions Adjusted Transfer Assumptions Adjusted assumptions imply that 300,000 - 500,000 students will likely not complete post-secondary educationSource: U.S. Department of Education NPRM 6
GE regulations seek to protect $2B in defaulted federal loans annually; GE implementation will cost taxpayers $5.3B annually T HE P ARTHENON G ROUP Cost to Taxpayer of Proposed Gainful Employment Regulations vs. Current Estimate of Total Defaulted Loans $6B $5.3B Lost Productivity of Students For-Profit Students 4 Transfer to Another Sector $2.0B 2 Total Job Losses Defaulted Loans 0 Current Estimate of Total Cost to Taxpayer of Defaulted Loans Gainful EmploymentNote: Assumes 10-year repayment window and 6.8% fixed interest rate for unsubsidized loans and a 6.0% interest rate for subsidized loans; cash flows are not discounted;loans in default are recovered at the rate of ~20% per year for four years, according to the Student Aid Administration FY10 Budget page 38Source: College Board, US ED Federal Student Aid Budget Lifetime Default Rates; Student Aid Administration FY10 Budget; US ED Federal Student Aid AnnualReport 2009; Department of Education NPRM; NCES IPEDS database; NCES BPS 1996-2001; company financials and SEC filings; BLS; BEA; CBO 7
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