The Business of Education:
Public Companies are Changing the Way the Work Force is Trained

By Randy Southerland
Atlanta Business Chronicle
January 14, 2005

ou won't find any ivy-covered walls at the The Art Institute of Atlanta. The modern five-story building in a quiet wooded office park on Peachtree-Dunwoody Road could be the suburban headquarters of any tech company or financial services firm. It's appropriate for this profit-making chain of private colleges that's all business.

"We have a very focused mission,and it really is educating creative professionals— whether they're in the visual arts or the culinary arts," said Janet Day, president of the 2,650-student institution.

There's nothing traditional about the Art Institute's business structure, either. It's part of the vanguard of a fast-growing and, until recently, little-noticed part of higher education— the corporate for-profit model.

Atlanta has become a major market for companies like Educational Management Corp. (Nasdaq: EDMC), the Art Institute's parent company. The corporation operates 67 schools and colleges nationally, serving more than 66,000 students. Other major players include DeVry Inc. (NYSE: DV), which operates DeVry University and Keller Graduate School of Management in the metro area, and Career Education Corp. (Nasdaq: CECO), owner of American Intercontinental University.

The growth of these schools is hard to ignore. With reported revenue of $853 million for the fiscal year ending in June, compared with $640 million in 2003, EDMC is one of several corporations that has made the for-profit market one of the fastest-growing areas of the $315.5 billion postsecondary market in North America, according to U.S. Department of Education figures.

Career Education Corp. also saw similar growth, reporting total revenue for the nine months ended Sept. 30 of $1.3 billion. This was a 53 percent jump from $817.3 million for the previous period. Student population on its 82 campuses in North America, Europe and the Middle East rose more than 22 percent to 97,300 in 2004.

DeVry reported total revenue of $784.8 million for the period ending in June, compared with $679.5 million for 2003.

© Damon Atkinson          

Work-force impact

As a formidable player in the education field, for-profit education is becoming an influential force in work-force training, offering options for mid-career training as well as practical, employment-focused preparation for the real world. The emphasis at these and other for-profit schools tends to be on preparing students for employment.

Jim Stringer did two stints at AIA, gaining an associate's degree in 1984 and then returning to earn a bachelor's in graphic design. He landed a job as a sales consultant for San Jose, California-based Adobe Systems Inc. (Nasdaq: ADBE), the maker of graphics software packages InDesign and Photoshop, after competing in a student competition sponsored by the company.

"There were a lot of competitions open to just AIA students," he said. "That was a real breaking point for me when I entered this competition for Adobe. I won that and went out to (a convention in) San Antonio to present my ideas to them— and actually landed this position."

While finishing classes, Stringer traveled around the country making software presentations to potential customers.

There are 31 Art Institutes owned by Education Management. Their success at attracting students and increasing revenue has drawn investors and driven up stock prices to new levels.

"The overall market for educational services is doing quite well," said Jeff Humphreys, director of the Selig Center for Economic Growth at The University of Georgia. "There's high and growing demand for educational services in general, and that's creating opportunities not just for traditional players, but for nontraditional players as well."

With large state universities such as UGA capping enrollment, qualified students are seeking educational opportunities elsewhere, he said.

"The other thing is we've seen, at least in some systems, smaller increases in funding for public education and increases in demand," Humphreys said.

The increased demand is driven by increased population growth and a rise in real income, he added.

"Education is pretty income-elastic," he said. "As incomes rise, the proportion of educational services purchased is rising faster. You've got more than a one-to-one bang for the buck."

Slow job growth also has increased the appeal of additional training.

Lindsey Jolley, who graduated from the Art Institute of Atlanta in March, quickly found a job as an interior designer for CWC Furniture, one of the Southeast's largest dealers.She credits her success to AIA's emphasis on encouraging students to reach out to potential employers through activities such as internships and classes that require them to contact and interview companies about their needs.

"I had no idea there was actually a job (in interior design) available at a furniture dealer," she said.

While these schools are focused on making a profit and meeting Wall Street expectations, the academic programs and oversight are very similar to nonprofit institutions, said the AIA's Day.

"In the private for-profit sector, we actually have a lot more checks and balances," she said. "Our governance is by a board of trustees, but we also have our system guidelines and policies that we follow, not unlike a state (higher education) system."

Higher-ed standards

The for-profits have also been quick to adopt innovations such as online learning, evening degree programs, and condensed programs that get students into the job market faster.

Students at DeVry University can enroll at any of the school's seven Atlanta locations in addition to taking courses through the online division.

Many of the schools also make use of advisory committees made up of working professionals in a particular profession. These groups review courses and curriculums to ensure students are receiving the kind of training employers expect from new workers.

"It's important that we're able to help the students through their education as well as helping them toward employment," said Jeanne Johnson-Whatley, DeVry's director of university outreach. "That's why we select areas or careers that have some growth potential."