THE PARTHENON GROUPBoston • London • Mumbai • San Francisco

Student Value Proposition and Gainful Employment

Pearson Learning Solutions Summit

December 2010

THE PARTHENON GROUP

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For-profit education is under attack from

all sides!

• CDR

• Gainful employment

• Incentive

compensation

• Public sector competence

• Commoditization of online

• “Sub-prime goes to college”

• The next big short

$26B U.S.

For-profit

PSE

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0%

20%

40%

60%

80%

100%

Public

Still Enrolled

Droppedout

Transferred

Certificate

Associate

Private Sector

Droppedout

Transferred

Certificate

Associate

The Good News

Despite what is in the press, the sector’s underlying

value proposition is strong…

Student Outcomes 5 Years

Post-Enrollment

(2-Years and Less Institutions, 2001)

$0K

$10K

$20K

$30K

Public

Other

State/LocalFunding

FederalFunding

Tuition andFees

$25.3K

Private Sector

Other

FederalFunding

Tuition andFees

$26.7K

$0K

$10K

$20K

$30K

Public

IncomeGain 7.3

Pre-enrollmentIncome 20.3

$27.6K

Private Sector

IncomeGain 7.9

Pre-enrollmentIncome 14.7

$22.5K

Dollar Gain in Annual

Income

(2-Years and Less

Institutions, ‘02-’05)

Funding Per Positive

Outcome

(2-Years and Less

Institutions, 2007)

Note: * Graduation Rate = grads / (grads+ dropouts); Positive Outcomes = (grads + transfers) / (grads + transfers + drops)

Source: NCES BPS 1996-2001; Parthenon Analysis

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-5%

0%

5%

10%

15%

20%

Public Sector

-2%

Private Sector

Low-incomeEnrollment

CAGR('04-'08)

13%

The Good News

…And, there is a long term need for private sector

education as they are driving expanded access

Low-Income Student

Enrollment Growth, 2004-08

Note: 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

-5%

0%

5%

10%

15%

20%

Public Sector

3%

Private Sector

Non-whiteEnrollment

CAGR('03-'07)

14%

Non-White Student

Enrollment Growth, 2003-07

-5%

0%

5%

10%

15%

20%

Public Sector

-1%

Private Sector

Age 25and Over

EnrollmentCAGR

('03-'07)

17%

Age 25 and Over Student

Enrollment Growth, 2003-07

CA

GR

(„0

4-‟0

8)

CA

GR

(„0

3-‟07)

CA

GR

(„0

3-‟0

7)

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The Not-So-Good News

Proposed ‘gainful employment’ regulation

summary of impact estimates

Ineligible Restricted Eligible w/ Disclosure Eligible

Source: United States Department of Education Missouri Gainful Employment Analysis; BLS; US Census Bureau; BPS; NPSAS; Parthenon Analysis

Original ED Estimate

% o

f S

tud

en

ts

All SchoolsSubject to GE

Regulation

4% 14%

9% 31%

37% 51%

49% 5%

Revised Estimate After

Incorporating Proposed

Methodological Adjustments

All SchoolsSubject to GE

Regulation

16% 30%

5% 26%

31% 33%

48% 11%

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Not relevant after the first year

Already budget and

capacity constrained

0

20

40

60

80

100%

ED Transfer Assumptions

Switch Sectors

Leave Postsecondary Education

Switch Institutionswithin Sector

Complete Program

Switch Programs atSame School

307,000

0

20

40

60

80

100%

Adjusted Transfer Assumptions

Switch Sectors

Leave Postsecondary Education

Switch Programs at Same School

Switch Institutions within Sector

1,000,000

The Not-So-Good News

Proposed ‘gainful employment’ regulation

student transfer assumptions

U.S. ED Transfer Assumptions

Source: U.S. Department of Education NPRM

Adjusted Transfer Assumptions

30% of these programs fail GE

Adjusted assumptions imply that 300,000 - 500,000 students will likely

not complete post-secondary education

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0

2

4

$6B

Current Estimate of TotalDefaulted Loans

Defaulted Loans

$2.0B

Cost to Taxpayer of Gainful Employment

Total Job Losses

For-Profit StudentsTransfer to Another

Sector

Lost Productivity of Students

$5.3B

GE regulations seek to protect $2B in defaulted

federal loans annually; GE implementation will cost

taxpayers $5.3B annually

Cost to Taxpayer of Proposed Gainful Employment Regulations

vs. Current Estimate of Total Defaulted Loans

Note: 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 38

Source: College Board, US ED Federal Student Aid Budget Lifetime Default Rates; Student Aid Administration FY10 Budget; US ED Federal Student Aid Annual

Report 2009; Department of Education NPRM; NCES IPEDS database; NCES BPS 1996-2001; company financials and SEC filings; BLS; BEA; CBO