For-Profit Education in the Age of Austerity: the APEI Story

It’s not easy being a for-profit education CEO. Education Secretary Arne Duncan is sending you to the principal’s office for failing to graduate sufficient students or prepare those who do graduate for "gainful employment" in their field of study. And, with Obama’s push to increase PELL grants and unsubsidized Stafford Loan limits, Congress is sending you to detention for violating the government’s 90/10 rule (which requires schools to show that at least 10% of their income comes from sources other than Title IV federal financial aid).

To make matters worse, Wall Street’s short-sellers have been giving your sector D’s and F’s for failing to meet profit projections. It’s enough to send a an online education CEO back to a little red schoolhouse with four walls, pencils and paper.

But American Public University System (NASDAQ: APEI) President and CEO, Dr. Wallace E. Boston, sees things differently. Where his competitors complain about an “unfair” grading system, he is, in effect, seeking out AP courses. Boston is confident because, unlike highly publicized competitors — such as Apollo Group, Inc. (APOL), parent company of The University of Phoenix – APEI, through its American Military University (AMU) subsidiary, has heretofore focused on a lucrative niche within the broader for-profit online education sector.

A former Marine Corps instructor, Major James P. Etter, founded AMU in 1991 because highly mobile, financially strapped, and irregularly employed young soldiers lacked the educational flexibility to advance in rank and career. According to APEI’s “Letter to Shareholders” from its 2010 Annual Report, “In 2001, AMU expanded into the American Public University System and established American Public University” or APU (APEI’s civilian education arm), a response, according to APEI’s May 10, 2011 Quarterly Report, to demand for “post-military career preparation.” Even with its expanded course offerings to “the greater public service community,”

APEI has prospered because, in Boston’s words, APEI hasn’t primarily focused on the big-number online areas, such as “health care, info tech, and business,” but, rather, on “niche degrees in niche sectors” in its expanded core markets of law enforcement, fire science, space studies, emergency management, and, naturally, the armed forces.

Nevertheless, Boston and his team have a ready retort to naysayers. First, due to what an APEI spokesperson terms “an expanding civilian student population” at APU (now 38% of APEI’s total enrollment), APEI is not as exclusively dependent on the Pentagon as it was back in 1991. Secondly, APEI’s share of Tuition Assistance would not be as affected by broader spending cuts because 15% of APEI students pay in cash, guaranteeing that the company always meets the 90/10 federal financial aid to non-aid threshold. Thirdly, as long as APEI meets that 90/10 threshold, it will not be compelled to increase tuition, an enrollment-sapping step adopted by other online colleges. Finally, through the newer APU, APEI is increasing enrollment by expanding beyond its pedagogical sweet spot of military and public service into several new civilian content areas – such as psychology, sports management, and, yes, business (including an MBA) — that are currently dominated by its higher-market-cap competitors.

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