Strayer Education, Inc.

1025 15th Street Northwest
Washington, D.C. 20005
U.S.A.
Telephone: (202) 408-2424
Fax: (202) 289-1831
Web site: http://www.strayereducation.com

Public Company
Incorporated: 1996
Employees: 960
Sales: $92.9 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: STRA
NAIC: 611410 Business and Secretarial Schools

Strayer Education, Inc. is the education services holding company for Strayer University, which was founded in Baltimore, Maryland, in 1892, then under the name Strayer Business College. Strayer University is a proprietary institution of higher learning that offers undergraduate and graduate degree programs in accounting, business administration, and computer information systems to a student body comprised mostly of working adults. Strayer has 20 campus locations in the Washington, D.C., area, Virginia, Maryland, and North Carolina and an annual enrollment of more than 16,500 students. By putting a premium on convenience and flexibility for students with other scheduling commitments and by continually updating curriculum to provide the most practical and current skills for professional advancement in the ever-changing marketplace, Strayer has become one of the most successful and fastest-growing proprietary institutions in the United States.

A Proprietary School Takes Root: 1892-1958

Strayer’s Business College was founded in 1892 in Baltimore, Maryland, by Dr. S. Irving Strayer. Prior to founding the business school, Strayer had spent years developing a shorthand method that improved upon the then widely popular Pitman system. First copyrighted in 1890, “Strayer’s Universal Shorthand” became one of the main courses of study at the new school. With an original focus on secretarial skills, the other primary course of study was bookkeeping.

Shortly after the school was opened, a typewriter distributor named Thomas W. Donoho contributed significant financing and all the needed typewriters to the school in exchange for half ownership. Donoho became president and general administrative officer of the college in 1902. Donoho immediately began to make strides toward the development, improvement, and expansion of the school. After an extensive survey, he implemented revisions and refinements to the various courses of study, the textbooks, and the quality of the teaching faculty. Also under Donoho’s leadership, Strayer opened two more branches in 1904, one in Washington, D.C., and one in Philadelphia. Donoho went on to buy the Washington, D.C, and Baltimore campuses from Irving Strayer in 1910, extending his presidency to both schools. Thomas W. was the first of three generations of Donohos to serve as president of the college.

From the beginning, Strayer emphasized its commitment to making its educational opportunities available to industrious individuals at whatever hours those individuals had available for study. To this end, a night school was established to accommodate students who held jobs during the day. Strayer set out to characterize itself as a rigorous institution and to distance itself from other business colleges that offered perhaps cheaper or quicker, but also less thorough, training. Strayer’s commitment to placing its graduates in employment situations led to the development of close affiliations with businesses who would come to rely on the college for the direct recruitment of new employees from its roster of graduates.

In 1929, a separate school, the Strayer College of Accountancy, was founded and licensed to grant degrees by the Board of Education of the District of Columbia. This school was governed by its own board of trustees but operated in conjunction with the business college for almost 25 years, until the two schools merged in 1959 under the newly incorporated Strayer Junior College.

Building Academic Credibility: 1960s-1980s

Strayer had been known primarily for training in accounting and secretarial skills, but after its incorporation as Strayer Junior College in 1959, the school began to broaden the range of its courses. For instance, the school added programs in court reporting and health facilities management—two areas where, it was speculated, demand for qualified personnel was growing faster than supply.

Further, Strayer launched a major endeavor to modernize its curriculum in September 1964 by adding data processing as a degree prerequisite for their accounting programs. The school invested significant funds to rent and install IBM equipment in new laboratory environments where students could receive instruction and practice using actual data processing machines. As quoted in the Strayer Junior College newsletter, Strayer Topics, in April of 1964, Chairman of the Board Murray T. Donoho said, “Anybody working for an organization of any size in the next five years will be in the midst of automation. We consider Data Processing to be an absolute necessity today, if our students are to be considered adequately educated for modern administrative positions.” Strayer was the first accounting degree program in the Washington, D.C., area to incorporate automation into its curriculum. Data processing courses were also offered to students pursuing business administration and executive secretarial degrees. This innovation was just one instance of Strayer’s commitment to continual innovation in the interest of always providing its students with a competitive edge in the job market of the present and future.

By 1969, Strayer enrolled approximately 1,500 students and employed 32 full-time faculty members and 52 part-time instructors. Having received licensure to award bachelor of science degrees, Strayer became a four-year institution and was renamed Strayer College. By 1974, Strayer was fully accredited and gained full legitimacy as a four-year institution. By September of 1977, Strayer’s enrollment had reached a record high. The total enrollment of 1,775 represented a 14 percent increase over the previous year.

In 1980, Dr. Charles E. Palmer was elected Chairman of Strayer’s Board of Directors. Palmer brought extensive experience to the Strayer board: he had headed nine proprietary private business colleges and associate degree-granting junior colleges of business in North Carolina, South Carolina, Virginia, and the Washington, D.C., area; he had also served as the leader of a number of educational and civic organizations and co-authored 11 McGraw-Hill-published accounting and business textbooks. Strayer made significant strides in credibility and growth during Palmer’s ten-year leadership.

In 1981, Strayer became the first proprietary school in the country to receive regional accreditation when it was so endorsed by the Commission of Higher Education of the Middle States Association. That same year, Strayer received approval from the State Council of Higher Education for the state of Virginia to open a campus in Arlington, Virginia. This approval marked the beginning of a period of geographic expansion for Strayer.

In 1989, the ownership and presidency of Strayer changed hands when Ron K. Bailey bought the college from Charles E. Palmer. Ron Bailey had received his bachelor of science degree from Strayer College and returned to the college shortly thereafter in 1974 as a part-time instructor of business courses. In a short period of time, Bailey joined the leadership of the company. Bailey was serving as Strayer’s executive vice-president in 1989 when he was presented with a chance to buy the college. The total selling price in 1989 was $5 million.

There were several reasons why for-profit education was such an attractive business. In exchange for offering students flexible hours, an accelerated degree path, and a near 100 percent acceptance rate, for-profit schools were generally able to charge higher tuition than most public state schools. Tuition and fees for Strayer were, on average, more than three times higher than those at state universities. Also, for-profit schools, with their emphasis on job training rather than a broad liberal arts education, were able to operate with significantly lower overhead and labor costs: campus facilities were less extensive, and because classes were predominantly taught by part-time instructors, the cost of personnel—a university’s most significant operating cost—was dramatically lower. The trick for Strayer, as Ron Bailey knew, was to maintain a vigilant commitment to cost controls while continuing to distinguish the school as a provider of top-quality educational services.

When he took over the presidency, Bailey accelerated Strayer’s program of regional expansion and committed himself to further broadening Strayer’s curriculum and degree programs and to improving the caliber of its faculty. By 1991, Strayer had added campus locations in Huntington Metro, Potomac Mills, Manassas, Loudoun, Fredericksburg, and Takoma Park.

Feeding Off the High-Tech Boom in the 1990s

The exponential growth of Strayer coincided closely with the high-tech boom of the 1990s. As computer skills became a crucial requirement for more and more jobs, so demand for computer education began to burgeon. Similarly, as the bull market continued for technology-related stocks, so analysts began to favor the stocks of for-profit education companies. Analysts were also keen on for-profit education companies because they were deemed to be relatively recession-proof: when the economy slumped, they speculated, people who were laid off tended to go back to school to improve their skills and better their employability.

Company Perspectives:

At Strayer Education, Inc., our mission is simple: to make high quality post-secondary education achievable and convenient for working adults in today’s economy.

In addition to following the most direct avenues for expansion, Strayer developed a subsidiary interest in 1995 when it introduced the Strayer Education Loan Program as an alternative source of student funding to government-sponsored loans. The wholly owned subsidiary was named Education Loan Processing, Inc. (ELP). The program was able to service loans at a lower cost than the government and thereby offer students highly competitive terms and interest rates. Tailored specifically to meet the loan needs of working adults, ELP served the dual purpose of further accommodating Strayer’s valued students while increasing the company’s tuition revenues through earned interest on loans. ELP was good for Strayer students and good for Strayer business at the same time.

In 1996, Strayer Education, Inc., was established as the parent company of Strayer College in order to take the business public. Trading on the NASDAQ Stock Exchange under the ticker symbol STRA, Strayer raised $30 million with its initial public offering, selling three million shares for $10 per share. Nine months later, Strayer returned to the market for a secondary offering of 1.15 million shares. This time the stock sold for $21.75 per share, a more than 100 percent gain since the initial offering.

In July 1997, Dr. Donald Stoddard was appointed president of Strayer College. Ron K. Bailey continued as president and CEO of Strayer Education, Inc.; relinquishing the presidency of the college enabled him to devote his full energies to guiding the strategic growth of the corporation. Stoddard, who had worked extensively in the field of higher education, assumed responsibility for maintaining the quality of education at the college. At this time, Strayer had built an enrollment of over 8,000 students at nine campuses in Washington, D.C., Virginia, and Maryland.

With solid leadership in place and the significant capital raised from stock sales, Strayer was ready to expand in three strategic directions. First, the company would continue to expand its regional presence, opening a new campus every year for five years. Second, Strayer would increase the program offerings of its Internet-based “school,” Strayer Online. Finally, the company would continue to expand the courses tailored for its corporate and government clients.

In July 1997, with 48 percent of its students majoring in computer information systems, Strayer leadership was acutely aware of the fast-increasing demand for computer training. Computer skills were needed not only by students seeking to enter the job market or change careers but also by the established employees of many corporations. Strayer had already begun offering onsite computer training courses for corporations like AT&T and federal agencies like the Internal Revenue Service. These affiliations were particularly lucrative, because Strayer was paid for teaching the courses without having to provide equipment or facilities. To solidify its stake in the computer education industry, Strayer formed a new, wholly owned subsidiary called Professional Education, Inc. (ProEd). ProEd was designed to offer a specialized professional development curriculum whereby students could build a wide range of technical skills needed for success in the increasingly computer-driven corporate world.

Strayer also courted the demand for computer and business-related courses by adding new degree programs. In 2000, the university gained approval from the District of Columbia Education Licensure Commission to offer programs for a master of science degree in communications technology, as well as associate in arts degrees in computer networking and acquisition and contract management.

In January 1998, Strayer Education, Inc. received a significant endorsement for its ongoing efforts to improve its faculty and educational resources and expand its degree programs when the college was granted university status. This promotion—rare for a proprietary institution—conferred new respectability on Strayer, and with the company on the verge of a major expansion, it could not have come at a better time.

New Ownership Accelerates Growth: 2000-02

Strayer faced significant changes as it headed into the new millennium. The company signed an agreement in November 2000 with a group of investors headed by a New York investment firm that specialized in education companies, New Mountain Capital, LLC. Under the agreement, New Mountain Partners and co-investor DB Capital Partners, the private equity component of Deutsche Bank AG, purchased a controlling stake in Strayer Education, Inc. The price of this investment was $150 million.

Further, Ron K. Bailey, who owned 52 percent of the company, retired from Strayer, selling the bulk of his stake in the company. Bailey was succeeded as president and CEO by Robert S. Silberman, who had joined New Mountain Capital a few months earlier. In addition, Steven B. Klinsky, New Mountain Capital’s founder and CEO, became the non-executive chairman of Strayer’s Board of Directors. The deal was finalized in March of 2001.

Key Dates:

1892:

Strayer Business College is founded in Baltimore, Maryland, by Dr. S. Irving Strayer.

1904:

Branches of Strayer Business College are opened in Washington, D.C., and Philadelphia.

1910:

The Washington, D.C., and Baltimore campuses are purchased from Irving Strayer by associate founder Thomas W. Donoho.

1928:

The Strayer College of Accountancy is established.

1959:

Strayer Junior College is incorporated and becomes the umbrella under which the Business College and the College of Accountancy operate.

1969:

Strayer Business College gains licensure to award bachelor of science degrees and is renamed Strayer College.

1974:

Strayer College receives accreditation by the Association of Independent Colleges and Schools.

1981:

Strayer receives approval to offer its programs in the state of Virginia, which marks the beginning of a period of expansion.

1987:

Strayer College is authorized to award master of science degrees.

1989:

Ronald K. Bailey, then administrative vice-president, buys Strayer College from Charles Palmer.

1996:

Strayer Education, Inc. is established as the holding company for Strayer College, and an initial public offering is made.

1998:

Strayer College is awarded university status by the District of Columbia.

2000:

New Mountain Capital, LLC and DB Capital Partners purchase a controlling stake in Strayer Education, Inc.

Silberman intended to increase shareholder value at Strayer by stepping up the company’s rate of organic growth (in the form of increased enrollment and new educational sites), along with considering selective strategic acquisitions. While Bailey’s growth strategy had called for opening one new campus per year, Silberman planned to accelerate this to three new sites per year. The cost of adding numerous new facilities was not as great as one might think. As Silberman told the Washington Post on July 9, 2001, each new campus required an investment of only $1 million, half of which went to the necessary equipment and the other half of which was used to cover losses until the school began to pay for itself. Further, 75 percent of faculty were part-time adjunct professors who were paid on a strictly per-class basis, and students paid all tuition up front. As Silberman put it, “It’s a great business. It has positive cash flow, and it’s not capital intensive.” After proliferating up and down the east coast, Silberman planned to establish Strayer as a nation-wide institution. Further, Silberman saw the opportunity to grow enrollment by recruiting more foreign students to “attend” Strayer classes online.

In March 2002, Strayer was granted regulatory approval to open campuses and offer courses in North Carolina. This was a significant gain for Strayer, as the demographics of North Carolina looked promising, and as it represented the company’s first entry into a state beyond the realm of its established geographic footprint. Strayer’s first three North Carolina campuses were opened that year, two in the Charlotte area and one in Raleigh-Durham, and the company acknowledged provisional plans to open six more campuses in the state within the next few years. At the same time, Strayer had established alliances with more than 80 corporations and government institutions to provide training to their employees. The challenge for Strayer was to maintain a high level of academic quality and integrity while continuing to expand across the nation. With over 100 years of experience and no sign of demand abating for working adult education, Strayer confidently projected its own success into the foreseeable future.

Principal Subsidiaries

Strayer University; Education Loan Processing (ELP); Professional Education, Inc. (ProEd).

Principal Competitors

Apollo Group Inc.; Corinthian Colleges Inc.; DeVry Inc.

Further Reading

“ABCs of Education Stocks,” Business Week, September 24, 2001, p. 128.

Atkinson, Bill, “For-Profit Schools Stand Tall as Investments,” Baltimore Sun, April 6, 1998, p. 11C.

Knight, Jerry, “Wall Street Looks to Make Dollars Off Scholars,” Washington Post, October 26, 1996, p. F29.

——, “Learning from Strayer’s Ron Bailey,” Washington Post, July 9, 2001, p. E01.

McTague, Jim, “Strayer Education’s Lofty Growth Plans Mirror the Expanding Market for Professional Training,” Barron’s Online, August 5, 2002.

Morey, Ann, “The Growth of For-Profit Higher Education,” Journal of Teacher Education, September, 2001, p. 300.

Soley, Lawrence, “Higher Education … or Higher Profit; For-profit Universities Sell Free Enterprise Education,” Institute for Public Affairs, September 28, 1998, p. 14.

—Erin Brown