Students at for-profit schools take out 26% of student loans,
but represent 43% of loan defaulters, the Department of Education
This has raised the question: Do for-profits adequately
prepare their graduates for jobs that will allow them to repay
As regulators mulled ways to ensure higher levels of loan
repayment, many for-profit stocks were hammered.
But notGrand Canyon Education (
), whose unique business model and strong academic
performance have weathered tighter new regulations. Enrollments
and earnings, not to mention share price, have continued to move
north over the last year.
The for-profit industry lobbied heavily against strict new
standards. The blitz worked, and the new rules proved to be far
less stringent than feared. For Grand Canyon, it has been no
sweat at all.
With an emphasis on programs in practical fields like nursing
and business, Grand Canyon aced the new exams.
"Grand Canyon did fare quite well. None of their programs
failed the new metrics," said Jeffrey Meuler, analyst with Robert
"Grand Canyon is well above the compliance thresholds," said
Jerry Herman, analyst with Stifel Nicolaus.
That performance only added to the momentum Grand Canyon was
building on other fronts. Its unique model, which offers the
option of student life on a Phoenix campus as well as online
programs, kept attracting students.
In the first quarter of this year, enrolment grew 8.9%. That
helped produce revenue growth of 15%. CEO Brian Mueller expects
Grand Canyon to grow enrolment by 8% to 10% over the next few
years. Revenue should expand by 15% annually, Mueller told
And that doesn't even include the windfall gift of a new
campus that may be about to fall into Mueller's lap.
Grand Canyon is one of two finalists to receive the donation
of a 217-acre former prep-school property in Massachusetts. The
property currently belongs to the Green family, owners of the
Hobby Lobby chain of craft stores. The donors are looking for a
recipient with a Christian orientation. A decision could come
Massachusetts real estate is not cheap. How much are the land
and buildings on the Northfield Mount Hermon campus in
Northfield, Mass., worth?
"You're probably talking nine digits," guesstimated Herman. If
that's the case, Grand Canyon would be able to enter the pricey
northeast educational market with an enormous cost advantage. A
gift worth $100 million for a property that is nearly twice the
size of Grand Canyon's Arizona campus would jolt the
Massachusetts academic market. Grand Canyon would have an
enormous cost advantage.
Herman says award of the campus to Grand Canyon is "not a
lay-up," but that he would deem it the favorite.
It would certainly be a plus for Grand Canyon. "It would serve
as another tranche of growth opportunity," said Herman.
Of course, a new campus would require major investment. And
some observers have questioned whether Grand Canyon could
transplant its Arizona success into the very different cultural
soil of Massachusetts.
Grand Canyon prides itself on its for-profit status and
nondenominational Christian orientation. But Massachusetts
already has numerous high-quality, nonprofit academic
institutions. And it is not clear whether the religious appeal
would work quite as well in the Northeast.
Mueller indicates he would accept the gift. But he says Grand
Canyon must still do some "due diligence." He wants to be sure
the small town of Northfield has the infrastructure to support a
new campus. "It's a small town," he noted, wondering if the
water, sewer and electric utilities are robust enough.
But how do you turn down a free 217-acre campus? Mueller,
moreover, seems optimistic about the overall proposition of
Northeast expansion. Grand Canyon, he reasons, can extend its
proven model, which combines a traditional campus with a far
larger online student base. Currently, for example, only 10% of
Grand Canyon's total student population of more than 46,000 is
Mueller points out that there is proven interest in Grand
Canyon's online programs in the Northeast. "We already have 5,000
online students in the Northeastern states," he said. And, the
proximity to Boston, New York and Philadelphia offers a large
population base for recruitment.
One major advantage for Grand Canyon, if it moves east, is its
proven ability to hold down tuition. Though published tuition is
around $16,500, scholarships drive down the average student cost
to roughly $8,000. Grand Canyon has learned to price itself
competitively against state institutions.
"We've come up with a financial model that keeps tuition very
low. The online drives the pricing advantage. Sharing the
infrastructure with online is far more efficient than we
thought," he said.
The online student base makes Grand Canyon efficient. The
campus, with its sports teams, dorms and pop concerts, creates a
"brand" that helps to lure those students. "It has helped online
enrolment. It enhances the brand in Arizona and the broader
Southwest," noted Baird analyst Meuler.
Unlike younger campus students, online students are often
working professionals in their 30s. Many are pursuing advanced
degrees in health care and education. Late night sessions glued
to a computer screen can be lonely and tiresome, and the online
students like the idea of being able to actually go to a campus
where they belong.
"They absolutely love to come," said CEO Mueller. "The
34-year-olds come from all over the country. It means a lot to be
on our campus, to be tied to a place that has permanence."
Grand Canyon may soon be lucky enough to offer two such