BMO Bible 2013

Education and Training
September 2013
Jeffrey M. Silber
Managing Director & Senior Research Analyst
Business Services and Education
(212) 885-4063
jeff.silber@bmo.com
Paul Condra
Research Associate
(212) 885-4176
paul.condra@bmo.com
Refer to pages 428429 for Important Disclosures, including Analysts Certification.

For Important Disclosures on the stocks discussed in this report, please go to
http://researchglobal.bmocapitalmarkets.com/Company_Disclosure_Public.asp.
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Table of Contents
Key Investment Considerations..................................................................................................5
Education Industry Overview......................................................................................................7
Risks ........................................................................................................................................17
Early Childcare: A Small but Steady Market.............................................................................20
Growth Divers ...................................................................................................................23
Largest Childcare Providers ..............................................................................................30
Worksite Childcare ............................................................................................................32
Back-Up Care....................................................................................................................35
Economics of Operating a Childcare Center .....................................................................36
Characteristics of Superior Childcare Facilities .................................................................39
Merger and Acquisition Activity .........................................................................................41
Risks .................................................................................................................................43
K-12 Education: Largest Opportunity, Though Risks Abound ..................................................44
Market Overview ...............................................................................................................44
Impact of the Great Recession on K12 .............................................................................47
ESEA (Formerly NCLB) ....................................................................................................51
Instructional Media and Services ......................................................................................54
Technology in the K-12 Sector ..........................................................................................64
Other K-12 Services..........................................................................................................76
Postsecondary Education: Tough Near Term, But Solid Long Term........................................95
Postsecondary School Market Overview...........................................................................95
Long-Term Drivers for Postsecondary Education Growth .................................................98
For-Profit Postsecondary School Market Overview.........................................................104
Advantages of For-Profit Schools....................................................................................112
Military Market.................................................................................................................115
Growth Components for For-Profit Postsecondary Schools............................................127
Postsecondary Schools Enrollment Growth Trends ........................................................128
Postsecondary Schools Funding Sources and Tuition Rate Trends ...............................141
Postsecondary Schools EBITDA, Operating Income, and Margin Trends ......................195
Postsecondary Schools Instructional Costs Trends ........................................................198
Postsecondary Schools Sales and Marketing Trends .....................................................206
Postsecondary Schools New Campus Opening and Relocation Trends.........................222
Postsecondary Schools New Program Trends................................................................227
Postsecondary Schools Persistence/Retention/Attrition Rate Trends .............................240
Postsecondary Schools Completion/Graduation Rate Trends ........................................252
Postsecondary Schools Placement Rate, Salary, and Other Job-Related Trends ..........262
Postsecondary Schools Legal and Regulatory Issues ....................................................269
Online Postsecondary School Market .............................................................................322
Characteristics of Superior For-Profit Postsecondary Schools .......................................339
Postsecondary Schools: Valuation Trends......................................................................341
International Postsecondary Education...........................................................................350
Study Abroad Programs..................................................................................................367
International Education Providers ...................................................................................377
Postsecondary Publishing Market ...................................................................................386
Postsecondary Technology Market .................................................................................391
Postsecondary Institutional Services Market...................................................................395
Corporate Training: Moving to Software Driven Model...........................................................399
Market Overview .............................................................................................................399
Content Delivery Channel ...............................................................................................403
Technology and e-Learning Overview.............................................................................405
e-Learning Content .........................................................................................................408
e-Learning Services ........................................................................................................410
e-Learning Infrastructure Solutions .................................................................................411
Content Type...................................................................................................................415
Business Skills Training ..................................................................................................416
IT Skills Training..............................................................................................................418
Trends in Corporate Training ..........................................................................................419
We would like to thank Nicolas Viveros for his help in creating this report.
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Key Investment Considerations

For-profit education growth has slowed, though we expect some rebound. This roughly
$133 billion industryserving the childcare, K-12, postsecondary, and corporate training
segmentsis a small component (just over 10%) of the estimated $1.32 trillion to be spent on
education in the US in 2013. While this sector has made significant inroads in recent years,
we believe it has also had a major impact on how traditional providers operate (e.g., greater
acceptance of online education). Although annual growth has slowed owing to economic
and regulatory issues, among others we expect growth rates to recover, though not to those
seen in the sectors heyday last decade. We project for-profit education revenues will increase
at a 3.7% compound annual growth rate (CAGR) over the next five years, reaching just over
$161 billion in 2018, generating about 10.6% market share. This would be slower than the
5.3% CAGR at which we estimate the industry has grown since 1999.
There are a number of underlying growth drivers. We are still bullish on the long-term
prospects for all the subsectors within the education industry. In our view, for-profit education
could gain positive momentum from factors such as increased recognition of the benefits of
early childhood education, the growing importance of accountability and education reform,
rising awareness of the advantage of more education to ones lifetime earnings potential, and
the expansion of addressable markets through technology (i.e., online learning). However,
owing to new regulations and an uncertain economic recovery, growth in the near- to
intermediate-term is expected to be a bit sluggish.
Contrary to prior popular belief, the economy does matter. If the past two downturns have
taught us anything, it was that the acyclical theory of education was incorrect. Anecdotal
evidence shows some companies cut back somewhat on expanding their worksite childcare
offerings, as recruiting and retention perks became less of a priority in a downturn. State and
local budget pressures forced severe education funding cuts, limiting what had been growth in
services for K-12 public schools. Conversely, these same limitations had halted some
advances by not-for-profit postsecondary institutions (e.g., online expansion) and made them
weaker competitors just when demand for programswhich tend to be countercyclical
increased; we note, however, the not-for-profit sector has regained some of the share lost in
the Great Recession. Corporate training providers experienced revenue declines because, in
many cases, this training is considered a discretionary expense. As the economic expansion
matures, we believe for-profit worksite childcare, K-12 and corporate training should benefit,
though for-profit postsecondary may not to the same extent.
We believe technology is a key enabler for success. Education providers that use
technology as part of their service delivery will continue to outperform, in our view. In certain
sectors, particularly postsecondary, an online delivery model has become more accepted and
fewer quality-related questions are being asked (some argue that quality is better online owing
to real-time updates and ability for customization). While we do not believe online education
will ever fully replace classroom-based learning, those traditional education providers that
smartly incorporate technology in their existing offeringsknown as blended learning
should have a competitive advantage. Within the K-12 sector, technology is now virtually
ubiquitous in every classroom, while inroads have also been made via virtual schools,
though we do not envision the type of online penetration seen in the postsecondary sector. We
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also see greater acceptance of the blended learning concept in the corporate training world,
though we believe this is more of a replacement for the traditional instructor-led training
(ILT) model. Many so-called edruptors (e.g., Massive Open Online Courses, or MOOCs)
have started to have some influence within the sector, though the hype may precede the
profits.
Childcare: growth could accelerate in this later cycle segment. While some
demographic drivers are on a down-cycle (e.g., population under five), other drivers (e.g.,
dual income couples with children under six) are trending up. This, along with the greater
recognition of the importance of early education and potentially more government funding
should continue to underlie steady growth in this sector. Centers run by for-profit providers
which represent about half the market have been gaining share, and we expect will continue
to do so. This especially holds true for corporate-sponsored childcare, which tends to be later
cycle, as more employers use this perq as a recruiting and retention tool.
K-12: sector with the greatest opportunities, but also many risks. We believe a
fundamental change has occurred in the K-12 sector as the desire to improve school quality
has overtaken demographics as a key growth driver. Given the worsening performance of the
US K-12 system relative to many other countries, this trend should continue. We believe
education technology (ed-tech) has the greatest opportunity to make radical changes in this
sector. However, funding issues remain a concern; despite an apparent increase in state and
local tax revenues the key driver for funding levels the expiration of federal stimulus
funds and further sequestration puts a damper on near-term expectations. In addition, K-12
could also be the riskiest investment sector, owing to heavy political and public pressures, as
seen with opposition in certain areas within the school-management sector (e.g., charter
schools).
The worst may be over for the postsecondary sector, though we do not expect a Vshaped recovery. The latter part of last decade was among the best periods ever for for-
profit postsecondary providers, given strengthening enrollment growth owing to the subpar
employment market and funding constraints for most traditional schools. However,
enrollment has declined since peaking in fall 2010, and will likely continue to do so in the
near term, though at a lesser extent. While some of the reasons driving this decline have been
anniversaries (e.g., incentive compensation rule changes effective July 2011), others, such as
concerns over the value proposition of higher education may linger. Yet this issue does not
only affect the for-profit sector, as seen by President Obamas August 2013 Making College
More Affordable plan. Competition is also intensifying as non-for-profits target online
working adult students a space traditionally dominated by the for-profit sector.
Corporate training: history shows this is a later cycle segment. The past two recessions
have shown that corporations considered some training to be discretionary, with many
reducing training budgets as part of broader cost-cutting measures. Nevertheless, we still
believe this sectors secular growth drivers -- such as the importance of an education in
moving up the career ladder and greater acceptance of life-long learning -- are as strong as
ever. In addition, the shift to less expensive models (e.g., software as a service) could lessen
the adverse economic impacts. As the economic expansion matures, this could be among the
fastest growing segment within the education industry.
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Education Industry Overview

We have seen many developments in the education industry since our Back to School
conference in September 2012. Although some developments were predictable (e.g., M&A
activity, which investment banks always seems to predict), others were not. Below, we
highlight some of the major developments by sector:
Child care: The IPO of Bright Horizons Family Solutions (BFAM) in February 2013 has
once again attracted investor attention to this segment, which has strong secular growth
drivers including the greater acceptance of promoting early education.
K-12: Despite a rebound in state and local tax revenues, K-12 funding levels remain a bit
sluggish as these locales attempt to fill the gaps created by the removal of federal
stimulus funding and sequestration pressure. Preparation for the adoption of Common
Core Standards across much of the US has provided some impetus for future spending in
areas related to curriculum, technology and professional development, among others.
Postsecondary: While enrollments in the for-profit sector continued to decline, the rate
of decrease is arguably getting less worse. The entire segment including not-forprofit schools is under pressure to better define its value proposition as potential
students rethink taking on debt loads for returns that may initially be subpar. Competition
across the sector has intensified and the increased acceptance of MOOCs could be a game
changer.
Corporate training: Corporations are beginning to spend training-related dollars often
seen as a recruiting and retention tool which had been deferred during the Great
Recession, as the employment market tightened
While the bulk of the historical market capitalization within education has been in the
traditional postsecondary space, there are a wide variety of niches within this industry. Given
the myriad of underlying drivers (to be discussed in detail in this report), the stock
performances within each subsector do not always move together. Nevertheless, while the
median performance of the stocks in the whole education industry has outpaced the majority
of the broad market indices for most of the last decade, it has underperformed in recent years,
although has outperformed in 2013 year-to-date (see Exhibit 1).
Stock
performance
varies by
education
subsector
Exhibit 1. BMO Capital Markets Education Index vs. Market Indices (2000-2013YTD)
Sector
PreK-12
Postsecondary
Corporate Training
E-Learning
International
Education industry
2002
N.A.
22.9%
0.2%
-25.8%
N.A.
18.0%
2003
N.A.
54.1%
54.9%
33.0%
N.A.
56.3%
2004
N.A.
0.9%
0.4%
3.1%
N.A.
4.8%
2005
N.A.
-18.8%
-2.2%
-13.1%
N.A.
-14.7%
2006
N.A.
12.3%
1.7%
52.7%
N.A.
14.5%
2007
N.A.
44.7%
28.3%
-11.4%
-6.1%
20.7%
2008
-27.5%
1.0%
0.0%
-59.5%
-37.1%
-17.3%
2009
8.1%
1.2%
4.1%
69.5%
52.6%
29.0%
2010
14.6%
-13.5%
-11.8%
47.8%
2.6%
-11.1%
2011
-24.8%
-19.2%
-14.6%
28.9%
-25.4%
-19.8%
2012
-24.7%
-40.3%
-26.2%
10.8%
-7.1%
-21.4%
2013
(YTD)
64.9%
8.3%
13.8%
21.1%
24.2%
21.8%
S&P 500
Russell 2000
NASDAQ
-23.4%
-21.6%
7.3%
26.4%
45.4%
3.4%
9.0%
17.0%
13.3%
3.0%
3.3%
1.4%
13.6%
17.0%
9.5%
3.5%
-2.7%
9.8%
-38.5%
-34.8%
-40.5%
23.5%
25.2%
43.9%
12.8%
25.3%
16.9%
0.0%
-5.5%
-1.8%
13.4%
14.6%
15.9%
14.5%
19.0%
18.9%
Note: The BMO Capital Markets Education Index represents the median return for the following publicly traded education companies: ABCD,
AMBO, APEI, APOL, ATAI, BPI, CAST, CECO, CEDU, CEU, COCO, CPLA, DL, DV, EDMC, EDU, ESI, FC, GPX, HSTM, LINC, LOPE, LRN,
LTRE, MBA, NAUH, NED, SABA, SPRO, STRA, UTI, XRS and XUE. All returns exclude dividends. 2013 year-to-date as of August 30, 2013.
N.A. Not Available.
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Diversity is an
attractive feature
of investing in
education
BMO Capital Markets
While we acknowledge the issues facing the sector, we maintain a bullish longer-term outlook
for investment opportunities throughout the education industry in generalthe specific
growth drivers for each sector will be discussed in depth later in this report. In addition, we
believe the education industry is among the most diversified within any vertical, providing the
opportunity for investors to choose different paths based on their beliefs about the direction of
the macro environment and other issues.
Size of the Education Industry

Education capital
of over $64 trillion
has grown at a
4.2% real CAGR
since 1960
The Office of Management and Budget (OMB) annually estimates the stock of education
capital, which is the cost of replacing the years of schooling embodied in the US population
aged 16 and over, i.e., how much it would cost to reeducate the US workforce at todays
prices, rather than at its original cost. The OMB estimates that the federal governments
component an estimated $2.24 trillion in FY2014 represents about 3.5% of the nations
total education stock. As such, we estimate that real education capital (i.e., excluding inflation
impact) will be worth more than $64 trillion in 2014, up from $6.8 trillion in 1960 (see
Exhibit 2). This represented a real CAGR of 4.2% (excluding inflation) over that 54-year
period. We note the bulk of spending comes at the state and local tax level as well as through
personal spending. As such, the education industry serves a large and wide customer base, in
our view.
Exhibit 2. Net Stock of Federally Financed Education Capital

(1960-2014E)
$70
5%
Education capital
% federally financed
60
3%
40
30
2%
20
% federally financed
Assets ($ tril. in 2005 $)
4%
50
1%
10
0
0%
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2006
2007
2008
2009
2010
2011
2012
2013E 2014E
Source: BMO Capital Markets and Office of Management and Budget.
Estimated total
spending: about
$1.32 trillion in
2013, growing 2.8%
CAGR to roughly
$1.52 trillion in 2018
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The education industry represents a significant amount of spending no matter how it is

defined. As shown in Exhibit 3, we estimate that nearly $1.32 trillion will be spent on
educational services in the US in 2012. This would represent roughly 8.1% of estimated GDP
for the year. We note that economic downturns have had varied impacts on each sector,
slowing for some (K-12, corporate training), while accelerating growth for others
(postsecondary). We project that the education industry will grow at roughly a 2.8% annual
rate through 2018, when total spending is expected to reach roughly $1.52 trillion.
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Exhibit 3. US Education Industry Revenues (1993-2018E)

Revenues ($ Trillions)
$1.6
1.2
Corporate Training
Postsecondary
K-12
Childcare
0.8
0.4
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
1
20 2
13
20 E
14
20 E
15
20 E
16
20 E
17
20 E
18
E
0.0
Note: Shaded area represents recessionary period. Source: BMO Capital Markets estimates, US
Department of Education National Center for Education Statistics and Training Magazine.
For-profit sector:
estimated
$133 billion to be
spent in 2013 or
about 10.2% of
total education
Although the entire industry may be vast, the for-profit portion has only recently emerged.
The past two decades or so have seen the birth of the K-12 alternative school movement, the
explosion (and then contraction) of the for-profit postsecondary sector, and the creation of the
e-learning sector. Based on data compiled from a number of different sources, we estimate
that the for-profit sector will generate about $133 billion in revenues in 2013, or roughly
10.2% of the roughly $1.32 trillion expected to be spent on US education for the year.
spending
From 1999 to 2003, the for-profit component declined as a percentage of total industry
revenues from 9.3% to 8.6%. Just before that downturn, much of the new for-profit
investment and excitement was concentrated in the corporate training sectorthe area that
suffered the most during and after the most recent US recession, in our view. However, the
for-profit sector rebounded thereafter, growing faster than the overall education industry.
From 2003 through 2013, the for-profit education sector grew at an estimated 5.7% CAGR
versus the 4.1% CAGR for the entire education industry.
For-profit sector:
projected 3.7%
CAGR through
2018, slightly
expanding market
share to 10.6%
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Certain economically sensitive sectors (e.g., K-12, corporate training) could see accelerated
growth assuming an accelerated economic recovery, potentially offsetting the expected
decline in the postsecondary sector as the industry transitions itself to be better positioned to
comply with recent regulatory changes. As such, we forecast that for-profit education
revenues will grow at a 3.7% annual rate through 2018, reaching more than $160 billion in
revenues that year. This would equate to about 10.6% of the roughly $1.52 trillion in total
education spending expected in 2012, up slightly from the estimated 10.2% share captured in
2012 (see Exhibit 4).
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Exhibit 4. US For-Profit Education Industry Revenues (1999-2018E)

For-Profit %
11.0%
10.5%
125
10.0%
100
9.5%
75
9.0%
50
25
8.5%
8.0%
Note: Shaded area represents recessionary period. Source: BMO Capital Markets estimates, US
Department of Education National Center for Education Statistics, Training Magazine and Eduventures.
Investments and M&A Activity in the Education Industry

Throughout the past few decades, there has been strong interest in investing in the sector at
the venture and early stage levels. While few of these companies have been successful public
entities in their own right, many have sold to larger companies. Since the end of the Great
Recession, we have seen an increase in the number of venture-backed deals in the education
space, given the sheer size of this market, the issues facing the various segments and the
recognition of the importance of education to future success. Many of these investments also
contain the additional social benefit aspect of doing good while doing well.
A 2012 survey by merchant bank GSV Advisors highlighted the perceived opportunities and
challenges among education market investments gleaned from a survey of more than 1,300
participants in the education ecosystem. As shown, the most attractive features are the
addressable market size and potential growth rate, while the biggest challenges and related to
regulatory and talent issues (see Exhibit 5).
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September 2013
Percent of total spending
For-Profit Spending
150
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
18
E
Revenues ($ billion)
$175
BMO Capital Markets
Exhibit 5. Opportunities and Challenges of Investing in the

Education Industry (2012)
Investment challenges
Investment opportunities
Addressable market size

Market growth rate
Online education model
Availability of "big ideas"
Visible revenue models
Cash flow characteristics
Scalable revenue models
Capital expenditure requirements
Classroom technology adoption
School district sales model
Precedent VC exits
Established publisher models
Availability of management talent
Federal regulatory environment
State regulatory environment
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Source: GSV Advisors survey.
The number of publicly held education companies has substantially increased since 1994,
when only a handful of companies traded in US equity markets. Not surprisingly, the pace of
issuance accelerated during the dot.com heyday with 11 IPOs in 2000 -- the bulk of them for
companies specializing in e-learning. Similar to most sectors, the pace of public offerings
slowed significantly thereafter, while many of those dot.com providers disappeared from the
public company landscape.
Some resurgence
of education IPOs
in latter part of
last decade, but
few since late
2009
However, in the latter part of last decade there was a bit of a resurgence of IPOs for US
education providers, some of which were among the few deals during that period. A list of
recent transactions can be found in Exhibit 6. As we can see, the commonality for many of
these companies lies in their online platform. However, owing to the myriad of issues facing
the sector, there have been few new public offerings of US education companies since late
2009; we note that Bright Horizons Family Solutions (BFAM) offering was not necessarily
marketed as an education play.
Exhibit 6. Recent Public Offerings of US Education Companies

(2006-2013)
Date
Nov-06
Nov-07
Dec-07
Nov-08
Apr-09
Oct-09
Nov-09
Jan-13
Company Name/Ticker
Capella Education (CPLA)
American Public Education (APEI)
K12 Inc. (LRN)
Grand Canyon Education (LOPE)
Bridgepoint Education (BPI)
Education Management (EDMC)
Archipelago Learning (ARCL)
Bright Horizons Family Solutions (BFAM)
Description
Online postsecondary provider
Online postsecondary provider
Online K12 provider
(Mostly) Online postsecondary provider
(Mostly) Online postsecondary provider
Postsecondary provider
Online K12 provider
Early childhood education provider
Stock Market
US (NASDAQ)
US (NASDAQ)
US (NYSE)
US (NASDAQ)
US (NYSE)
US (NASDAQ)
US (NASDAQ)
US (NYSE)
Source: BMO Capital Markets and Capital IQ.
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September 2013
Non-US education
companies going
public
BMO Capital Markets
There have also been a number of public offerings of foreign education companies in both the
US and in their domestic markets. A list of recent foreign company IPOs can be found in
Exhibit 7.
Exhibit 7. Recent Public Offerings of Non-US Education Companies (2006-2013)

Date
Sep-06
Mar-07
Aug-07
Aug-07
Oct-07
Oct-07
Nov-07
Dec-07
Dec-07
Jan-08
Apr-08
Jun-08
Jun-08
Jul-08
Aug-08
Aug-10
May-10
Oct-10
Oct-10
Nov-10
Mar-11
Jul-11
Aug-11
Jul-11
Apr-12
Aug-12
Aug-12
Feb-13
Company Name/Ticker
New Oriental Education (EDU)
Anhanguera Educacional Participacoes SA (AEDU11.BR)
Estacio Participacoes SA (ESTC11.BR)
Kroton Educacional SA (KROT11.BR)
Sistema Educacional Brasileiro (SEBB11.BR)
Noah Education Holdings, Ltd. (NED)
Al-Khaleej Training and Education Company (SASE:4290)
Early Learning Services Limited (ASX:ELY)
ChinaEDU Corp. (CEDU)
ATA Inc. (ATAI)
CIBT Education Group (MBA)
Chungdahm Learning, Inc. (KOSE:A096240)
Visang Education Inc (KOSE:A100220)
China Distance Education Holdings, Ltd. (DL)
Seigakusya Company, Limited (JASDAQ:2179)
Ambow Education (AMBO)
Masterskill Education Group
Global Education & Technology Group Ltd (GEDU)
TAL Education Group (XRS)
Xueda Education Group (XUE)
APFT Berhad (KLSE:APFT)
Prestariang Berhad (KLSE: PRESHD)
Tree House Education & Accessories Limited (BSE:533540)
Abril Educao S.A. (BOVESPA:BRE11)
MT Educare Limited (BSE:534312)
Success Holdings Co. Ltd. (JASDAQ:605))
LZYE Group plc (AIM:LZYE)
Overseas Education Group (SGX:RQ1)
Country of
Origin
China
Brazil
Brazil
Brazil
Brazil
China
Saudi Arabia
Australia
China
China
China
Korea
Korea
China
Japan
China
Malaysia
China
China
China
Malaysia
Malaysia
India
Brazil
India
Japan
Hong Kong
Singapore
Sector
Postsecondary
Postsecondary
Postsecondary
Postsecondary
K-12/Postsecondary
K-12
Corporate Training
Childcare
K-12/Postsecondary
Postsecondary
Postsecondary
K-12/Postsecondary/Corporate
K-12/Postsecondary
Postsecondary
K-12
K-12/Postsecondary/Corporate
Postsecondary
K-12/Postsecondary
K-12
K-12
Postsecondary
Postsecondary
K-12
Publishing
Test Prep / K-12
Childcare
Childcare
K-12
Stock Market
US (NYSE)
Brazil (BOVESPA)
Brazil (BOVESPA)
Brazil (BOVESPA)
Brazil (BOVESPA)
US (NYSE)
Saudi Stock Exchange
Australian Securities Exchange
US (NASDAQ)
US (NASDAQ)
US (AMEX)
Korea (KOSDAQ)
Korea Stock Exchange
US (NYSEArca)
Brazil (BOVESPA)
US (NYSE)
(KLSE:MEGB)
US (NASDAQ)
US (NYSE)
US (NYSE)
Malaysia (KLSE)
Malaysia (KLSE)
India (BSE)
Brazil (BOVESPA)
India (BSE)
Brazil (BOVESPA)
London (AIM)
Singapore Exchange (SGX)
Recent going
private
transactions
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While the past few years has seen new education companies become available to public
equity investors, a number of companies in the sector went the opposite way via going
private transactions. Several of those transactions are summarized in Exhibit 8.
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Exhibit 8. Recent Going Private Transactions of Education Companies (2006-2013)

Date
Closed Company Name
Jun-06 Education Management
Transaction
Value ($ mil.)
$3,200
Aug-11 Nobel Learning

Oct-11 Blackboard
Buyer(s)
Providence Capital Partners and Goldman
Sachs Capital Partners
Liberty Partners
Investor group, including Sterling Capital
Partners and Citigroup Private Equity
Pearson Education (PSO)
Investor group led by CEO Doug Becker
and a consortium, including Kohlberg
Kravis Roberts & Co. (KKR), Citi Private
Equity, and S.A.C. Capital Management
Bain Capital Partners, LLC.
Vista Equity Partners
Thoma Bravo LLC
Berkshire Partners LLC, Advent
International Corporation and Bain Capital
Partners, LLC
Leeds Equity Partners
Providence Equity Partners
Oct-11
Permira
437
Pearson
155
Description
Postsecondary school operator
Sep-06 Concorde Career Colleges

Jun-07 Educate
Postsecondary school operator

K12 supplmental education services
provider
e-learning provider
International postsecondary school
operator
Jul-07 eCollege
Aug-07 Laureate Education
May-08
Jul-09
Mar-10
May-10
Dec-11
May-12
Mar-13
Bright Horizons Family Solutions

SumTotal Systems
Plato Learning
SkillSoft
Worksite childcare provider

Corporate training provider
K12 educational software provider
Corporate training provider
Early childcare and K-12 operator

Education learning management
systems
Renaissance Learning
K12 professional development
services, curriculum and customized
classes
Global Education and Technology Foreign language training and test
preparation
Archipelago Learning
Provides SaaS education products
K12, postsecondary and professional
McGraw-Hill Education
educational publishing and services
PLATO Learning (Thoma Bravo LLC)

Apollo Global Management (APO)
99
535
538
3,820
1,300
160
141
1,200
149
1,743
303
2,400
Source: BMO Capital Markets and company reports.
There has also been a significant number of private-to-private transactions in the education
industry, many of which are listed in their respective sections in this report.
There have also been some landmark mergers/acquisitions within the industry in recent years.
These include the following:
Childcare: One of the more interesting stories was the rise and fall of Australian-based
childcare provider ABC Learning Centers (ABS.ASX). The company had been very
active in both the US and UK markets, acquiring (among others) The Learning Care
Group (January 2006) for US$153.5 million and La Petite Academy (January 2007) for
US$339.4 million. Unfortunately, ABC ran into some trouble after this aggressive
expansion strategy and, in late June 2008, sold 60% of its US business to Morgan Stanley
Private Equity (MS), using the proceeds to pay down debt. This was not enough as the
company collapsed into receivership (i.e., bankruptcy) in November 2008. Since then, most
of its other units have been sold as well.
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K-12: In December 2006, Irish educational software publisher Riverdeep acquired US

textbook publisher Houghton Mifflin for $3.4 billion, becoming Houghton Mifflin
Riverdeep. In December 2007, it acquired the US business operations of Harcourt
Education from Reed-Elsevier (RUK) for $4 billion. The publishing company is now
known as Houghton Mifflin Harcourt and has recently filed for a public offering. This
follows the $2.4 billion acquisition of McGraw-Hill Education by private equity firm
Apollo Global Management in March 2013.
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September 2013
BMO Capital Markets
Postsecondary: The rate of school acquisitions by publicly held companies has come to
a halt, owing to regulatory issues and deteriorating fundamentals. Most recent
transactions have been those of companies expanding geographically such as DeVrys
(DV) August 2011 purchase of American University of the Caribbean Medical school for
$235 million or those expanding beyond their core business for regulatory or other
reasons, such as the $6.8 million investment made in September 2012 by American
Public Education (APEI) for 19.9% of IT training company New Horizons Worldwide.
Corporate training: In May 2007, SkillSoft acquired NETg from Thomson Corporation
for $270 million, creating one of the worlds largest providers of e-learning content for
the corporate sector. In May 2010, SkillSoft was taken private by a consortium of private
equity firms for $1.2 billion.
We have provided detailed merger and acquisition activity data for each sector in the
respective sections throughout this report.
Impact of Economic Cycles

The economy still
matters
Interestingly, although many had thought the performance of the economy had little
correlation with the education sector, the experience over recent cycles has, in our view,
proven this to be wrong.
Childcare. We believe workplace childcare has proved to be a relatively inexpensive way
to maintain employee morale in challenging operating environments. Corporatesponsored childcare also appears to be somewhat of a later-cycle play, owing to the long
timeframe (as much as three to four years) between an initial sales contact and the
opening of a new center. In addition, purchase decisions may often be delayed, owing to
budget constraints.
K-12. K-12 spending growth has been somewhat stable through most prior US recessions
and spending levels generally improved during the ensuing recoveries. However, state
funding fell in both FY2009 and FY2010 with the fallout from the Great Recession (December 2007 June 2009) as state and local tax revenues fell, though offset somewhat
with federal stimulus funding. While much of that stimulus is now gone, state, and local
tax revenues have rebounded helping to spur some growth in the sector.
Postsecondary. The Great Recession was a boon for this sector, which generated stellar
enrollment growth, as the sector experienced some of its historical countercyclical traits
(i.e., accelerating enrollment growth and lower attrition rates). However, regulatory
issues and negative publicity (among others) have hurt the for-profit sector, which has
continued to shrink since its record fall 2010 level. While some believe an economic
recovery may help as potential students become more willing to take on debt, the jury is
still out on that thesis.
Corporate training. This tends to be among the most cyclical of sectors, as corporations
use training as a recruitment and retention tool, i.e., when the labor supply is plentiful
during an economic downturn, this becomes a discretionary expense. While somewhat
later cycle, there are some signs that corporate training is once again picking up.
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Regulatory Overview
Education, similar to healthcare, is a highly regulated industry. While the private sector plays
an important role as a funding sourceparticularly in the childcare and corporate training
marketsfederal, state, and local governments play an ever greater role in the K-12 and
postsecondary sectors. Within the discussion of each of the industry sectors in this document,
we outline the specific regulations applicable to each that we believe are important to
investors.
While we believe the regulatory environment had improved for much of last decade, the
arrival of a new administration under President Obama increased some concerns.
Conventional wisdom prior to his tenure was that this administration would focus more on the
K-12 sector than on the postsecondary sector and that a Democratic-controlled Congress
would be less favorable to the overall for-profit education industry. This conventional wisdom
has appeared to have played out.
President Obama
has raised the
profile of the
education sector
Interestingly, President Obama raised the profile of the education sector to a higher level than
most imagined during his first address to Congress on February 24, 2009, when he
highlighted education as one of his chief policy priorities, along with energy and healthcare.
Among the more notable quotes were these (per the official White House transcript):
In a global economy where the most valuable skill you can sell is your knowledge, a
good education is no longer just a pathway to opportunityit is a prerequisite.
It will be the goal of this administration to ensure that every child has access to a complete
and competitive educationfrom the day they are born to the day they begin a career.
But we know that our schools dont just need more resources. They need more reform.
That is why this budget creates new incentives for teacher performance, pathways for
advancement, and rewards for success. Well invest in innovative programs that are
already helping schools meet high standards and close achievement gaps. And we will
expand our commitment to charter schools.
I ask every American to commit to at least one year or more of higher education or
career training . . . we will provide the support necessary for you to complete college and
meet a new goal: by 2020, America will once again have the highest proportion of
college graduates in the world.
Though the promises were there, little has been accomplished but much of that can be blamed
on the financial crisis, in our view. In addition, the level of regulatory oversight especially
on the for-profit postsecondary sector has increased dramatically, stunting the sectors growth.
While there are two major education bills that need to be reauthorized the Elementary and
Secondary Education Act (ESEA), which covers the K-12 sector and the Higher Education
Act (HEA), which covers the postsecondary sector it is highly unlikely that both of them (or
even one) will be completed in the current Congressional session. Nevertheless, there could
be proposals that may emanate from committee meetings and other discussions that we suggest investors follow closely.
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Education Industry Growth Drivers

Common growth
drivers
Although some issues remain uncertain in the near term, we are bullish about the longer-term
growth opportunities for investing within all sectors in the education industry. Although each
sector has its own growth drivers and risks (which we discuss at length in the rest of this
report), we believe a number of underlying trends have a broad influence on the group:
Importance of learning outcomes. We believe this theme plays across all four sectors.
Childcare providers are stressing the advantages of starting an education as early as

possible to gain a head start before entering elementary school. K-12 providers are under
pressure to improve their academic performance under mandated federal and state
accountability regulations or face repercussions such as the loss of funding. Careerfocused postsecondary schools are trying to stay ahead of changing hiring trends to
enhance students marketability. These outcomes are being stressed even more than
before by recent and potential regulatory changes (e.g., gainful employment). Finally,
corporate training buyers have attempted to quantify the benefits derived based on
potential skills improvement and other factors when justifying the purchases of their
products.
Growth of blended learning. This term often applies to the marriage of classroombased and online-learning approaches. We believe classroom-based training and online
learning each have their own merits and limitations. In our view, a blended approach can
cater to the increasing student demand for greater flexibility. We have seen blended
learning approaches become well accepted in the postsecondary and corporate training
areas and it is gaining traction in the K-12 sector, in our view.
Greater use of technology. While the use of technology is somewhat commonplace
throughout the entire education landscape, we believe the implementation of new

technologies will continue to have a substantial impact on the industry. Education, in
particular the K-12 sector, is notoriously a follower (as opposed to a trailblazer) when it comes
to using technology. Yet given the size of this industry and its issues, we believe sizeable
opportunities await.
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Intersection of various sectors. Although we believe each sector within the education
industry should be viewed on its own merits, we have seen selective instances where
different sectors merge. This could be another growth driver for the industry overall.
Examples include childcare/K-12 (e.g., childcare providers extending their programs
through early elementary school), K-12/postsecondary (e.g., pre-college test preparation
companies providing services to help K-12 schools acclimate to the post-NCLB
environment), postsecondary/corporate (e.g., the increasing focus on working-adult
students and the growth of specialized corporate universities), and childcare/corporate
training (e.g., childcare facilities catering to adult education programs in the evenings to
maximize facility usage).
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Risks
We have identified specific risks that we believe are inherent to each education sector within
the appropriate sections of this report. However, certain key risks apply to most sectors:
Regulatory risks. In our opinion, government regulation is by far the biggest risk to investing
in education companies, particularly those serving the K-12 and postsecondary markets.
Although for-profit companies have expanded their penetration of this industry, the public
sector still dominates, whether by providing competitive services and/or potential funding.
Companies generating a significant component of their revenues from the public sector could
be affected by decisions that may be based more on politics or other issues than on business
fundamentals. The gainful employment regulation is a perfect example of that, in our view.
Economic cyclicality. The past two economic cycles have revealed the benefits, and more
importantly, the disadvantages of economic cyclicality to the education industry, in our

opinion. For example, during recent recessions, postsecondary providers experienced
accelerated enrollment growth, as a weak job market provided fewer options to graduating
high school students and a greater numbers of older students went back to school to enhance
their skills. Conversely, providers to both the K-12 and corporate sectors saw revenues tumble
as part of funding shortages and broader cost-cutting efforts. These roles seemed to have
reversed for the most part (albeit with a bit of a delay) in the current economic recovery.
Aggressive new entrants. We believe the increased focus on the for-profit education sector
has transformed what was once a sleepy industry into one where competition has intensified.
In addition to new pure-play entries in virtually every sector, competition has increased from
traditional providers that expanded their reach (e.g., traditional universities growing their
online and continuing education programs, publishing companies broadening their corporate
training exposure), as well as more formidable privately held entities funded by private equity
firms and the like. Many of these so-called edruptors could have sizeable impacts in the
industry, in our view.
Not-for-profit competitors. We caution investors that, in certain sectors, not-for-profits have
become tougher adversaries. This is becoming even more apparent in the postsecondary school
market, in our view, where budgetary constraints and the rise of third-party funded enablers
and MOOCs (Massive Open Online Courses) have led to what we believe is a tipping of
traditional schools entering the working adult and online sectors.
Headline risks. Throughout much of its history, for-profit postsecondary providers have
faced negative headlines unrelated to operating fundamentals, specifically the rise of

allegations of impropriety in areas such as recruiting and disclosure. This, along with the
filing of lawsuits, had adversely affected the stock performance of most companies in this
sector as virtually all have been tainted by association. Similar headline risks have affected
some in the for-profit K-12 school sector (e.g.., K12).
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BMO Capital Markets
Impact of performance of comparable stocks. The stocks of education companies within a

specific sub-sector tend to move together. As a result, negative newswhether external or
operationalrelating to one company could have a detrimental effect on the share prices of
others. Until investors truly segment the industrys innovators from other publicly held
competitors, this unwarranted negative association may continue.
Access to capital markets. An influx of private capital fueled much of the early growth in
the education industry. Earlier this decade, as these investors rationalized their current
holdings, they were somewhat reluctant to inject fresh capital into the space. Although there
has been an inflow of fresh capital in certain components of the industry (e.g., ed-tech), the
current regulatory uncertainly has stymied that in others (e.g.., postsecondary schools). Lack
of liquidity had also impacted the student loan market underlying the postsecondary sector as
the loan securitization markets dried up.
In the remainder of this report, we analyze in detail the four major sectors in the education
industry: childcare, K-12, postsecondary, and corporate training. A summary of this analysis
is found in Exhibit 9.
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Exhibit 9. Summary of Education Sectors

Total
Spending
2013E
ForProf.
Rev.
2013E
ForProf.
Rev.
2018E
Childcare
$34.0
$20.3
$23.8
3.2% Demographics,
increasing awareness of
early education benefits,
tax incentives and other
positive legislation
Finding and retaining staff, competition, regulations
Potentially latercycle, relatively

little negative impact seen during
last recession
K-12
731.9
23.8
24.7
2.6% Focus on quality improvement and accountability, alternative school

movement
Budgetary constraints, regulations,

need to show academic improvement
Budgetary shortfalls hurt during

recession; should
improve as economic recovery
matures
Postsecondary
494.8
63.9
77.5
4.0% Demographics,
increasing demand for
skilled workers, proven
earnings premium,
continued influx of older
students, greater acceptance of online education
Regulatory, increasing competition (traditional universities,

online enablers,
MOOCs), economic
expansion
Somewhat countercyclical (enrollment and tuition

levels historically
increase during
and after a downturn)
57.5
25.4
31.9
4.7% Potentially tightening

labor market, an
accelerated pace of technological improvements,
need to remain competitive in an increasingly
global economy
Economic cyclicality,
shift from instructorled to e-learning,
increasing competition from other sectors (i.e., postsecondary)
Potentially latercycle recovery, although apparently

more discretionary
than previously
thought
$1,318.2
$133.3
$160.3
($ Billions)
Corporate
Training
Total
CAGR
20132018E Key Growth Drivers
Risks
Effect of
Economic
Business Cycles
3.7%
Note: For-profit revenues may differ somewhat from the segments for-profit projections within the remainder of this report as they may
exclude certain categories. Source: BMO Capital Markets estimates, US Department of Education National Center for Education Statistics,
Eduventures, Gartner, Training Magazine and Veronis Suhler Stevenson.
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Early Childcare
BMO Capital Markets
Early Childcare: A Small but Steady Market

While an improving economy and increased public awareness bode well for the childcare industry, we are aware of only one publicly traded company in this segment in the US, Bright
Horizons Family Solutions (BFAM), which returned to the public markets in February 2013
after being taken private in a $1.3 billion deal in 2008.
While the Great Recession had an adverse impact on supply/demand and funding levels for
early child care, and the declining birth rate poses a longer-term headwind, we believe several
other industry growth drivers for childcare providers (which we outline below) remain intact.
However, we caution investors this is a highly fragmented industry where few companies
have been able to achieve significant scale.
Center-based
childcare has
gained share
since 1997,
According to childstats.gov, the bulk of child care for children with working mothers is provided by a relative. However, since 1997 center-based care has expanded its share from 20.4%
to 24.1% in 2011, although it had remained relatively stable since the peak of 24.3% in 2002
(see Exhibit 10). We will focus this section of our report on center-based care and the like.
though most of it
early in that
period
Exhibit 10. Primary Childcare Arrangements for Children 0-4 With

Employed Mothers (1997-2011)
Relative care:
Mother care
Father care
Grandparent care
Other relative care
Subtotal
Other nonrelative care
Center-based care
Other
1997
1999
2002
2005
2010
2011
3.2%
17.7%
17.5%
7.4%
45.8%
20.2%
20.4%
13.7%
3.0%
17.1%
19.7%
8.0%
47.8%
18.8%
21.0%
12.4%
3.2%
17.5%
18.6%
6.2%
45.5%
17.2%
24.3%
13.0%
4.4%
17.3%
19.6%
6.6%
47.9%
16.0%
23.8%
12.0%
4.4%
18.6%
19.4%
5.8%
48.2%
13.5%
23.7%
14.1%
3.6%
19.5%
20.5%
5.3%
48.9%
13.1%
24.1%
14.0%
Note: Mother and father care each refer to care while the mother worked. Other relatives include siblings
and other relatives. Center-based care includes day care centers, nursery schools, preschools, and Head
Start programs. Other nonrelative care includes family day care providers, in-home babysitters, and other
nonrelatives providing care in either the childs or providers home. Source: www.childstats.gov.
According to Private Enterprise and Public Education, published in 2013, researcher Todd
Grindal estimates that about half the children under the age of five in the US that regularly attend childcare do so in non-public (i.e., private) programs.
Limited and
conflicting reports
Information about the size of the current childcare market is limited. Some of the estimates
include:
re: market size
A July 2013 report by Ibis World estimated the US childcare industry will generate $47
billion in revenues in 2013, having grown at a 1.4% CAGR from 2008.
A February 2012 report by First Research found the roughly 53,000 commercial child
care facilities in the US generated roughly $20 billion in the US, with nonprofit organizations generating $13 billion, for a combined market with annual revenues of about $33
billion.
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Early Childcare
BMO Capital Markets
According to the Pew Center on the States (as provided by BFAM), the US spent approximately $43 billion on licensed group child care in 2007.
For our addressable market estimate, we use data from the US Census Bureau that the Child
Day Care Services industry (NAICS 6244) generated roughly $33.8 billion in revenues in
2012. Then we take 60% of this (which is the amount of spending in this category generated
by taxable organizations, according to the Census Bureau) to arrive at roughly $19.9 billion in
revenues in 2012.
Projected 3.2%
CAGR through
2018
We forecast steady growth over the next few years, driven primarily by more two-workingparent families, wage inflation which should drive continued tuition increases and the
growing efforts of legislators to fund these programs. While the population of children under
age 5 has been on a down-cycle in recent years, we believe this could be offset by higher
market penetration rates. Using the Census Bureau estimate as our base for market size, we
forecast for-profit childcare expenditures to grow by roughly 3.2% annually, reaching nearly
$24 billion in 2018 (see Exhibit 11).
Exhibit 11. For-Profit Childcare Market (2007-2018E)

For-profit chid care revenues
4%
y/y change
20
3%
15
2%
10
y/y % change
Revenues ($ in bil.)
$25
1%
5
0
0%
2007
2008
2009
2010
2011
2012 2013E 2014E 2015E 2016E 2017E 2018E
Note: Shaded area represents recessionary period. Source: BMO Capital Markets estimates and US Census Bureau
Child care centers

make up 75% of
capacity
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The early childcare market is highly fragmented and includes care based in homes and housed
by community organizations (e.g., churches, synagogues, YMCAs), as well as those funded
by state and local governments. According to the 2008 Child Care Licensing Study released in
May 2010 (latest available) by the National Association for Regulatory Administration
(NARA), the bulk of licensed childcare programs are home-based businesses, which represented
about 60% of the roughly 330,000 licensed childcare providers in 2008 (see Exhibit 12). However, the vast majority of capacity is provided by center-based programs, which are typically
much larger than home-based businesses. Center-based represented 75% of the total capacity in
2008, down slightly from 78% in 2007.
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Early Childcare
BMO Capital Markets
Exhibit 12. Childcare Providers by Type (2005, 2007 and 2008)

No. of Programs
2005
2007
Type
Childcare Centers
Family Childcare Homes
Other Licensed Programs
Total
As % of Total
Childcare Centers
2008
2005
Capacity
2007
2008
Avg. Capacity
2005
2007
2008
105,444
213,966
16,110
110,252
197,294
17,743
107,199
199,216
23,467
6,634,247
1,921,639
449,001
7,371,751
1,697,014
434,946
7,435,774
1,775,494
663,568
62.9
9.0
27.9
66.9
8.6
24.5
69.4
8.9
28.3
335,520
325,289
329,882
9,004,887
9,503,711
9,874,836
26.8
29.2
29.9
6.3%
-4.2%
-12.0%
8.9%
3.7%
3.6%
15.4%
2.5%
31.4%
63.8%
4.8%
33.9%
60.7%
5.5%
30.0%
60.4%
7.1%
73.7%
21.3%
5.0%
77.6%
17.9%
4.6%
75.4%
18.0%
6.7%
100.0%
100.0%
90.4%
100.0%
100.0%
93.4%
4.6%
-7.8%
10.1%
-3.0%
-2.8%
1.0%
32.3%
1.4%
11.1%
-11.7%
-3.1%
5.5%
0.9%
4.6%
52.6%
3.9%
% Change
Childcare Centers
N.A. Not Available. Source: BMO Capital Markets and National Association for Regulatory Administrations and National Child Care
Information and Technical Assistance Centers 2005, 2007 and 2008 Childcare Licensing Study.
We believe most business and investment opportunities lie in center-based care, which can
take many different forms, including preschools (nurseries), workplace centers (located onsite
at the company), lease-model centers (located in a real estate developers office building),
back-up centers (a variety of on-site and off-site back-up care programs), and family daycare
facilities (located in someones home or center).
Pct. of children
under five
attending daycare
at all-time high
In its latest report on the childcare population, the US Census Bureau reported that in spring
2011 (most recent) the population of children under five years old with working mothers was
10.9 million, of which 6.9 million (roughly 63%) were in some kind of regular daycare arrangement (excluding family or relative care), with 2.3 million of those attending. daycare
centers or about 21% (see Exhibit 13). While this penetration rate can be volatile, this rate
was flat since spring 2010, indicating some potential sustainability that may help offset the
overall decline in the under-five population.
11,000
With employed mother

% in day care center
25%
10,000
20%
9,000
8,000
15%
7,000
'9
5
Sp
rin
g
'9
7
Sp
rin
g
'8
9
W
in
te
r'
02
Sp
rin
g
'0
Su
5
m
m
er
'0
6
Sp
rin
g
'1
0
Sp
rin
g
'1
1
'9
3
Fa
ll
Fa
ll
'9
1
ll
Fa
Fa
ll
W
in
10%
'9
0
6,000
In Day Care Center (%)
12,000
te
r'
85
Fa
ll
'8
8
Total Children Under 5 With

Employed Mothers
Exhibit 13. Working Mothers with Children Under Five Years Old
in Daycare Centers (1985-2011)
Source: BMO Capital Markets estimates and US Census Bureaus Report Whos Minding the Kids (various
editions).
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Early Childcare
BMO Capital Markets
Growth Drivers
While the sectors growth rate may be somewhat muted, among the drivers for the early childcare market are:
Number of working mothers with young children
Demographics (although this has abated in recent years)
Increase in families with two working parents
Growing recognition of the importance of early education
Positive legislation, tax incentives, and budgets
Corporations recognizing the work benefits of childcare services
Mothers with young children in labor force. Women have increased as a percentage of the
overall civilian labor force from 38.1% in 1970 to 46.9% in 2012 (see Exhibit 14). However, the
Bureau of Labor Statistics estimates this percentage will increase only slightly to 47% by 2020.
Exhibit 14. Civilian Labor Force (1970-2012)

Percent of Civilian Labor Force
(Age 16 and Over)
65%
60%
55%
Men
50%
Women
45%
40%
10
08
06
12
20
20
20
02
00
98
96
94
04
20
20
20
20
19
19
90
88
86
84
82
92
19
19
19
19
19
19
78
76
74
80
19
19
19
19
19
19
19
70
72
35%
Source: BMO Capital Markets and US Census Bureau.
Women with
children under six
have higher labor
participation rates
than the overall
Women with young children have significantly increased their presence in the workforce. In
2012 (latest data available), the labor force participation rate (either working or looking for
work) for women with children under age six was 64.8% versus 39% in 1975 (although
slightly down from the 65% peak in 1997). Nevertheless, this rate exceeds the 2012 participation rate for all women of 57.7%; see Exhibit 15).
female population
80%
75%
70%
65%
60%
55%
50%
45%
40%
35%
Men
Women with children

under 6
Women
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
Labor Force Participation Rate

(Age 16 and Over)
Exhibit 15. Labor Force Participation Rates (1970-2012)
A member of BMO
Financial Group
23
September 2013
Early Childcare
Decreasing
population of
children under
age five
BMO Capital Markets
Demographics on down-cycle. According to Census Bureau data, the population of children under five has been on a downward cycle in recent years, attributed to the Great Recession
and slower immigration driving a lower fertility rate. According the data, this population has declined slightly in each of the last four years through July 1, 2012 (latest available; see Exhibit
16). While we believe this creates some headwinds to growth in the childcare industry, we note
the absolute value of this decline has been relatively small, about 270,000 children since 2008
a drop that may partially be offset by the increasing penetration of center-based care in recent
years.
Exhibit 16. US Population of Children Under Age Five (2000-2012)

Children Under 5
% Change
20.5
1.2%
0.8%
0.6%
19.5
0.4%
0.2%
19.0
0.0%
-0.2%
18.5
-0.4%
-0.6%
18.0
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-0.8%
Source: US Census Bureau and BMO Capital Markets
More dual-income
Increase in percentage of dual-income families. While the 1990s saw a sizeable increase in
families could
the number of dual-income couples with children under age six, since then, the trend appears to
be a bit more cyclical, i.e., decreasing during a recession and increasing somewhat thereafter as
both spouses eventually go back to the workforce. As shown in Exhibit 17, there were about 5.6
million such families in 2012, up from 2011 levels. This amounted to about 56% of all dualincome couples the highest since 2008. This cyclical trend could spur demand for more childcare services.
drive childcare
demand
Dual Income Couples w/Children Under 6
% of All Dual Income Couples
60%
58%
6.5
56%
6.0
54%
5.5
52%
12
20
10
11
20
20
08
07
09
20
20
20
05
04
06
20
20
20
02
01
00
03
20
20
20
99
20
19
97
96
98
19
19
19
19
95
50%
94
5.0
% of All Dual Income Couples
7.0
19
Dual Income Couples with

Children Under 6 (mil.)
Exhibit 17. Dual-Income Couples with Children Under Six (19942012)
Note: Shaded area represents recessionary period. Source: BMO Capital Markets and US Census Bureau.
A member of BMO
Financial Group
24
September 2013
Annual % Change
Population (Millions)
1.0%
20.0
Early Childcare
BMO Capital Markets
Recognition of importance of early education. Several studies support the benefits of

early childhood education. A study issued by Center for Early Care and Education (a collaboration of the Schuyler Center for Analysis and Advocacy and Child Care, Inc.) concluded that
quality early education increases the likelihood of children obtaining higher education at
lower delinquency rates and generating greater lifetime earnings. This results in higher tax
collections and more productive time for parents.
We have summarized similar studies in Exhibit 18.
Exhibit 18. Summary of Research Showing Benefits of Pre-K Programs

Date Source of Research
2012 Council for Exceptional Children;
(Sept.) Department of Psychology,
Georgetown University
Findings
Findings are interpreted as indicating that high-quality state pre-K
programs can serve as effective early intervention programs for children
with special needs.
2011 Journal of Psychological Science; Elliot Preschool may reduce inequalities in early academic achievement by
(Sept.) Tucker-Drob
providing children from disadvantaged families with higher-quality learning
environments than they would otherwise receive.
2011 Journal of the American Medical
(June) Association
Found that preschool attendance was connected to a person's success in

life 25 years later.
2007 Economic Policy Institute

(May)
The benefits of a voluntary, high-quality, publicly funded targeted pre-K

education program serving the poorest 25% of 3 and 4 year-old children
would exceed the cost by a ratio of 12:1 in 2050.
2007 Abercedarian Project
Tracked students in 1970s and 1980s and found children who received
high-quality care and education programs from infancy through age 5
fared better on several quantitative and qualitative metrics when compared
to a control group that did not receive similar benefits.
2006 W.E. Upjohn Institute for Employment

(May) Research
Every $1 invested in universal preschool would generate a present value

of $3.79 through increased employment, earnings, taxes and other
benefits.
2005 National Institute for Early Education

(March) Research
2005 HighScope Perry Preschool Study
2004 Cornell University
2003 Federal Reserve Bank of Minneapolis
2002 Frank Porter Graham Child

Development Center
A quality prekindergarten experience can have long-term positive effects

on childrens lives. Many of these benefits, including impacts on
participants own health, decisions about marriage and family, and
financial stability.
Tracked low-income African-American 3 and 4 year-olds over 40 years,
and found those receiving early intervention earned more and had fewer
arrests. This resulted in a return of $17 for every dollar of investment in
such programs.
Each $1 spent in the child care sector has a broader statewide economic
impact of $2 and each job created in the child care sector creates 1.5 jobs
statewide. The output multiplier for childcare exceeds agriculture,
manufacturing and services sectors as childcare dollars are spent locally
and circulate longer in the local economy.
The annual rate of return for investments in quality early childhood
development programs for low-income youth was 12.5%.
High-quality childcare programs have considerable long-term effects on
such areas as school achievement, cognitive skills, language ability, math
skills, grade retention, and social adjustment.
Source: BMO Capital Markets
Results of the Chicago, High/Scope and North Carolina studies were aggregated in a May
2009 report by the Bay Area Council and are contained in Exhibit 19, which compares the
outcomes of students who took part in the studies relative to their respective control groups.
A member of BMO
Financial Group
25
September 2013
Early Childcare
BMO Capital Markets
Exhibit 19. Chicago, High/Scope and Carolina Childcare Studies;

Results of Treatment Group vs. Control Group
Chicago
Child-Parent
Centers
Outcome Variable
Education
Special Education Placement
Grade Retention
High School Completion
College Enrollment
Carolina
High/Scope
Perry Abecedarian
Project
Preschool
-41%
-40%
+20%
+30%
-26%
-13%
+44%
N.A.
-23%
-31%
+16%
+23%
-33%
N.A.
-39%
-46%
N.A.
N.A.
$24,823
N.A.
8,763
N.A.
$57,403
N.A.
16,019
N.A.
Social Services
Incidence of Child Abuse & Neglect
Reliance on Welfare
-5%
N.A.
N.A.
-17%
N.A.
-50%
Health
Smoking Reductin
N.A.
-24%
-16%
Crime
Arrest by Age 19
Incarceration of Children
Income and Tax Revenue
Increased Lifetime earnings
Increased Maternal Earnings
Increased Tax Revenue
Intergenerational Earnings
Other
Child Care Savings
$2,005
$1,031
$40,416
74,012
35,506
6,162
$29,735
st
N.A. Not available. Source: Bay Area Council, May 2009: Keys to Economic Success in the 21 Century. Note: Monetary figures reflect 2005 price-level.
Demand for state-
Positive legislation and government involvement. We believe this research, along with
funded programs
lobbying efforts, continues to raise political awareness and improve voter attitudes toward the
benefits of early education. In a June 2008 survey conducted by Peter D. Hart Research Associates, about 70% of registered voters wanted state and local government to make voluntary
pre-kindergarten (pre-K) available to all children as a way to help improve K-12 education.
is high, but
funding remains
challenged
Many politicians, including President Obama, have been very vocal in support of early education and/or universal pre-K. According to the National Institute for Early Education Research (NIEER)s The State of Preschool 2012, 40 states had funded pre-kindergarten initiatives, enrolling over 1.3 million students in the 2011-2012 school year. These programs
enrolled roughly 28% of the nations four-year-olds (up from 14% in 2002), and 4% of threeyear-olds (up from 3% in 2002). States with the highest state-funded pre-K population include
Florida, (79% of 4-year-olds) Oklahoma (74%) and Vermont (65%).
However, while total enrollment in these programs continues to slowly grow, funding levels
are decreasing.
A member of BMO
NIEER found that total state preschool spending of $5.1 billion in FY2012 was down by
about $400 million from FY2011 the third straight year of declines and one of the largest declines ever partially owing to the withdraw of $127 million in stimulus funding
FY2011.
Financial Group
26
September 2013
Early Childcare
BMO Capital Markets
According to NIEER, pre-K spending per child decreased 7.5% in 2012 to $3,841, when
measured in 2009 dollars (see Exhibit 20). This is well below levels of the early 2000s
and reflects the nearly $400 million decrease in pre-K funding nationally in 2012 (this
follows a $60 million decrease in 2011).
Exhibit 20. Average State Spending per Child for Childcare (in
2009 dollars)
Amount
y/y % change
8%
4%
4,500
0%
4,000
-4%
3,500
y/y % change
Avg. Per Child (2009 $)
$5,000
-8%
3,000
-12%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Note: Shaded area represents recessionary period. Source: NIEER and BMO Capital Markets
Lack of funding has clearly had an impact on program quality. In 2012, NIEER rated only 15
states as having sufficient funding to meet its 10 benchmarks for quality standards accounting for about 20% of all children enrolled in state-funded programs. While this is up from 12
states in 2011, we view it as a relatively poor result.
Federal pre-K
funding programs
In his 2013 State of the Union address, President Obama announced a new preschool initiative
to be funded through state and federal partnerships. The plan would work by giving states incentives to broaden and expand preschool and kindergarten options to receive federal funding.
The president also plans to invest $1.4 billion in Early Head Start programs. However, apart
from a $1.3 billion budget request for Preschool for All, there has been little movement on
this proposal since it was announced.
Nevertheless, the federal government continues to allocate funding for childcare related programs through several programs (see Exhibit 21). We note annual budget requests are often
not funded or funded at lower levels.
A member of BMO
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27
September 2013
Early Childcare
BMO Capital Markets
Exhibit 21. Overview of Key Federal and State Funding Areas in Childcare
FY2012
Appropriation
FY2013
FY2013
Request Appropriation
FY2014
Request
Department
Program
Details
Federal (Dept. of
Education)
Preschool Development
Grants
Provides competitive grants to states to implement preschool

programs.
Federal (Dept. of
Education)
Preschool for all
To implement universal preschool.
Federal (Dept. of
Education)
Effective Teaching and

Learning for Literacy
Provide competitive grants to states to improve literacy

instruction, especially in high-need schools for children and
youth from preschool through grade 12
Federal (Dept. of
Education)
Grants to States
Helps States pay the additional costs of providing special

education and related services to children with disabilities
aged 3 through 21 years.
$11.6 billion
$11.6 billion
$11.6 billion
$11.6 billion
Federal (Dept. of
Education)
Preschool Grants for

Children with Disabilities
The Preschool Grants Program, authorized under IDEA

provide grants to states to serve young children with
disabilities, ages 3-5.
$373 million
$373 million
$373 million
$373 million
$8 billion
$8.1 billion
$8.1 billion
$9.6 billion
$750 million
$1.3 billion
$187 million
Federal (Dept. of
Head Start
Health and Human Early Headstart
Services)
Head Start and Early Head Start erve children from birth to
age 5
Federal (Dept. of
Health and Human
Services)
Federal (Dept. of
Health and Human
Services)
Childcare Entitlement to
the States (CCES)
Provides child care support for working parents
$2.9 billion
$2.9 billion
$2.9 billion
$3.4 billion
Child Care and

Development Block Grant
(CCDBG)
Provides monthly direct child care assistance to children of

low-income families.
$2.3 billion
$2.6 billion
$2.3 billion
$2.5 billion
Federal (Dept. of
Temporary Assistance for
Health and Human Needy Families (TANF)
Services)
TANF provides grants to assist needy families with children
$16.7 billion
$16.7 billion
$16.7 billion
$17.1 billion
Federal (Dept. of
Education)
Grants for Infants and

Families
Assists states in operating a statewide program of early

intervention services for infants and toddlers with disabilities
$443 million
$463 million
$442 million
$463 million
Federal (Dept. of
Education)
Promise Neighborhoods
These programs would be designed to combat the effects of

poverty and improve education and life outcomes
$60 million
$100 million
$60 million
$300 million
Provides a broad range of social services, including childcare,

child welfare, and the like.
$1.8 billion
$1.8 billion
$1.7 billion
$1.7 billion
Federal (Dept. of
Social Services Block
Health and Human Grant (SSBG)
Services)
N.A. Not Available. Source: BMO Capital Markets, National Child Care Information and Technical Assistance Center (NCCIC), US
Department of Health and Human Services, and US Department of Education.
States very active

in childcare
legislation
Consumer tax
incentives
A member of BMO
While federal action on childcare may be slow, we believe states are very active in passing
childcare-related legislation. According to the National Conference of State Legislatures
2012 report (latest available), states enacted 103 bills in 2012 related to childcare and early
education.
To offset some funding issues, certain tax incentives are available to parents utilizing childcare programs, including the following:
Section 21 of the Internal Revenue Code provides a federal income tax credit (Child and
Dependent Care Credit) ranging from 20% to 35% (increased in 2003) of certain childcare expenses for qualifying individuals.
The Economic Growth and Tax Relief Reconciliation Act of 2001 created a federal employer tax credit for certain childcare expenses beginning in 2002. Employers can receive
a credit of 25% of their spending on the construction or rehabilitation of a childcare facility or on contracts with a third-party childcare facility to provide childcare services to
employees.
Financial Group
28
September 2013
Early Childcare
BMO Capital Markets
In addition, we believe there are numerous grant sources available to those in the pre-K industry. One such is the Teacher Quality Enhancement Grant under Title II of the Higher Education Act (enacted in August 2008). This provides funding for early educator preparation programs.
Employers recognize the need. While the latest poll we could find on employer views on preschool education was from 2005, we believe little has happened in the intervening years that
would result in largely different results were this poll conducted today. The Zogby poll of Fortune
1000 companies measured the views of American business leaders on pre-K and the advantages
to the economy. According to the study, 88% of US business leaders agree that effective childhood preschool programs are important for the US to remain competitive (see Exhibit 22).
Exhibit 22. Zogby Poll Views on Preschool Education

Select questions from poll
Children who receive pre-kindergarten education are more likely to start
school better prepared
Children who begin school better prepared are more likely to perform better
throughout their educational experience
Investments in effective preschool programs for children are important if the
U.S. is to remain competitive in the global economy.
Investments in effective preschool programs for children are important for
the long-term success of the U.S. economy.
Voluntary pre-kindergarten for all children would improve the workforce.
Agree
94%
Disagree
4%
Not Sure
2%
92%
8%
1%
88%
10%
2%
87%
10%
3%
86%
11%
3%
Investments in effective preschool programs for children are important to

remain competitive in the global economy
Public funding of voluntary pre-K for all children would improve Americas
workforce.
Investments in effective preschool programs for children are important for
the long-term success of the U.S. economy
Pre-kindergarten made available to all children would improve the workforce
83%
14%
3%
81%
16%
3%
80%
17%
3%
75%
19%
7%
75%
20%
6%
68%
62%
30%
28%
2%
10%
Public funding that enabled all children to attend pre-K if their parents
wanted it would improve Americas workforce
More highly educated workers are better workers
Workers who receive early childhood education like pre-kindergarten
programs will be better workers
Source: American Business Leaders Views on Publicly Funded Pre-Kindergarten and the Advantages to
the Economy, (December 2005) by Zogby International for the Committee for Economic Development
Recession
Impact of recession on child care demand. We believe economic cycles can affect child care
reduces
demand. On the one hand, demand may increase as both parents have to return to work. On the
other hand, demand may decline as parents lose jobs or can no longer afford child care benefits.
We believe the availability of publicly funded childcare centers generally decreases during recessions, as funding sources are cut or reduced. For example, an April 2009 survey (most recent
available) conducted by Child Care Aware of America found the following results over the period
from June to December 2008 (the midst of the Great Recession):
availability
A member of BMO
Of participating Child Care Resource and Referral Agencies (CCR&Rs) representing 40

states, 74% said the number of families falling behind or unable to make childcare payments
increased between June and December 2008.
Half of agencies said that child care centers in their communities had closed in that sixmonth period, losing an average of six centers per community, or about 327 spaces.
Financial Group
29
September 2013
Early Childcare
BMO Capital Markets
High
unemployment
reduces demand
Among child care centers still open, 65% of agencies reported an increase in vacancies during that time. In addition, 48% said centers were closing classrooms while 41% said centers
were laying off staff.
While it is difficult to gauge the impact of recessions on company-sponsored child care, we believe that high unemployment may negatively affect demand and utilization levels. As shown in
Exhibit 23, Bright Horizons (BFAM) saw a material decrease in utilization immediately following the end of the Great Recession the trough of which coincided with peak unemployment
rates during the recession.
Exhibit 23. Bright Horizons (BFAM) Cyclical Utilization and

Unemployment Rates (2007-2012)
79.0%
80%
12%
78% Historical Utilization
78.0%
Center Utilization Rate
10%
76%
74.0%
74%
8%
71.5%
72%
6%
69.5%
70%
68.0%
68%
4%
66%
2%
Avg. Annual Unemp. Rate
78%
64%
0%
62%
2007
2008
2009
2010
2011
LTM 2Q12
Note: Shaded area is recessionary period. LTM is through 2Q12. Source: Company reports and BMO
Capital Markets.
Largest Childcare Providers

The childcare market is extremely fragmented, as it includes many not-for-profit providers. According to data provided by Child Care Aware of America (formerly NACCRRA), roughly 60%
of the licensed childcare centers in the US in 2010 were operated by family-run businesses. Exhibit 24 contains the top US for-profit childcare providers in terms of capacity and number of
centers. As shown, no single for-profit company has more than a 2.2% market share (when including home-based businesses) or 2.7% (when only measuring center-based business).
A member of BMO
Financial Group
30
September 2013
Early Childcare
BMO Capital Markets
Exhibit 24. Top US For-Profit Childcare Providers (Ranked by Capacity

Rank Company
Child Care Providers:
1 KinderCare/Knowledge Universe
2 Learning Care Group
3 Bright Horizons Family Solutions
4 Nobel Learning Communities, Inc.
5 Childcare Network
6 Phoenix Children's Academy
7 The Sunshine House
8 Minnieland
9 Children of America
10 New Horizon Academy
11 CCLC, Inc.
12 Brightside Academy
13 Children's Choice Learning Centers
14 Rainbow Child Care
15 Creme de la Creme
16 Sunrise Preschools
17 Children's Friend, Inc.
18 Action Day Nurseries, Inc./Primary Plus, Inc.
19 Hildebrandt Learning Centers, LLC
20 Country Home Learning Center
21 Xplor
22 Accelero Learning
23 Stepping Stone School
24 Youthland Academy
25 Rogy's Learning Place
26 Pinecrest Schools
27 Edleun (Education Learning Universe)
28 Celebree Learning Center
29 The Malvern School
30 StarChild Academy
31 Next Generation Children's Centers
32 The Children's Workshop
33 Valley Child Care/Cacuts Preschools*
34 Doodle Bugs! Children's Center
35 Creative Playrooms, Inc.
36 Kid's Country
37 The Gardner Schools
38 Little Sprouts LLC
39 Bobbie Noonan's Child Care
40 Kids Kare Schools
41 Center Management Associates
42 U-Gro Learning Centers
43 Children's Discovery Center, Inc.
44 EduKids Inc.
45 Creative Child Care, Inc.
46 Junior Academy Children's Centers
47 K.I.D.S. Day Care
48 Gretchen's House
49 The Compass Schools
50 O2B Kids
1
2
3
4
5
6
7
8
9
10
11
National Child Care Franchising Organizations:

Goddard Systems, Inc. (The Goddard School)*
Primrose Schools Franchising Company
Kids R Kids International
The Learning Experience
Kiddie Academy
Discovery Point Franchising Inc
Children's Lighthouse Franchising Company
Creatie World School
Rainbow Station
Legacy Academy*
KidsPark
Centers
Mkt. Share as % of
Center-Based
Capacity Centers
Headquarters
Ownership
Portland, OR
Novi, MI
Watertown, MA
West Chester, PA
Columbus, GA
Scottsdale, AZ
Greenwood, SC
Woodbridge, VA
Delray Beach, FL
Plymouth, MN
Portland, OR
Pittsburgh, PA
Richardson, TX
Troy, MI
Greenwood Village, CO
Tempe, AZ
Warner Robins, GA
San Jose, CA
Dallas, PA
San Antonio, TX
Arlington, TX
New York, NY
Austin, TX
Cincinnati, OH
East Peoria, IL
Sherman Oaks, CA
Calgary, Alberta, Canada
Forest Hill, MD
Glenn Mills, PA
Apopka, FL
Franklin, MA
Cumberland, RI
Phoenix, AZ
Buffalo, NY
Solon, OH
Snohomish, WA
Brentwood, TN
Lawrence, MA
Frankfort, IL
Fresno, CA
Tarrytown, NY
Harrisburg, PA
Maumee, OH
Buffalo, NY
Richland, OH
Colorado Springs, CO
Westmount, Quebec
Ann Arbor, MI
Glen Allen, VA
Gainesville, FL
Private
Private
BFAM
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
212,000
145,000
88,000
28,500
25,928
22,500
18,483
15,519
15,300
13,335
12,942
10,735
10,561
9,521
7,000
5,488
4,966
4,750
4,550
4,180
4,016
4,000
3,360
3,080
3,015
3,000
2,802
2,747
2,713
2,441
2,139
2,047
1,990
1,898
1,823
1,786
1,750
1,711
1,700
1,663
1,659
1,506
1,498
1,425
1,352
1,185
1,090
1,048
1,024
966
1,596
950
770
184
176
129
133
125
70
88
106
63
50
71
24
25
37
20
44
10
16
29
18
22
20
9
20
20
20
6
10
19
9
11
7
11
9
17
13
11
12
12
8
13
12
23
13
10
5
6
2.1%
1.5%
0.9%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.5%
0.3%
0.2%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2.9%
2.0%
1.2%
0.4%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
1.5%
0.9%
0.7%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
King of Prussia, PA
Acworth, GA
Duluth, GA
Parsippany, NJ
Abingdon, MD
Duluth, GA
Fort Worth, TX
Bonita Springs, FL
Glen Allen, VA
Sugar Hill, GA
San Jose, CA
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
55,826
45,664
41,000
18,646
14,600
12,825
8,500
4,700
3,471
2,750
798
382
255
166
111
98
57
34
22
10
11
14
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
6,242
0.8%
0.6%
0.6%
0.3%
0.2%
0.2%
0.1%
0.1%
0.0%
0.0%
0.0%
12.5%
0.4%
0.2%
0.2%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
930,472
0.6%
0.5%
0.4%
0.2%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
9.4%
Total
Capacity
Mkt. Share as % of
Total
Capacity Centers
1.9%
5.8%
Notes: All data as of January 1, 2013. Source: Child Care Exchange and BMO Capital Markets.
There are also a large number of not-for-profit childcare providers running multiple centers, although they tend to be relatively smaller than the larger for-profit chains (see Exhibit 25).
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BMO Capital Markets
Exhibit 25. Top US Not-For-Profit Childcare Providers (Ranked by Capacity)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Company
PLASP Child Care Services
Easter Seals
Kama'aina Kids
Sheltering Arms Early Education and Family Svcs.
Kidango, Inc.
Bradford Child Care Services
YMCA of the Fox Cities
Lehigh Valley Children's Centers, Inc.
Red Apple Child Development Center
Federation Early Learning Services
The Campagna Center
Play and Learn Centers
The Guild of St. Agnes
One Hope United
Salem Child Development Center
Day Nursery Association
Seagull Schools Inc.
Encompass early Education & Care, Inc.
Rancho Santiago Community College District
For Kids Only Afterschool
Children's Home/Chambliss Center
Marry Linsmeier Schools, Inc.
Ebenezer Child Care Centers, Inc.
Northwest Child Development Centers, Inc.
KCAA Preschools of Hawaii
Headquarters
Mississauga, Ontario
Chicago, IL
Kailua, HI
Atlanta, GA
Fremont, CA
Bridgeville, PA
Neenah, WI
Allentown, PA
New York, NY
Philadelphia, PA
Alexandria, VA
Fort Washington, PA
Worcester, MA
Lake Villa, IL
Salem, OR
Indianapolis, IN
Kailua, HI
Green Bay, WI
Santa Ana, CC
Salem, MA
Chattanooga, TN
Brookfield, WI
Milwaukee, WI
Winston-Salem, NC
Honolulu, HI
Ownership Capacity Centers

Private
13,113
205
Private
10,107
103
Private
10,000
105
Private
3,338
17
Private
2,750
38
Private
2,300
31
Private
1,500
32
Private
1,445
21
Private
1,391
8
Private
1,307
10
Private
1,215
23
Private
1,213
10
Private
1,200
6
Private
1,150
10
Private
1,115
22
Private
1,017
7
Private
920
7
Private
801
7
Private
800
6
Private
768
17
Private
716
6
Private
707
14
Private
700
10
Private
659
6
Private
650
7
Mkt. Share as % of
Mkt. Share as % of
Total
Center-Based
Capacity Centers Capacity Centers
0.1%
0.1%
0.2%
0.2%
0.1%
0.0%
0.1%
0.1%
0.1%
0.0%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Notes: All data as of July 1, 2011. Source: Child Care Exchange and BMO Capital Markets.
Worksite Childcare
Worksite childcare (i.e., employer-sponsored) consists of onsite childcare centers located
within a corporate office building or complex and typically managed by external providers.
There are roughly 8,000 employer-supported childcare centers in the country (per Sandra Burud
of Burud & Associates as cited by workfamily.com).
Recession and
weak economy
likely had adverse
impact
Employersponsored
childcare:
offered by roughly
4% of companies
A member of BMO
Although data regarding the size of this segment are limited, we believe roughly 5,000 employer-sponsored childcare centers can generate about $5 billion in annual revenues (average of
$1 million per center). According to Childcare Exchange, the employer-sponsored childcare
market grew at more than a 10% annual rate for most of the 1990s but has slowed in recent
years to the low- to mid-single-digit level, although it is likely the market declined during the
Great Recession.
Estimates on the number of companies offering worksite childcare vary. According to Work
& Family Connection, 9% of employers said they offer onsite childcare, while 11% of employees said they had access to onsite childcare. According to the Society for Human Resource
Managements (SHRM) 2013 Benefits Survey Report, only 4% of companies provided some
type of childcare subsidies for their employees (see Exhibit 26).
Financial Group
32
September 2013
Early Childcare
BMO Capital Markets
Exhibit 26. Percentage of Employers Providing Access to Child

Care Centers (1997-2013)
Subsidized child care center (on-site or near-site)
7%
6%
6%
6%
Nonsubsidized child care center
6%
5%
6%
6%
Consortium child care center
6%
5%
5%
4%
4%
3%
4%
4%
3%
4%
4%
4%
3%
3%
2%
1%
1%
1%
1%
1%
1%
1%
0%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Note: Shaded areas represent recessionary periods. Source: Society for Human Resource Management
and BMO Capital Markets.
We believe the worksite childcare market is less fragmented than the industry as a whole given
fewer companies provide this service. The largest by far is Bright Horizons (BFAM), which operated 585 centers as of 2011 (see Exhibit 27).
Exhibit 27. Top Five US Child Care Providers by No. of Centers

(2011)
Top 5 For-Profit US Child Care Providers
Knowledge Learning (Kindercare)
Learning Care Group
Bright Horizons
Nobel Learning
Childcare Network
1700
1000
585
183
168
Top 5 US Employer-Sponsor Providers

Bright Horizons
Knowledge Learning (CCLC)
Children's Choice
Hildebrant Learning Centers
EduKids
585
107
47
41
12
Source: Company reports and BMO Capital Markets.
More expensive
than other forms
Employer-sponsored childcare centers tend to be more expensive than other providers although employers may provide a subsidy. Exhibit 28 compares BFAMs monthly average tuition to national averages as provided by Child Care Aware of America.
Exhibit 28. Monthly Childcare Tuition; Bright Horizons vs.

National Average
Infants
$1,400
BFAM average tuition (2012)

National average tuition (2011)
$383-$1,248
Toddlers
$1,300
Pre-schoolers
$1,050
Average
$1,250
$326-$972
Source: Company reports, Child Care Aware of America and BMO Capital Markets.
There are typically two distinct models for worksite childcare: 1) the management fee model;
and 2) the sponsor model.
Management fee (cost-plus) model. Under this model, the childcare provider typically re-
ceives a management fee from a corporate sponsor and an operating subsidy to supplement tuition within an agreed-upon budget. The sponsor typically provides the facility, pre-opening and
start-up costs, capital equipment, and facility maintenance. We believe many corporate sponsors
prefer the management fee model as it provides the option to readjust contracts with vendors to
suit their needs and empowers the corporate sponsor with a greater degree of control in terms of
budgeting, spending, and operations. The provider is responsible for maintaining quality stan-
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BMO Capital Markets
dards, recruiting center directors and faculty, implementing curricula and programs and interacting with parents. In general, contracts range in length from one to five years.
Profit and loss model. In this model, the childcare provider designs and operates a worksite
childcare center in exchange for financial consideration from the sponsor. The provider maintains profit-and-loss responsibility and is subject to variability in financial performance driven
by enrollment levels. The sponsorship model is generally classified into two subcategories:
Employer-sponsored (sponsor), where the company provides childcare on a priority

enrollment basis for employees of a single-employer sponsor. However, if the employer
is unable to fill the slots, then the provider can market its services to parents outside the
company.
Lease (consortium) model, where the company provides priority childcare to the employees of multiple employers located within a real estate developers property.
Exhibit 29 compares financial metrics for Bright Horizons under these various model types.
Exhibit 29. Example of Financial Metrics Under Various Childcare

Operating Models (BFAM: 2011)
($m)
Revenue/Center (US)
Revenue/Center (Europe)
Gross Margin
Average ROI
Contract Term
% of total centers
Cost Plus
Profit & Loss
$1,600
$750
15%-20%
100% +
3-5 yr
30%
Single Sponsor Consortium Lease

$1,300
$1,400
$650
$1,100
17%-25%
20%-25%
75% +
25% +
5-10 yr
10-15 yr
30%
40%
Emerging centerbased models
Skewed toward
larger employers
owing to its costs
Great recruiting
and retention tool
Study reveals
employer
benefits
A member of BMO
Some emerging models include hybrid office space/childcare locations where parents who freelance have access to a shared office-space, which also provides on-site childcare that can be
used during important phone calls or meetings. These companies include Bean Work Play Caf,
Mothersfields and Mothership HackerMoms.
As would be expected, larger employers tend to be more willing to provide sponsored childcare
owing to its costs. According to a 2012 National Study of Employers by the Families and Work
Institute, 18% of large employers (over 1,000 employees) provide childcare at or near the worksite, down from 21% in the 2008 study, but up from 17% in the 2005 study. This compares to
only 5% of small employers (50-99 employees), down from 7% in both prior studies.
Employers sponsor childcare mainly as a recruiting and retention tool for their workforce.
Nearly one-third of Fortunes 2012 list of the 100 Best Companies to Work For provide onsite
employer-sponsored childcare.
We believe onsite childcare is a valuable recruiting tool that also has the potential to improve
employee productivity. A 2002-2003 study by Bright Horizons found the following benefits to
firms with onsite childcare:
Financial Group
34
September 2013
Early Childcare
BMO Capital Markets
60% of center users had been with their organization for more than five years.
The average voluntary turnover for employees who used childcare centers was nearly
50% less than that of non-users, resulting in an aggregate $3.4 million in annual cost savings for the eight organizations (the cost of replacing employees, hiring, and training).
The percentage of top performers who used the centers was nearly 22% more than the
overall workforce population.
Retention among top performers who used the centers was 97%.
25% of the surveyed centers were open for use by grandparents (as an estimated 70% of
people over the age of 45 are planning to work past the age of 65).
Back-Up Care
Back-up centers provide emergency childcare services usually when employees discover that
their regular childcare providers cannot care for their child (this generally occurs when a regular
provider is sick or an existing center is closed). Usage of back-up care tends to be higher when
school is not in session and during holiday periods.
Benefits of back-up care to employers include reducing unscheduled child-related absenteeism
and providing a more cost-effective alternative to high-cost full onsite centers.
Relatively
underpenetrated;
though
percentage
offering declined
after Great
Recession
According to the Families and Work Institutes 2008 National Study of Employers (latest available), only 6% of companies surveyed offer back-up or emergency childcare, versus 9% of
companies that offer regular care at or near the worksite. In addition, according to the SHRM
2013 Benefits Survey, only 4% of firms offered back-up care in 2013 - down from 6% in 2008
and well below the 8% historical average (although this is potentially due to a change in data
definition; see Exhibit 30). We attribute the recent decline to general corporate cost reductions
following the Great Recession.
Exhibit 30. Percentage of Employers Providing Emergency

Childcare (1997-2013)
14%
15%
10%
11%
11%
14%
12%
9%
10%
9%
7%
6%
6%
4%
5%
5%
4%
3%
3%
4%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Note: Shaded areas represent recessionary periods. Source: Society for Human Resource Management
and BMO Capital Markets.
Back-up care
could be more
profitable
A member of BMO
Bright Horizons is the top provider in this market, and the company offers a nationwide network
of hundreds of backup care facilities. Despite having higher overhead, the companys back-up
centers generate higher gross margins than its core childcare centers. Exhibit 31 shows financial
metrics for BFAMs back-up care models from prior to 2008. The company did not update this
data in its most recent IPO, although we expect this data has not changed much.
Financial Group
35
September 2013
Early Childcare
BMO Capital Markets
Exhibit 31. Example of Financial Metrics Under Various Back-Up

Care Operating Models
Managed
$500K
15%-25%
N.A.
100+%
Customer
3-5 years
Revenue at maturity
Gross margin at maturity
Average investment
Average ROI
Enrollment risk
Contract term
Consortium
$1.2 mil.
30%-50%
$500K-$1,500K
40+%
Provider
Annual
Source: Bright Horizons Family Solutions and BMO Capital Markets.
Economics of Operating a Childcare Center

Revenues. According to a report by Child Care Aware of America citing 2011 data, (latest
available) the average annual fees for a full-time childcare center range from $4,591 to $14,908
for an infant, to from $3,911 to $11,669 for a four-year-old. A number of variables go into the
amount that centers typically charge for childcare. Among them are the following:
Average weekly
fees
A member of BMO
Location (Mississippi is the least expensive, with Massachusetts the most costly)
Type of services provided (e.g., the more educational-oriented the program, the more expensive it typically is)
Childs age (the younger a child is, the more expensive the program as the caregiver/child
ratios are smaller)
Full-time versus part-time (part-time typically charges more when measured on a per hour
basis).
A 2012 poll conducted by Childcare Exchange shows the average weekly fee for full-day childcare services for various regions in North America (see Exhibit 32). Since 2008, weekly fees
rose for most children in virtually every region, although at slightly higher rates for older children.
Financial Group
36
September 2013
Early Childcare
BMO Capital Markets
Exhibit 32. Average Weekly Fee for Full-Day Childcare (2008 vs.
2012)
Region
2012 poll results:
Canada
New England
The Mid-Atlantic
The Midwest
The South
The Southwest
The West
6-month-olds
2-year-olds
4-year-olds
6-year-olds
$225
245
220
200
171
175
250
$201
237
205
175
150
169
200
$181
200
190
157
140
159
192
$121
185
150
140
105
122
155
2008 poll results:

Canada
New England
The Mid-Atlantic
The Midwest
The South
The Southwest
The West
$200
225
195
185
155
180
200
$183
215
180
160
140
150
174
$157
180
163
145
129
140
164
$85
160
140
125
100
94
135
CAGR: 2008-2012:
Canada
New England
The Mid-Atlantic
The Midwest
The South
The Southwest
The West
Average
3.0%
2.2%
3.1%
2.0%
2.5%
-0.7%
5.7%
2.5%
2.4%
2.5%
3.3%
2.3%
1.7%
3.0%
3.5%
2.7%
3.6%
2.7%
3.9%
2.0%
2.1%
3.2%
4.0%
3.1%
9.2%
3.7%
1.7%
2.9%
1.2%
6.7%
3.5%
4.1%
Source: BMO Capital Markets and Childcare Exchange.coms Insta-Poll.
Revenue sources. Funding for childcare services comes from a variety of sources. According
to the World Bank (2008 data):
For child care, on average, the contribution is as follows: federal government, 25%; state
and local government, 15%; and parents the remaining, 60%. Low-income parents pay on
average 18% of family income per child enrolled in child care.
For preschool (36 years), approximately 34% comes from public sources and 66% from
private sources, half of this being from household expenditures.
In both cases, federal funding is largely targeted to children with disabilities and children from
low-income families.
Average costs per center. The aforementioned Ibis World report estimates industry profit-
ability at 6% (EBIT) in 2012, with the biggest cost component being labor at about 48% of
revenues (see Exhibit 33)
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Exhibit 33. Estimated Annual Budget for a Childcare Center (2012)

Revenues
Expenses:
Labor
Purchases (e.g., food, beverages, supplies)
Depreciation
Marketing
Rent, utilities and other
Subtotal
Operating margin
EBITDA (est.)
100.0%
47.9%
10.5%
1.1%
6.0%
28.5%
94.0%
6.0%
7.1%
Source: IbisWorld
The World Banks Investing in Young Children guide categorizes the costs associated with
early childcare centers into two groups; initial investment costs and operational/working costs
as follows (see Exhibit 34):
Exhibit 34. Childcare Center Operating Costs

Investments/Startup Costs
Project development: creating/testing the
approach, infrastructure, and materials
Operationa/Working Costs
Staffing salaries and benefits: ECD administrators, supervisors,
directors, ECD workers, health personnel, cooks,
support personnel (drivers and maintenance)
Facilities: constructing or upgrading
Food: purchase cost
Equipment: transportation, office, instructional

(tables and chairs), storage, and food
preparation
Health care: supplies (salaries included above) and facilities

(prorated)
Materials: reusable guides, books, and toys
Administration: general administration (overhead) costs
Training: initial training at all levels (trainers,

locale, per diems, transport, and supplies)
Consultants: fees, honorariums, and
expenses
Micro-enterprise: loans for project-financing
schemes
Training: in-service training

Communication: telephone, fax, printing, and media
Supplies: non-reusable items
Transportation: gasoline and maintenance of vehicles
Per diems: costs associated with supervision, training, and
field visits
Maintenance: facility costs, electricity, telephone, and
insurance
Evaluation: periodic monitoring and evaluation activities
Contingency: fund for unexpected costs
Source: BMO Capital Markets and The World Banks Investing in Young Children (2011)
Economies of scale. In addition, we believe there are considerable economies of scale in this
business for the larger providers and note the average capacity for the 50 largest for-profit providers (171 children) was well above the industry average capacity of 69 children (according to
the National Child Care Information and Technical Assistance Centers 2010 Childcare Licensing Study). These larger providers have the potential to generate higher margins, in our
view.
A member of BMO
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September 2013
Early Childcare
BMO Capital Markets
Characteristics of Superior Childcare Facilities

We have outlined several quality related factors below.
Quality/accreditation. The childcare industry has two forms of accreditation: the National Association for the Education of Young Children (NAEYC), which accredits centers, and the
Council for Early Childhood Professional Recognition, which accredits caregivers. NAEYC accreditation has grown from 19 in 1986 to over 6,500 by 2013. This number has decreased in recent years (from 10,000 in 2007), which NAEYC attributes to increased standards and more
stringent requirements.
Low child/teacher ratio. We believe centers that have low staff-to-child ratios typically provide
a higher-quality product, although generally at a higher cost. The national child/teacher ratio is
roughly nine children per teacher, varying based on age and group size (the younger the age
group, the lower the required ratio). The NAEYC recommended levels are shown in Exhibit 35.
Exhibit 35. NAEYC Recommended Minimum Staff/Child Ratios

GROUP SIZE
AGE OF CHILDREN
Infant Accreditation Strand
(birth to 15 months)
10
12
1:3
1:4
1:3
1:4
1:4
1:4
1:4
1:5
1:6
14
16
18
20
1:7
1:8
1:9
1:8
1:9
1:10
1:8
1:9
1:10
22
24
Toddler and Twos Accreditation Strand

(12 to 36 months)
12-28 months
21-36 months
Preschool Accreditation Strand
2.5-year-olds 3-year-olds (30 - 48
months)
4-year-olds
5-year-olds
Kindergarten Accreditation Strand
1:6
1:10 1:11 1:12
Source: BMO Capital Markets and National Association for the Education of Young Children.
Educational focus. We believe an educational offering is becoming increasingly important and
expect demand for these services to increase, as parents try to give their children a head start.
Wage rates have
Staff pay rates. According to the data released by the Bureau of Labor Statistics, hourly labor
increased 3%
costs for childcare providers has increased at an average rate of 3% since 1990 roughly in
line with historical inflation rates. In recent years, wage rates have been sluggish, as they tend
to lag following a recession, in our view (see Exhibit 36). Through June 2013, the average
year-to-date rate was just over $12 per hour up 1.6% from the same period in 2012.
annually; tend to
lag postrecession
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Early Childcare
BMO Capital Markets
Exhibit 36. Average Hourly Childcare Labor Costs and Annual Percentage Change
(1990-2013 YTD)
6%
$13
5%
4%
10
3%
2%
1%
0%
-1%
2013 YTD
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-2%
1990
Note: Shaded areas represents recessionary periods. 2013 year-to-date through June. Source: BMO Capital Markets and Bureau of Labor
Statistics
Low turnover. Historically, given the low pay, childcare operators have long been plagued by
high turnover. According to the NACCRRA, the national average teacher turnover in childcare
facilities is somewhere between 25% and 40%.
Utilization rates. Among the larger childcare providers, we believe typical utilization rates are
in the mid-60% area (based on the weighted average number of full-time children with two halfday children equal to one full-day) although that rate can vary by location. Some centers offer
after-school programs, summer camps, and tutoring programs to increase utilization.
Attractive facilities. We believe spending on facilities improvement and on building a "com-
munity of caring will attract more customers. Given available public data (admittedly it is quite
dated), worksite centers appear to have more leverage in reducing these capital expenditures
compared to consumer off-site centers. For example, from 1999 to 2004 (only data available),
KinderCare Learning, a leading consumer-focused childcare provider acquired by Knowledge
Learning in January 2005, reduced its capital expenditures to 6.8% of revenues from 15.8%.
This compares to Bright Horizons, which reduced this percentage to 2.4% from 7.4% over the
same period, demonstrating stronger leverage, in our view. (We note that BFAM increased this
percentage to 6.5% in 2012 as part of an expansion strategy.)
Alternative revenue streams. In most communities, the childcare market is highly competitive
and research shows the highest-quality centers do not rely solely on tuition fees for revenue, but
have alternative sources such as corporate sponsorships, charitable donations, and government
funding to offset price competition. Public agencies, centers with public funding, and workplace
centers subsidized by employers fall into this category
A member of BMO
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40
September 2013
Early Childcare
BMO Capital Markets
Merger and Acquisition Activity

In recent years, the childcare industry has seen growing interest from the investment community. Major acquisitions include the following:
In July 2013, Bright Horizons Family Solutions (BFAM) acquired the Dallas-based Childrens Choice Learning Centers, which operated 49 centers, for $53 million. Childrens
Choice generated $41 million in revenue and $6 million EBITDA in the prior year.
In April 2013, BFAM acquired the UK-based Kidsunlimited, which operates 64 centers, for
45 million. The company earned 41 million in the prior fiscal year.
In January 2013, BFAM completed an IPO raising $222 million, and establishing a market
value of $1.4 billion. BFAM was taken private by Bain Capital in May 2008 for roughly
$1.3 billion (12.1x TTM/EBITDA). As of the date of this publication, Bain still owns
roughly 65% of the company.
In May 2011, Nobel Learning Communities announced it had reached an agreement to be

acquired by private equity firm Leeds Equity Partners ("Leeds Equity") for $11.75 per share
or approximately $149 million. At the time, the proposed price was about 0.6x and 8.7x
trailing 12-month sales and EBITDA, respectively, by our calculation. This followed earlier
bids by Knowledge Learning Corp in September of 2008 ($158 million offer) and March
2009 ($132 million offer).
In December 2005, Australian childcare provider ABC Learning Centres acquired US provider Learning Care Centres for $154 million. The company completed several deals thereafter including Childrens Courtyard in August 2006 for $66 million and La Petite Academies in January 2007 for $339 million. In May 2007, ABS raised $1 billion in debt and
equity to continue its acquisition strategy. However, in June 2008 it sold 60% of its US
business to Morgan Stanley Private Equity (MS) for roughly $420 million, using the proceeds to pay down debt. The transaction price was an estimated 7.6x trailing 12-month
EBITDA.
In January 2005, Knowledge Learning (owned by Michael Milkens Knowledge Universe)

undertook a leveraged buyout of KinderCare Learning Centers for more than $1.04 billion
to become the largest childcare provider in the US, serving roughly 200,000 children. The
deal was priced at roughly 1.2x and 7.3x trailing 12-month sales and EBITDA, respectively.
A list of recent acquisition activity in the childcare sector can be found in Exhibit 37.
A member of BMO
Financial Group
41
September 2013
Early Childcare
BMO Capital Markets
Exhibit 37. Recent Childcare Transactions (2005-2013)

($ in millions)
Annc.
Date
Jul-13
Apr-13
Apr-13
Apr-12
Mar-12
Dec-11
Dec-11
Oct-11
May-11
Aug-11
Mar-11
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Jan-10
Dec-09
Jun-09
Jun-09
Jun-09
Jun-09
May-09
Apr-09
Apr-09
Feb-09
Jan-09
Dec-08
Aug-08
Aug-08
Jun-08
Mar-08
Jan-08
Jan-08
Aug-07
May-07
May-07
Feb-07
Feb-07
Jan-07
Jan-07
Dec-06
Dec-06
Dec-06
Oct-06
Aug-06
Aug-06
Aug-06
Jun-06
Jun-06
May-06
Apr-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Feb-05
Jan-05
Jan-05
Target
Childrens Choice Learning Centers
Tribal Nova
Kidsunlimited Limited
Children's Progress
Eight Child Care Center
The Children's House Montessori Daycare Centers (3 Schools)
Four Child Care Centers
Literacy First
Nobel Learning
Fredericksburg Children's Academy
Five5 Preschools
30 Childcare Centers
Catalpa
9 Childcare Centers
Rainbow Early Education
10 Childcare Centers
Little Cherub Child Care Center
ABC Learning Centres (678 Childcare Centers)
Montessori Corner at Princeton Meadows
Montessori Corner Country Day School
Children's House of the Windsors
Busy Bees Group
Crayon Campus
Mother's Pride (50%)
Highpointe Children's Academy
Country Tyme Early Education Center
Entervision
Work Options Group
Ivy Kids Early Learning Center
Wiz Korea
Primrose Schools
ABC Learning Centres (Learning Care Group Division - 60%)
Barnebygg (70%)
Leapfrog Nurseries
ABC Learning Centers (12%)
Barnstable Academy
Nobel Learning Communities (One Preschool)
Forward Steps Holdings
Enchanted Care Learning Center
Insight Schools
Macquarie Leisure Services (55 Childcare Centers)
La Petite Academy
Busy Bees Group
Discovery Isle Child Development Center
College Coach
Hutchison's Child Care Services
Children's Courtyard
Honor Roll School
17 California Childcare Centers
Child Development Schools
Camelot Schools
Primrose Schools
Learning Care Group
SageWalk
Ombudsman
Keystone Education and Youth Services
ChildrenFirst
Gateway Learning
Academy Childcare Group
KinderCare Learning Centers
Acquiror
Houghton Mifflin Harcourt
Northwest Evaluation Association
Edleun Group
Edleun Group
Edleun Group
Catapult Learning
Phoenix Children's Academy (Audax)
Nobel Learning Communities
G8 Education
G8 Education
Spire Capital
G8 Education
Rainbow Child Development Center
Benevolent Society & Brotherhood of St Laurence
Knowledge Universe
Mini-Skool
AEZ Infratech
Good Life China
Riverside Group
Roark Capital Group
Morgan Stanley Private Equity
Bain Capital
CapMan Oyj
ABC Learning Centres (Busy Bees Group)
Everitt Investments (Temasek Holdings)
American Education Group
Undisclosed Preschool Provider
ABC Learning Centres
Apollo Group
Glencoe Capital
Charterhouse Group
American Capital Strategies
Aspen Education Group (Warburg Pincus, Frazier and Sprout)
Educational Services of America (Trimaran Capital Partners)
Universal Health Services
Educate
Creative Education
Knowledge Universe
Note:
Mean and median data include proprietary information not publicly disclosed.
Transaction
Value
$53.0
NA
$69.0
NA
$0.5
$5.4
NA
NA
$149.0
NA
NA
$20.7
NA
$2.3
NA
$8.6
NA
$90.7
NA
NA
NA
NA
NA
$100.0
$1.1
$1.3
NA
NA
$0.7
NA
NA
$420.0
$1,274.8
NA
$62.9
$2,748.9
NA
$1.9
$48.1
$15.0
NA
$51.1
$339.4
$207.2
$12.0
NA
$83.3
$66.0
$3.0
$33.7
NA
NA
$91.7
$153.5
NA
NA
NA
$61.0
$8.0
$8.3
$1,040.3
Mean
Median
Transaction Value / LTM

Revenue
EBITDA
1.3 x
NA
1.1 x
NA
NA
NA
NA
NA
0.6 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
1.7 x
NA
NA
3.8 x
NA
NA
NA
1.3 x
NA
NA
0.8 x
NA
1.2 x
NA
1.9 x
NA
NA
0.6 x
NA
NA
NA
0.7 x
NA
NA
NA
2.0 x
NA
NA
1.2 x
1.4 x
1.2 x
NA
NA
NA
NA
NA
NA
NA
NA
8.7 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
7.6 x
12.1 x
NA
NA
15.6 x
NA
NA
NA
NA
NA
NA
10.1 x
NA
NA
NA
11.6 x
6.1 x
NA
4.7 x
NA
NA
NA
14.3 x
NA
NA
NA
NA
NA
NA
7.3 x
10.1 x
10.1 x
N.A. Not Available. Source: BMO Capital Markets and Capital IQ.
A member of BMO
Financial Group
42
September 2013
Early Childcare
BMO Capital Markets
Risks
Finding and retaining staff. We believe low pay and high turnover make staffing a consistent
difficulty for childcare providers. According to Yales National Prekindergarten Study (2005),
14% of prekindergarten teachers earned a salary below the federal poverty guidelines and nearly
71% earned a salary below the threshold for low income. These statistics are notwithstanding
the fact that 73% of these teachers had a bachelors or higher degree. About 19% of such teachers across the nation work an extra job for pay.
A weak economy or recession. We believe a weak economy and higher unemployment lead to
lower demand for childcare services and lower utilization rates.

Government funded pre-K. Universal pre-K initiatives may provide government-sponsored
services that would lessen the need and demand for private care providers.
Government budget cuts. We believe roughly 40%-50% of childcare funding originates from
the government. A cut in state or federal funding could have a detrimental impact on the industry's favorable subsidies and/or demand.
Regulatory risks. Companies that provide lower-quality services and that do not have sufficient
revenues to meet rising standards may face greater regulatory risks. There are minimum standards in the areas of staffing, nutrition, health protection, and safety. If those standards are significantly raised, some companies might be unable to meet the costs.
The fear of child abuse. We believe child abuse is less common in center-based care. However,
if a child or parent makes an accusation and the dispute becomes public, both the facility and
staff members may lose credibility, which in turn could hurt future revenue flows. In addition,
the accusation alone may be enough to put selling pressure on the stock given the highly
charged nature of the issue. The 1980s saw a number of major child abuse allegations that
provided negative publicity for the sector. These included McMartin Preschool (1983), Fells
Acres Day Care (1984), Wee Care Nursery School (1985), Little Rascals (1989), and Breezy
Point Day School (1989).
A member of BMO
Financial Group
43
September 2013
K-12 Education
BMO Capital Markets
K-12 Education: Largest Opportunity,

Though Risks Abound
While we believe the K-12 market may represent the largest investment opportunity within
the education landscape, there are currently relatively few ways to play this market from a
public equity perspective. Other than a few publicly traded publishing companies and some
other content and service providers, most of the investment in this space seems to be
occurring at the private equity or venture capital level.
K-12 is the largest of the education sectors and continues to grow. While the 2002 No Child
Left Behind Act (NCLB) was a catalyst for spending on innovation and accountability, the
impact of the Great Recession - which significantly crimped state and local budgets - and its
lingering effects continue to create significant financial headwinds, though it appears the
worst has passed. Additionally, concerns over student outcomes and educational quality
continue to grow and put pressure on the sector.
Against this backdrop, we believe most recent investment opportunities have been centered on
finding solutions to help schools drive better performance under the new reality of tighter cost
constraints. To meet this demand, private equity, venture capital, and other endowments have
invested hundreds of millions of dollars in recent years into disruptive, technology-based
products that seek to help educators contend with these issues.
However, while we believe these pressures have increased educators willingness to try new
methods and products, we caution the K-12 sector remains a relatively sluggish animal
characterized by long sales cycles, dependence on government spending and a high
vulnerability to political pressures. We believe this, combined with a widespread resistance to
change, adds several layers of complexity for investors in this space.
Market Overview
Represents 4.5%
of US GDP
K-12 industry
growth rates have
slowed, and we
expect slow
stable growth to
continue
A member of BMO
The K-12 market consists of students in elementary (K-6th grade) and secondary (7th-12th
grade) schools. According to the US Department of Educations (ED) National Center for
Education Statistics (NCES), K-12 expenditures were about $700 billion in the 2011-2012
school year, a CAGR of about 6.9% since the 1969-1970 school year, and equivalent to about
4.5% of the US annual gross domestic product.
As shown in Exhibit 38, growth rates have generally slowed since the early 1970s, and turned
negative in the 2009-2010 school year owing to the Great Recessions impact. However, slow
growth has since resumed, and we expect this rate of growth to be relatively low as state
finances remain difficult, and the law of large numbers continues to have a bigger impact.
Applying a conservative annual growth rate of 3%, we project roughly $942 billion in
expenditures in the 2021-2022 school year.
Financial Group
44
September 2013
K-12 Education
BMO Capital Markets
Public
Private
25%
% chg y/y
20%
800
15%
600
10%
400
5%
200
0%
202122E
201718E
201314E
2009-10
2005-06
2001-02
1997-98
1993-94
1989-90
1985-86
1981-82
1977-78
-5%
1973-74
Note: Shaded areas represent US recessionary periods.

Source: BMO Capital Markets estimates and US Department of Education National Center for Education
Statistics.
Most funding is
provided by state
and local sources,
though recent
spending has
boosted the
federal portion
State and local funding is the largest portion of K-12 public school spending. According to the
NCES, in FY2011 (latest data available) states funded about 44% of public education, with
local funding representing about 43%; federal funding accounted for the remaining 12%. With
the passage of NCLB, federal spending increased from the 6% level in the 1990s to the 8%9% range in the mid 2000s, and stimulus spending following the Great Recession boosted this
to 12.5% in FY2010 an all-time high, by our records (see Exhibit 39). We expect the federal
share to slowly return to mid-2000s levels as state and local funding recovers.
2008-09
2004-05
2000-01
Federal
1996-97
1992-93
State
1988-89
1980-81
1984-85
Local
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1976-77
% of Total Spending
Exhibit 39. K-12 Funding by Source (FY1977FY2011)
Source: BMO Capital Markets and US Department of Education National Center for Education Statistics.
Total spending
remains slightly
positive
A member of BMO
While, historically, total K-12 funding had increased at a 4%-8% annual rate, growth has
slowed in recent years. In fact, FY2009 was the first year on record when state funding
actually decreased (down roughly 2.2%), with this trend worsening in FY2010 (down 6.6%),
though the federal stimulus helped offset these declines and drove the slight spending
increases in both of those years. In FY2011, total spending was up 0.9%, driven by growth in
state funding the first increase since FY2008, though offset by a decline in local funding
(the first on record) and federal funding (see Exhibit 40). While we expect funding levels to
remain slightly positive, we believe it may be some time before funding growth returns to
more historical levels.
Financial Group
45
September 2013
y/y % change
$1,000
1969-70
Expenditures ($ in bil.)
Exhibit 38. K-12 Total Expenditures (19691970 to 20212022E)
K-12 Education
BMO Capital Markets
Exhibit 40. Annual Change in K-12 Funding by Source (FY1978 to FY2011)

State
Federal
Total y/y change
12%
15%
Annual % change in total
20%
10%
10%
8%
5%
6%
0%
4%
-5%
20
10
-1
8
20
07
-0
20
04
-0
5
2
20
01
-0
19
98
-9
6
19
95
-9
19
89
-9
7
19
86
-8
19
83
-8
19
77
-7
19
92
-9
3
0%
0
-15%
4
2%
19
80
-8
1
-10%
Annual % change by source
33%
Local
Note: Shaded areas represent recessionary periods. Source: BMO Capital Markets and US Department of Education National Center for
Education Statistics.
In FY2010, more than 53% of total expenditures went toward teacher salaries and benefits
with an additional 9% directed toward facilities and capital outlays. We believe the amount
spent on third-party expenditures (companies supplying goods and services to this sector)
represents a fraction perhaps only 6% - of total expenditures, although it is difficult to
document the exact amount.
Third-party
spending is only a
small portion of
K-12 expenditures
With that caveat (and based on projections from VSS, Gartner, and Eduventures), we estimate
for-profit K-12 education vendors will generate roughly $23.9 billion in revenues in 2013, up
2.7% from 2012 levels. We project that, as the slow recovery continues, spending will
increase to more than $27 billion in 2018, representing roughly 2.6% annual growth (see
Exhibit 41). We note this reflects only spending by institutions on educational material and
services and not the burgeoning direct-to-consumer market, which is estimated to be a market
of similar size.
Estimated K-12
for-profit growth:
2.6% CAGR
through 2018
Exhibit 41. K-12 For-Profit Education Industry (20052018E)

Technology
Other services
Total y/y change

5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
Revenues (Billions)
9
6
3
20
18
E
20
17
E
20
16
E
20
15
E
20
14
E
20
13
E
20
12
E
20
11
20
10
20
09
20
08
20
07
20
06
20
05
Annual % change
Instructional media and services

$12
Note: Shaded area represents recessionary period. Source: BMO Capital Markets estimates based on various forecasts including Veronis
Suhler Stevenson, Gartner and Eduventures.
A member of BMO
Financial Group
46
September 2013
K-12 Education
K-12 enrollment
increased in
FY2010 after three
years of declines,
with growth
expected to
BMO Capital Markets
Enrollment in K-12 schools has been almost entirely driven by demographics. As shown in
Exhibit 42, since bottoming at 44.9 million students in fall 1984, K-12 enrollment (both
public and private schools) grew to an estimated 55.1 million student in fall 2012 a roughly
0.7% CAGR over that time period, which includes three years of small declines from FY2007
through FY2009. The NCES projects the K-12 population will grow to 58.4 million students
by Fall 2021 which would represent a 0.6% CAGR from current levels.
continue
Exhibit 42. K-12 Enrollment (Fall 1969 to Fall 2021E)

3%
K-12
Enrollment
% chg y/y
55
2%
1%
50
0%
-1%
45
-2%
40
Annual % change
K-12 Students (Mil.)
60
-3%
1970
1975
1980
1985
1990
1995
2000
2005
2010E
2015E
2020E
Note: Enrollment for fall of each year.
Impact of the Great Recession on K-12

State finances
improving . . .
The Great Recession and the ensuing decline in state tax revenues had a profound impact on
the K-12 industry and will likely shape its growth for years to come. While the worst appears
to be over, it still may be several years before many states are able to resume funding K-12
education at pre-recession levels.
According to The National Association of State Budget Offices (NASBO), total K-12
education funding increased by 1.5% in FY2011, driven by a 2.4% increase in federal funds
and 0.9% increase in state funds. However NASBO estimates K-12 funding decreased in
FY2012 by 1.9%, driven by a 19.7% decline in federal funds owing to the end of stimulus
spending, offset by a 2.9% increase in state funds. While total funding fell in FY2012, two
years of state-level increases is an encouraging sign, in our view.
. . . but K-12
funding still below
pre-recession
levels
School districts
forced to cut
programs and
services
A member of BMO
However, per-student funding remains at reduced levels. According to the Center on Budget
and Policy Priorities (CBPP), 26 states provided less funding per student in FY2013 than they
did in FY2012, and 35 states are providing less funding per student than they did five years
prior (FY2008). Additionally, 17 states had cut per-student funding by more than 10% from
FY2008 levels and three states had cut by more than 20%. While we believe trends are slowly
moving in the right direction, it may yet be several years before most states return to prerecession per-student funding levels.
In 2008, the American Association of School Administrators (AASA) began conducting a
survey of school administrators to gauge the impact of the Great Recession and stimulus
spending. The results of the latest survey conducted in February 2012 are shown in Exhibit
43. As shown, many schools continued to face tough spending decisions well after the Great
Recession had ended, and, given the continued challenges in state funding, we believe little
has changed over the past year.
Financial Group
47
September 2013
K-12 Education
BMO Capital Markets
Exhibit 43. Great Recession Impact on School Districts (FY2009

FY2012)
FY2009
FY2010
N.A.
N.A.
N.A.
4%
5%
9%
2%
8%
10%
8%
18%
9%
5%
14%
13%
11%
N.A.
43%
21%
68%
12%
12%
26%
2%
14%
20%
18%
36%
22%
20%
32%
29%
39%
N.A.
Percentage of schools districts that:

Cut budgets less than 10%
Cut budgets 11% to 25%
Reduced personnel
Furloughed employees
Reduced health benefits packages
Increased class size
Implemented 4-day school week
Eliminated summer school
Cut transportation
Cut extra-curricular activities
Deferred building maintenance
Delayed instructional improvement
Reduced academic programs
Delayed textbook purchases
Delayed technology purchases
Reduced professional development
Closed/consolidated schools
FY2011*
(Expected)
(Actual)
48%
30%
90%
34%
46%
62%
13%
34%
38%
52%
55%
50%
46%
52%
57%
62%
N.A.
48%
25%
48%
16%
16%
57%
6%
27%
30%
31%
52%
37%
29%
51%
44%
50%
8%
FY2012
(Expected)
N.A.
N.A.
66%
34%
30%
65%
17%
40%
41%
52%
60%
49%
45%
59%
56%
61%
15%
N.A. Not Available. (*) Results in the Expected column are from the April 2010 file, whereas the Actual
column contains the most recent December 2010 survey results. Source: American Association of School
Administrators and BMO Capital Markets
Stimulus helped
stem the tide
somewhat
While stimulus spending helped, this was only a temporary stop-gap. According to NASBO,
the American Recovery and Reinvestment Act of 2009 (ARRA) contributed roughly
$24 billion to states K-12 funds in FY2010 and an estimated $21.5 billion in FY2011 (before
winding down in FY2012). In addition, states also received money from the $10 billion
EduJobs bill passed in the summer of 2010.
These sums were a drop in the bucket compared to the roughly $700 billion in annual K-12
expenditures, and did not stem the tide of layoffs. According to the CBPP, from July 2008 to
July 2012, local government education employment declined by 328,000. Additionally, most
school districts said the EduJobs bill allowed them to save fewer than 25% of the jobs that
were already slated for elimination (see Exhibit 44).
A member of BMO
Financial Group
48
September 2013
K-12 Education
BMO Capital Markets
Exhibit 44. Stimulus Impact on School Districts (FY2010FY2011)

35%
% of School Districts
30%
FY2010
FY2011
25%
20%
15%
10%
5%
0%
0%
1%-25%
26%-50%
51%-75%
76%-99%
100%
% of Jobs Saved That Were Slated for Elimination
Source: American Association of School Administrators and BMO Capital Markets.
Federal funding
flat for past 10
years
A member of BMO
Excluding stimulus measures, federal funding has been essentially flat since the mid-2000s,
putting more pressure on states ability to meet funding needs and NCLB compliance. As
shown in Exhibit 45, federal spending on K-12 education (excluding stimulus funding) has
been roughly flat since the mid 2000s. While the FY2014 request calls for a 10.5% increase in
funding, the actual award will likely be below this.
Financial Group
49
September 2013
K-12 Education
BMO Capital Markets
Exhibit 45. K-12 Discretionary Spending in Federal Budget (FY2005FY2014E)

(dollars in millions)
FY2005CR
Request FY2014
FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 CAGR
Program*
Elementary/Secondary Education (K-12)

Elementary and Secondary Education Act (ESEA)
Race to the Top
Investing in innovation
College and career-ready students (Title I)
Preschool development grants
School Turnaround Grants
Effective teaching and learning (ETL): literacy
STEM innovation networks
High school transformation
ETL for well-rounded education
College pathways and accelerated learning
Assessing achievement
Effective teachers and leaders State grants
Teacher and leader innovation fund
School leadership
Expanding educational options
Magnet schools assistance
Promise neighborhoods
Successful, safe, and healthy students
21st Century Community Learning Centers
English Learner Education
Impact Aid
Other ESEA
Education Technology State Grants
Striving Readers
Teacher Incentive Fund
Safe and Drug-Free Schools and Communities
Reading First State Grants
Math and Science Partnerships
State Assessments
Even Start
Advanced Placement
Subtotal, ESEA
y/y % change
Special Education (IDEA)
Grants to States (Part B)
Other IDEA
Subtotal, IDEA
y/y % change
Subtotal, ESEA and IDEA
State Fiscal Stabilization Fund
Career and Technical Education State Grants
Other K-12
Elementary/Secondary Education
0
0
0
0
0
0
0
0
0
0
0
0
$12,740 $12,713 $12,838 $13,899 $14,492 $14,492
$699
150
14,443
$549
149
14,516
$549
149
14,516
0
0
0
0
0
0
125
0
0
491
193
179
546
195
179
546
363
180
535
27
175
534
187
150
534
187
150
0
0
412
2,917
0
0
0
0
0
0
991
676
1,244
2,882
496
25
0
672
1,042
0
0
225
30
0
0
408
2,887
0
0
0
0
0
0
981
669
1,228
2,316
272
30
99
569
1,029
0
0
99
32
0
0
408
2,887
0
0
0
0
0
0
981
669
1,228
2,138
272
32
0
577
1,029
182
0
82
37
218
51
409
2,935
107
94
356
105
0
349
1,081
700
1,241
2,062
0
0
0
0
0
0
0
0
0
222
51
411
2,948
108
115
369
105
0
357
1,131
730
1,266
1,658
0
0
0
0
0
0
0
0
0
226
103
411
2,948
411
136
409
100
10
365
1,166
750
1,276
1,076
0
0
0
0
0
0
0
0
0
103
92
390
2,465
399
113
281
100
30
257
1,154
734
1,274
834
0
0
0
0
0
0
0
0
0
25
76
389
2,467
299
98
255
100
60
196
1,152
732
1,291
865
0
0
0
0
0
0
0
0
0
25
79
389
2,467
299
98
255
0
60
196
1,152
732
1,291
962
0
0
0
0
0
0
0
0
0
$1,000
215
14,516
750
659
187
415
300
75
102
389
2,467
400
98
295
0
300
280
1,252
732
1,224
967
0
0
0
0
0
0
0
0
0
24,350
0.2%
23,333
-4.2%
23,487
0.7%
24,470
4.2%
24,883
1.7%
24,969
0.3%
24,253
-2.9%
24,089
-0.7%
24,089
0.0%
26,622
10.5%
10,590
1,084
10,583
1,070
10,783
1,020
10,948
1,034
11,505
1,066
11,505
1,074
11,466
1,053
11,578
1,053
11,578
1,053
11,578
1,071
11,674
4.6%
11,653
-0.2%
11,803
1.3%
11,982
1.5%
12,572
4.9%
12,579
0.1%
12,519
-0.5%
12,631
0.9%
12,631
0.0%
12,649
0.1%
36,024
34,986
35,290
36,452
37,455
37,548
36,772
36,720
36,720
39,271
0
1,194
312
0
1,182
295
0
1,182
296
0
1,161
323
0
1,161
325
0
1,161
327
0
1,122
218
0
1,123
220
0
1,123
248
1,123
228
$37,530 $36,464 $36,768 $37,936 $38,941 $39,035 $38,112 $38,063 $38,091 $40,622
% Change y/y
1.6%
-2.8%
0.8%
3.2%
2.6%
0.2%
-2.4%
-0.1%
0.1%
1.0%
0.9%
0.9%
6.6%
Source: BMO Capital Markets and Department of Education. Note: Several spending programs have been eliminated or added in recent
years, making historical comparisons difficult; CR refers to the continuing resolution reached for the FY2011 budget year; CAGR excludes
stimulus spending.
Sequestration and
weak economy
cause added
pressure
A member of BMO
Given continued funding headwinds, we believe most schools will simply have to tough it out
until things get better. Additionally, schools must now negotiate the impact of sequestration,
which began in early 2013 and will cut $1.2 trillion from federal programs over 10 years.
Among the findings from an August 2013 survey released by the American Association of
School Administrators (AASA):
The cuts of sequestration would mean reducing professional development (59%), eliminating
personnel (53%), increasing class size (48%), and deferring technology purchases (46%).
85% of respondents replied that their state would be unable to absorb or offset the cuts of
sequestration, virtually identical to the 86% indicating that their district would be unable
to absorb the cuts.
Financial Group
50
September 2013
K-12 Education
BMO Capital Markets
Schools more
cost-conscious,
but open to new
methods
Competitive grant
funding spurs
continued
innovation
More than half (53%) of respondents reported that their budgets for the 2013-14 school
year built in cuts to offset sequestration.
Against this backdrop, we believe schools are scrutinizing costs more than ever before,
resulting in longer sales cycles, and higher expectations that products will do what they
promise. On the other hand, we believe districts are more open to innovation and new
technologies and products that have the potential to cut costs while delivering similar or better
results.
Competitive federal grants have become another source of federal K-12 funding aimed at
spurring innovation. This was initially introduced as part of the stimulus, with a $4.3 billion
Race to the Top (RTTT) program. The White House continues to fund these programs,
allocating $549 million toward RTTT in FY2013 with a request for $1 billion in FY2014.
RTTT funds are awarded to those schools that submit the best proposals to address the issues
they face, and can include implementing new data systems, personalized learning, reforming
low-performing schools, college preparation, and rewarding effective teachers.
ESEA (Formerly NCLB)

The federal education program initially established under the Elementary and Secondary
Education Act (ESEA) of 1965 became The No Child Left Behind Act (NCLB) when
President Bush signed it into law in January 2002. This act fundamentally shifted how states
directed K-12 education spending, resulting in faster and greater changes than any prior
federal K-12 education legislation. However, NCLBs rigid testing requirements and
proficiency mandates were extremely controversial, and, upon taking office, President Obama
vowed to reauthorize ESEA (which officially expired in 2007) in a way that removed some of
the more burdensome mandates.
As reauthorization
stalled, more
schools fail NCLB
Details of original
NCLB
A member of BMO
However, Congress has made little progress reauthorizing this bill. While Republicans in the
House passed a version of an education bill in early 2012, these bills were essentially dead on
arrival in the Senate as they sought to cut substantial funding from the ED something
Democrats have stated they will not support. We believe gridlock on this bill will likely
continue through the current session of Congress. However, we believe the current NCLB
waiver program (discussed in more detail below) appears to have satiated Democrats
somewhat as it has allowed a sort of back-door education reform without having to go through
Congress.
The main thrust of the original NCLB regulation was based on accountability and assessment,
and the legislation is technically still in effect pending reauthorization. We believe several
components of this will continue to be part of any reauthorization, and have summarized how
NCLB was supposed to work below.
Beginning in the 2005-2006 school year, NCLB required student assessments in math
and reading for every child in grades 3-8 and at least once during high school. As of the
2007-2008 school year, science assessments were added.
The state then sets the achievement level that a school must attain after two years to
continue to show adequate yearly progress (AYP). For a school to show AYP, all
students must meet or exceed that threshold.
Financial Group
51
September 2013
K-12 Education
Sanctions can be
very onerous
BMO Capital Markets
Subsequent thresholds must be raised at least once every three years, with the goal that
after 12 years (initially targeted as 2014), all students in the state achieve at the proficient
level on state assessments in reading/language arts and math.
NCLB also mandated that, by the end of the 2006-2007 school year, all teachers in all
states must be highly qualified teachers (HQT), which generally requires them to have
a bachelor's degree, full state certification, and prove knowledge of the subjects they
teach. In recent years, the number of teachers meeting HQT requirements has been in the
high 90% area.
The initial goal was for all K-12 students to attain reading and math proficiency by 2014,
for all K-12 students to be taught by highly qualified teachers by the end of the 20052006 school year (later extended to the end of the 2006-2007 school year), and for all K12 students to graduate from high school.
As shown in Exhibit 46, sanctions for failure to meet AYP can be very detrimental to schools
as students can transfer out, federal funding can be limited to only certain uses, and ultimately
entire schools can be restructured or transferred to private ownership.
Exhibit 46. NCLB Sanctions

Consecutive
Years of Missing
AYP
First Year
Sanctions
Placed on "watch" list.
Required to develop a school improvement plan.
Second Year
Listed as "needs improvement" school.

District must provide any student attending the "needs improvement" school
the option of attending another school that has met AYP. The district pays
transportation costs.
Third Year
Year 2 sanctions and the school district must offer "supplemental

educational services" to any student who qualifies for free or reduced lunch.
One option for supplemental services must be from an outside provider.
Fourth Year
Year 2 and 3 sanctions and the school must change its staffing or make a
"fundamental change" such as restructuring the school.
Fifth Year
Year 2-4 sanctions and the school must convert into a charter school, turn
management over to a private management company or be taken over by
the state.
Note: Comments in this exhibit do not include additional funding made available through the Stimulus Bill.
Source: BMO Capital Markets and the US Department of Education.
Has NCLB worked? We believe the impact of NCLB remains controversial. While test scores
have increased, the pace of this change has been very slow in recent years and well below the
rate of increase in costs. Additionally, the number of schools not meeting AYP continues to
grow.
After 10 years,
testing data is
mixed . . .
A member of BMO
Exhibit 47 compares per-student expenditures in K-12 public schools with average national
math and reading scores for children in Grades 4 and 8 (latest data available). Although
average per-student expenditures have increased about 38% from 1990 (to 2010; in constant
dollars), average test scores have shown only mild improvements over that time.
Financial Group
52
September 2013
K-12 Education
BMO Capital Markets
Exhibit 47. K-12 Per-Student Expenditures vs. NAEP Math and

Reading Scores (19902012)
$14,000
13,500
13,000
12,500
12,000
11,500
11,000
10,500
10,000
9,500
9,000
8,500
8,000
Pre-NCLB
Expenditure Per Student ($)
Expenditure Per Student

Reading Score
Math Score
270
Post-NCLB
260
240
230
220
210
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
200
Note: Per-student expenditures measured in constant 2009-2010 dollars, using expenditure per pupil in
average daily attendance.
Source: BMO Capital Markets analysis, US Department of Education National Center for Education
Statistics and National Association for Education Progress.
. . . and progress
goals arent being
met.
Additionally, the number of schools failing AYP goals has grown at an alarming rate. A May
2012 survey by the Center on Education Policy found that 48% of schools failed AYP in
FY2011 (latest data available), steadily increasing since FY2006 (see Exhibit 48). We believe
this has only increased since the last survey. Among states with the highest percentage of
schools failing to make AYP include Florida (91%); Washington, DC (87%); and New
Mexico (86%), whereas states with lowest percentage include Wyoming (7%); Wisconsin
(11%); and Kansas (16%).
Exhibit 48. Schools Not Making Annual Yearly Progress (AYP)

Schools Not Meeting AYP (%)
60%
48%
50%
39%
40%
30%
35%
29%
28%
2006
2007
33%
20%
10%
0%
2008
2009
2010
2011
Source: Center on Education Policy and BMO Capital Markets.
39 states and DC
obtained AYP
waivers
A member of BMO
In August 2011, Secretary Duncan announced a formal (though controversial) AYP waiver
program, which relaxes the consequences of non-compliance with NCLB so long as states are
willing to implement other school improvement measures, such as teacher evaluation systems
or transitioning to Common Core Standards (CCS). By the summer of 2013, 39 states and the
District of Columbia had received waivers and several others had submitted applications. In
some respects, the waiver program has functioned as an end-run around reauthorizing ESEA;
as states agree to make reforms to obtain waivers, they have essentially agreed to follow the
kinds of new regulations Democrats have not been able to get through congress.
Financial Group
53
September 2013
NAEP Scores
250
K-12 Education
BMO Capital Markets
Common
After NCLB Common Core Standards (CCS). We expect the focus on implementing CCS
standards could
could provide a spending catalyst for schools, albeit smaller than that provided by NCLB. By
the summer of 2013, 45 states and the District of Columbia had committed to the standards,
which, if fully implemented, could have a broad impact on instructional materials, assessment
methods, and professional development. However, we caution that CCS implementation will
likely not come without political struggles, as Republicans generally support local as opposed
to national standards.
provide a small
spending catalyst
Cost estimates of CCS implementation vary widely. A May 2012 Fordham study found that,
depending on the degree of implementation, states could spend from $3 billion to
$12.1 billion to fully implement CCS by the 2014-2015 deadline, depending on the states
ability to repurpose current materials. Netting out the current state expenditures on materials,
assessment and professional development, this range from savings of about $0.9 billion to a
cost of $8.2 billion. While these expenditures could be significant, we do not believe this is
the kind of spending tailwind that will create sustained industry growth.
Instructional Media and Services

The Instructional Media and Services market was hard hit by the Great Recession, while
ESEA reauthorization and CCS implementation are likely continued overhangs. Using the
Instructional Media and Services component of private equity firm Veronis Shuler
Stevensons (VSS) annual Communications Industry Forecast (2011 edition) and by removing
the K-12 tuition component of its forecast, we calculate that an estimated $8.3 billion will be
spent on this market in 2013. From 2004 through 2007, this spending grew at an 8.2% CAGR
peaking at $9.1 billion in 2007. But the Great Recession took its toll, as spending fell at a
6.9% CAGR before bottoming at $7.9 billion in 2009. Using VSS estimates, we project that
this spending will rebound slightly (assuming the economy cooperates) and reach roughly
$19 billion in 2018, growing at a 1.6% CAGR over that time (see Exhibit 49).
K-12 instructional
media and
services expected
to increase at a
1.6% CAGR
through 2018
Exhibit 49. K-12 Instructional Media and Services Market (20042018E)
Revenues (Billions)
Supplemental
Total y/y change
Testing and assessment

15%
12%
9%
6%
3%
0%
-3%
-6%
-9%
-12%
5
4
3
2
1
20
18
E
20
17
E
20
16
E
20
15
E
20
14
E
20
13
E
20
12
E
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
Annual % change
Basal
Digital-based materials
$6
Note: Shaded area represents recessionary period. Source: Veronis Suhler Stevenson Communications Industry Forecast (September
2012) and BMO Capital Markets.
A member of BMO
Financial Group
54
September 2013
K-12 Education
K-12 global
textbook market
expected to
increase 8.5%
CAGR through
2014
BMO Capital Markets
Another way to view this segment of the market is to measure textbook sales. Outsell pegs the
K-12 global textbook market at $13.2 billion in 2012, increasing 12.7% from 2011 levels. The
company expects the market to continue to grow, forecasting another 8.5% CAGR increase,
and reaching $15.6 billion in 2014 (see Exhibit 50).
Exhibit 50. K-12 Global Textbook Market (20102014E)

$18,000
K-12
14%
Annual % change
16,000
12%
10%
12,000
10,000
8%
8,000
6%
6,000
4%
Annual % Change
Market ($ mil.)
14,000
4,000
2%
2,000
0%
2009
2010
2011
2012E
2013E
2014E
Source: Outsell Incs Whats Next for Textbooks? (March 2012) and BMO Capital Markets.
Basal publishing. Historically, basal publishing has comprised between 75% and 80% of the
total K-12 publishing market and consists of core curricular materials typified by the
traditional textbook but increasingly including digital products. According to Eduventures,
basal spending represents roughly 20% of total annual spending by K-12 schools nationwide.
Textbook publishers compete for the lucrative, state-allocated budgets. Twenty states, known as
adoption states, which represent more than half the US K-12 population, approve and produce
new basal programs typically every five to seven years on a statewide basis before individual
schools or districts can schedule the purchase of materials. In the remaining states, known as
open states or territories, individual schools or districts can procure materials at any time, though
usually according to a five- to nine-year cycle. Nevertheless, this can lead to multi-million-dollar
opportunities in high-profile states, such as California, Florida, and Texas.
Three companies dominate the K-12 basal publishing market: Houghton Mifflin Harcourt
(Houghton Mifflin purchased Harcourt from Reed Elsevier in December 2007), McGraw-Hill
Education (taken private by Apollo Global Management in March 2013), and Pearson
Learning (PSO). These three companies were estimated to represent about 56% of the total
US K-12 publishing market in 2011, according to Simba Information.
While demand can be driven by secular spending needs, such as that provided by NCLB,
demand typically follows enrollment trends and new textbook adoption, with cyclicality
driven by local and federal budget levels. In the prior cycle, K-12 basal content revenues did
not trough until 2004 nearly three years after the end of the 2001 recession.
K-12 basal
publishing: fell
through 2009;
expected 1.6%
CAGR from 2013
We believe the basal content market has seen little growth in recent years, but is stabilizing.
Additionally, we believe ESEA and CCS remain overhangs. VSS estimates that the K-12
basal publishing segment will generate roughly an estimated $4.9 billion in spending in 2013
up 1.3% from the prior year, though the fastest growth since 2010. Using VSS estimates, we
project that this spending will reach over $5.3 billion in 2018, growing at a 1.6% CAGR over
that time (see Exhibit 51).
to 2018
A member of BMO
Financial Group
55
September 2013
K-12 Education
BMO Capital Markets
Exhibit 51. K-12 Basal Publishing Market (20042018E)

Basal Revenues ($ bil.)
20%
% y/y change
15%
5.5
10%
5%
5.0
0%
-5%
4.5
% y/y change
Revenues (Billions)
$6.0
-10%
4.0
-15%
2004
2005
2006
2007
2008
2009
2010
2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Note: Shaded area represents recessionary period. Source: Veronis Suhler Stevenson Communications
Industry Forecast (September 2012) and BMO Capital Markets.
We believe digital media is a disruptive force that poses a threat to the dominance of print
providers. While Outsell does not forecast the shift between digital and print within the K-12
sector, it does forecast that shift for the entire textbook market (including postsecondary). As
shown in Exhibit 52, print textbooks represented an estimated 80% of textbooks sold in 2012,
down from 96% in 2009. The remaining 20% includes digital textbooks (9%) and whole
course solutions (11%), which may include both print and digital mediums. Non-print
formats are expected to grow their share to 35% by 2014.
Digital and whole
Exhibit 52. Global Textbook Market by Type (20092014E)
course solutions
96%
100%
should continue
Digital Textbook Content
93%
Print Textbook Content
Whole Course Solutions
87%
90%
79%
to gain share
80%
69%
70%
65%
60%
50%
40%
30%
16%
20%
10%
2%
2%
4%
3%
8%
5%
9%
16%
17%
18%
12%
0%
2009
2010
2011
2012E
2013E
2014E
Note: Outsell Incs Whats Next for Textbooks? (March 2012) and BMO Capital Markets.
Several drivers of
Some drivers of digital textbook adoption include:
digital content
Increased investment in new digital content providers, and greater acceptance by users.
For example, in June 2013, Apple (AAPL) was award a $30 million deal to provide iPads
to the Los Angeles school district running Pearsons (PSO) common core curriculum.
State and federal initiatives encouraging the transition to e-texts (such as the FCCs
Digital Textbook Playbook initiative).
Private ventures to develop digital texts such as that between Apple and large publishers
including McGraw Hill and Pearson.
Schools preferring to self-author curricula through creation of proprietary digital texts.
A member of BMO
Financial Group
56
September 2013
K-12 Education
Digital textbooks
most sought
after app
BMO Capital Markets
We believe this shift will continue. In a July 2013 survey by researcher Interactive
Educational Systems Design, digital textbooks was by far the top-ranker app that school
district technology and media directors thought would most benefit student instruction (see
Exhibit 53).
Exhibit 53. Top-Ranked Student Instruction Apps (July 2013)

Digital textbooks
77%
54%
Student productivity
Creation tools
52%
35%
Special education
Research and reference
32%
Online "class page"
31%
Student response system/student polling
27%
25%
Educational games
Books and stories
24%
21%
Simulation software
0%
10% 20% 30% 40% 50% 60% 70% 80% 90%
Note: Interactive Educational Systems Design and BMO Capital Markets.
The expected benefits from digital curricula are vast, and include:
And many
Custom content. Digital content enables schools to create unique, customizable
educational solutions that meet specific needs of schools and teachers or standards
required by the district or state.
potential benefits
More content. Digital products increase access to a broader range of learning content
across skill levels and enable schools to offer online programs or courses that otherwise
couldnt be funded.
Price. Owing to their customizable features and digital delivery model, digital products
enable low-cost incremental purchases at the school and classroom level as opposed to
large and costly district-wide purchases of print products.
Mobility. Cloud-based and SaaS products can be used by students, parents, and teachers
at home and at school, and allows collaborative data sharing or lesson planning across
districts and schools.
Assessment capability. Digital products enable comprehensive student learning
analytics and give teachers the ability to drill down into the performance of individual
students and meet regulatory reporting requirements.
A member of BMO
Financial Group
57
September 2013
K-12 Education
BMO Capital Markets
District requirements and regulations. Morel states are passing laws and funding
initiatives to increase the use of digital content and online courses in schools. In addition,
the assessment arm of the EDs Common Core Standards will be all digital, requiring
schools to have this capability.
Greater access. Increased wiring of schools over the years and access to high-speed
Digital texts will

reshape
curriculum
internet have enabled more use of digital products. Government subsidy programs such
as the EDs E-Rate program (started in 1997) also help reduce costs.
industry
While we believe the new toy factor is also a component of this shift, there is growing
evidence at least anecdotally that technology and digital products have a positive impact
on student engagement.
Over the long term, we believe the economics of digital texts promise to reshape the business
of education curriculum. According to Global Equities Research, the cost benefits of selling
electronic books include:
Going digital still

requires a large
initial investment
A member of BMO
No used book market: 35% to 50% of the textbook sales are used books for which
publishers get zero revenue.
No supply chain markup: In the current model, textbooks go from the publisher to the
distributor to the wholesaler to the retailer and then to the end user (i.e., student). The
supply chain markup is between 8% to 15% at each step, totaling between 33% and 35%.
Zero distribution costs, thanks to the magic of the internet.
Cheaper production: iBook production costs are estimated to be 80% less than the cost of
producing a printed book.
Favorable supply/demand curves: At $14.99, publishers might sell 40%-60% more books
than they could at $125.
Nevertheless, we believe the demise of print-textbook is still a long way off. For one thing,
digital textbooks are relatively new and it will likely take several years before their impact on
student learning is better understood and accepted. Additionally, digital textbooks often
require a large initial investment. A February 2012 analysis by Lee Wilsons Education
Business Blog compared the cost of print textbooks versus Apples digital iTexts and found
that - when including the network, training, management and device costs - digital textbooks
were roughly five times more costly on a per-student basis compared to traditional print
textbooks (see Exhibit 54).
Financial Group
58
September 2013
K-12 Education
BMO Capital Markets
Exhibit 54. Textbook vs. iText Cost Per Student

$80
$71.55
70
60
Training
50
Network
40
Device
30
Management
Content
$14.26
20
10
0
Textbook
iText
Source: Education Business Blog and BMO Capital Markets.
ELL students also

represent sizeable
curriculum market
The English Language Learner (ELL) market has also represented a strong pocket of growth
for basal publishers, partly fueled by NCLB requirements. In the 2010-2011 school year, there
were 4.7 million ELL students. However, as shown in Exhibit 55, this population has leveled
off in recent years, and actually declined 2.6% in 2010-2011, though it remained relatively
steady at 9.5% of the total US K-12 public school enrollment.
Exhibit 55. English Language Learners as Percentage of Total K12

Enrollment (Fall 2003Fall 2011)
ELL Enrollment
10%
As % of K-12 Enrollment
9%
As % of Total K-12
ELL Students (Mil.)
8%
2003
2006
2007
2008
2009
2010
2011
Source: US Department of Education National Center for Education Statistics and National Clearinghouse
for English Language Acquisition and Language Instruction Educational Programs.
Supplemental publishing. This market consists of instructional workbooks, study aids,
K-12
supplemental
publishing:
declined through
2009; expected
1.1% CAGR from
2013 to 2018
A member of BMO
digital video products, e-learning, online, and other computer-based systems that augment
traditional in-school learning. Drivers of this market include cheap, easy to use products, and
schools with generally higher levels of technology infrastructure, often incentivized by
government initiatives such as the Common Core Standards and connectivity programs such
as the FCCs e-Rate.
While the K-12 supplemental publishing market shrunk in 2009, it has rebounded somewhat
since. VSS estimates that the K-12 supplemental publishing segment will generate more than
$1.62 billion in revenues in 2013, growing 1.5% from 2012 levels. Using VSS estimates, we
project that this spending will reach roughly $1.71 billion in 2017, growing at a 1.1% CAGR
over that time (see Exhibit 56). We note other estimates for this market are much larger.
Financial Group
59
September 2013
K-12 Education
BMO Capital Markets
Exhibit 56. K-12 Supplemental Publishing Market (20042018E)

Supplemental Revenues ($ bil.)
10%
% y/y change
1.8
5%
1.6
0%
1.4
-5%
1.2
-10%
1.0
% y/y change
Revenues (Billions)
$2.0
-15%
2004
2005
2006
2007
2008
2009
2010
2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Digital
supplemental
products have
proliferated
Digital products are also making headway in supplemental publishing, and there are numerous
small businesses competing for this market share, including Achieve3000, DimensionU,
Edmentum, Autoskill, Cambium Learning (ABCD), Lexia Learning (purchased by Rosetta
Stone [RST] in July 2013), Scientific Learning (SCIL), and School Specialty (SCHS). This
market also includes the thousands of educational apps now available on mobile devices.
A list of recent transactions in the educational publishing space can be found in Exhibit 57.
A member of BMO
Financial Group
60
September 2013
K-12 Education
BMO Capital Markets
Exhibit 57. Educational Publishing Recent Transactions (20072013)

($ in millions)
Annc.
Date
Jul-13
Jul-13
Jul-13
Jun-13
Jun-13
Apr-13
Apr-13
Apr-13
Feb-13
Jan-13
Jan-13
Nov-12
Nov-12
Oct-12
Aug-12
May-12
Mar-12
Mar-12
Feb-12
Feb-12
Feb-12
Jan-12
Jan-12
Aug-11
Aug-11
Jun-11
Apr-11
Mar-11
Mar-11
Jan-11
Nov-10
Nov-10
Nov-10
Nov-10
Aug-11
Aug-10
Jul-10
Jul-10
Jun-10
Jun-10
Jun-10
Jun-10
Mar-10
Mar-10
Mar-10
Feb-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
Aug-09
Jun-09
Apr-09
Apr-09
Mar-09
Mar-09
Mar-09
Jan-09
Jan-09
Jan-09
Dec-08
Dec-08
Dec-08
Oct-08
Oct-08
Aug-08
Aug-08
Jul-08
Jun-08
Jun-08
Jun-08
Apr-08
Feb-08
Feb-08
Dec-07
Nov-07
Aug-07
Jul-07
Jul-07
Jun-07
Jun-07
May-07
May-07
May-07
May-07
Mar-07
Mar-07
Jan-07
Jan-07
Jan-07
Target
Grockit Inc., Test Prep Assets and Social Learning Platform
National Transcript Center
TSL Education Limited
ALEKS Corporation
Springer Science+Business Media S.A.
Learning Catalytics
NewMindsets Inc.
Tribal Nova
Thomson Reuters, Law School Publishing Business
Groupe Modulo
School Specialty
John Wiley & Sons Assets
Penguin Group
Key Curriculum Press
Harlan Davidson
Princeton Review (Assets)
GL Education Group
Inscape Holdings
Bendon Publishing International
Talaris Institute
Teaching Strategies, Inc
Learners Publishing
Stark Holding
Carnegie Learning
National Geographic School Publishing
BARBRI
Education Development International
Bookette Software Company
TutorVista Global (76% stake)
Wireless Generation, Inc.
The Administrative Assistants Ltd.
Electronics Blackboard Ltd
Starting Out, Inc.
Fieldstone Alliance (Publishing Arm)
WSI International
Sistema Educacional Brasileiro (Learning Systems Division)
Numicon Ltd.
W3 Insights Ltd
Les Editions EDK
Educationcity Ltd
Plato Learning
Houghton Mifflin (Think Math! Curriculum product)
Editora Artes Mdicas
Atlantic Link Limited
Little Hare Books
Arah Pendidikan
Horwood Publishing
Wydawnictwa Szkolne i Pedagogiczne
Trinity ELL, LLC
Carson-Dellosa Publishing
Voyager Learning Company
Optionetics
Professional Development Software
Wordware Publishing
Bertram Group
DVP Media
Salem Press
Concept Media
Badger Publishing
Princeton Review (K-12 Division)
HighBeam Research
Kane/Miller Book Publishers
The Study Group
Medical Education Technologies
Interverbum Group
Scholastic , Direct-to-Home Business
Pro Lingus
Publications International (Childrens Publishing Division)
Beijing Yanyuan Rapido Education
Princeton Review of Orange County
Princeton Media Associates
Assessment Technologies Institute
Test Services
Houghton Mifflin College Division
Interwrite Learning
Power-Glide
Harcourt U.S. Schools Education Business
Thomson Prometric
Angeles Group
eInstruction
eCollege (including Datamark)
TSL Education
Thomson Learning and Nelson Canada
Harcourt Assessment, Harcourt Education
Wolters Kluwer Education
Learning Horizons
Cambium Learning
Study Island
Von Hoffmann
Acquiror
Kaplan, Inc.
Hobsons
TPG Capital
BC Partners
Pearson
ClevrU Corp.
Eureka Growth Capital
TC Media
Bayside Finance
Apollo Global Management
Random House (Bertelsmann)
John Wiley & Sons
Charlesbank Capital Partners
Investcorp
John Wiley & Sons
The Wicks Group of Companies
Teaching Strategies
Chicago Growth Partners
Scholastic
Pearson
Apollo Group
Cengage Learning
Leeds Equity
Pearson
CTB/McGraw-Hill
Pearson
News Corp
Pearson
TSL Education Ltd.
McGraw Hill Education
Permira Advisers
Turner Publishing Company
Pearson
Pearson
Oxford University Press
Granada Learning
EDP Sciences
Thoma Bravo
School Specialty
Artmed Editora
Kaplan
Hardie Grant Egmont
Juasa Holdings
Woodhead Publishing
Pahoa Investments
Pearson
School Specialty
Cambium Learning
optionsXpress Holdings
Elsevier
Jones and Bartlett Publishers
Smith News
Jones and Bartlett Publishers
EBSCO Publishing
Cengage Learning
Pandora Books
CORE Education & Consulting Solutions
Cengage Learning
Educational Development
Kaplan
Baird Capital Partners
AAC Global, SanomaWSOY
Sandvik
Kaplan
Learning Curve Brands
Hartcourt Companies
Princeton Review
HMP Communications
Princeton Review
Cengage Learning
eInstruction
K12
HM Riverdeep
Educational Testing Service
Excelligence Learning
Pearson
Charterhouse Group
Apax Partners and OMERS Capital Partners
Pearson
Bridgepoint Capital
Evolution Capital Partners
Veronis Suhler Stevenson
R.R. Donnelley
Note:
Transaction
Value
NA
NA
$598.0
NA
$4,422.0
NA
NA
NA
NA
NA
NA
$2,400.0
NA
NA
NA
NA
$33.0
NA
$85.0
NA
NA
NA
NA
NA
$75.0
NA
NA
$166.2
NA
$127.0
$390.0
NA
NA
NA
$0.0
NA
$92.0
$460.9
NA
NA
NA
$87.0
$109.1
$1.8
NA
NA
NA
NA
NA
$125.1
NA
NA
$130.6
$32.9
NA
NA
NA
NA
NA
NA
NA
$9.5
NA
NA
NA
NA
NA
NA
NA
$163.0
$3.5
$31.1
NA
NA
$39.4
$750.0
NA
$4.1
$4,000.0
$435.0
$10.0
NA
$518.0
NA
$7,750.0
$950.0
$1,031.7
NA
$325.0
NA
$412.5
Mean
Median

Revenue
EBITDA
NA
NA
5.4 x
NA
3.4 x
NA
NA
NA
NA
NA
NA
1.1 x
NA
NA
NA
NA
0.3 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
3.5 x
NA
NA
NA
NA
NA
NA
0.0 x
NA
1.5 x
1.9 x
NA
NA
NA
9.7 x
1.7 x
NA
NA
NA
NA
NA
NA
1.6 x
NA
NA
1.3 x
NA
NA
NA
NA
NA
NA
NA
NA
0.3 x
NA
NA
NA
NA
NA
NA
NA
1.5 x
4.0 x
2.4 x
NA
NA
2.6 x
3.3 x
NA
NA
3.6 x
1.4 x
NA
NA
9.4 x
NA
NA
1.8 x
2.4 x
NA
3.3 x
NA
NA
2.8 x
2.1 x
NA
NA
12.1 x
NA
9.7 x
NA
NA
NA
NA
NA
NA
5.7 x
NA
NA
NA
NA
2.1 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
10.2 x
NA
NA
NA
NA
NA
NA
0.0 x
NA
NA
14.6 x
NA
NA
NA
14.5 x
7.0 x
NA
NA
NA
NA
NA
NA
14.0 x
NA
NA
NM
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
17.5 x
NA
NA
NA
23.0 x
NA
NA
NA
12.5 x
NA
NA
NA
NA
11.0 x
12.1 x
NA Not Available. Source: BMO Capital Markets and Capital IQ.
A member of BMO
Financial Group
61
September 2013
K-12 Education
BMO Capital Markets
NCLB drove
Testing and assessment. NCLB was the main catalyst for testing assessment demand in the
investments in
2000s. According to the EDs 2010 NCLB accountability report (final report in series), the
federal government spent roughly $2.8 billion from 2002 to 2008 on grants to states for
development of state assessments.
test development
While the initial investment in NCLB assessment has passed, administration and maintenance
expenses remain. According the EDs 2010 report, in 2006-2007 (latest data available), the
median cost that states reported for administering reading and mathematics tests in grades 38
and high school was about $7.5 million. On a per pupil basis, this amounted to a median of
roughly $25, ranging from a low of $3 (North Carolina) to $99 (Delaware).
Common
standards driving
new test
development
More students
taking AP Exams
CCS implementation will likely generate another catalyst for test development. As this
standard is expected to be in place by the 2014-2015 school year, schools that have signed on
will need to have revamped assessments in place that measure performance based on CCS.
One group using RTTT funds to develop a nationwide digital testing standard that complies
with CCS is known as the Partnership for Assessment of Readiness for College and Careers
(PARCC). Twenty-two states have signed on to PARCC, which plans to provide a
comprehensive K-12 assessment system to participating states by the 2014-2015 year.
Advanced Placement (AP) testing also drives assessment demand. According to the College
Board, about 950,000 seniors leaving US public high schools in 2012 took at least one AP
exam, about 32% of the total. This rate has steadily increased since 2000 (see Exhibit 58).
1,000,000
33%
AP test takers
% of total graduates
800,000
30%
27%
600,000
24%
400,000
21%
200,000
18%
15%
2000
2001
2002
2004
2005
2006
2008
2009
2010
2011
As % of Total Graduating Class
High School Students Taking AP

Exam
Exhibit 58. High School Graduates Taking AP Exam (Classes of

20002012)
2012
Note: Data for students at US public schools only. Data not available for 2003 and 2007 classes. Source:
College Board and BMO Capital Markets.
K-12 testing and

assessment:
declined through
2009; expected
1.7% CAGR
through 2018
A member of BMO
VSS estimates that the K-12 testing and assessment segment will generate roughly an
estimated $1.62 billion in revenues in 2013, growing 2% from 2012 levels. This segment was
a bit less volatile than the other two segments within this category, only seeing one down year
(2009) during the Great Recession and its aftermath. Using VSS estimates, we project that
this spending will exceed $1.76 billion in 2018, growing at a 1.7% CAGR over that time (see
Exhibit 59).
Financial Group
62
September 2013
K-12 Education
BMO Capital Markets
Exhibit 59. K-12 Testing and Assessment Market (20042018E)

Testing and Assessment Revenues ($ bil.)
16%
% y/y change
12%
1.5
8%
1.0
4%
0.5
0%
0.0
-4%
2004
2005
2006
2007
2008
2009
2010
2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E
According to Simba Information, the state-level testing market has been declining in recent
years, and was roughly $1.1 billion in 2011, down from $1.2 billion in 2009. This is owing to
completion of much of the NCLB testing build-out, combined with tighter state budgets and
hesitancy to invest in new assessments owing to the overhangs of CCS and ESEA.
Digital
assessments
gaining ground
Investor risks
We believe digital assessments (like that being developed by PARCC) will continue to gain
ground. Not only does digital capability better comply with CCS, it enables educators to more
easily integrate digital curriculum, assessments, and learning management systems and
provides quicker, more standardized feedback about student performance.
Investment risks in assessment products include state and federal funding levels, commitment
to CCS or other standards, testing errors or other systematic failures, and test manipulation.
Fixing testing errors such as those that led Pearson to pay $15 million to Florida in 2010 to
settle a complaint over delays in reporting test results and led the Educational Testing Service
in 2006 to create an $11 million fund to pay teachers who were given the wrong scores on
licensing exams can hurt from both a financial and headline perspective.
A list of some of test providers can be found in Exhibit 60.
A member of BMO
Financial Group
63
September 2013
% y/y change
Revenues (Billions)
$2.0
K-12 Education
BMO Capital Markets
Exhibit 60. Leading Testing and Assessment Providers

Company (Parent)
ACT, Inc.
Ticker
Amplify (Wireless Generation; News Corp) NWSA

College Board
CompassLearning, Inc. (WRC Media, Inc.)
CTB/McGraw-Hill and The Grow Network
(McGraw-Hill Companies)
Data Recognition Corporation
Educational Media and Publishing Group,
LTD (Houghton Mifflin Harcourt)
Edmentum/PLATO Learning, Inc.

Learning Express LLC
Learning.com
Measured Progress, Inc.
Northwest Evaluation Association
Pearson Educational Measurement,
Pearson Assessment, Pearson NCS, and
Pearson School Systems (Pearson plc)
Questar Assessment
Renaissance Learning, Inc. (Permira)
Scantron Corporation (subsidiary of
Harland Clarke Holdings Corp., wholly
owned by M&F Worldwide Corp.)
Study Island (Archipelago Learning)
The Princeton Review
PSO
Description
Non-profit organization that provides assessment services in the broad areas of education and workforce
development.
Provider of K12 educational software and assessment products to schools and school systems
Offers student assessment and standardized testing, and administers the SAT, the PSAT/NMSQT, and the
Advanced Placement Program (AP).
Products assess student performance, diagnose strengths and weaknesses, and prescribe specific instruction
targeting areas of non-mastery at the classroom, school, or district level.
Offers standardized and custom achievement and aptitude tests as well as assessment reporting for states and
large districts, including customized reports for teachers, parents, administrators, and students.
Provides customized services for large-scale statewide educational assessment programs.
Creates educational, cognitive, and developmental assessment products and offers platforms to help school
districts, administrators, teachers, and parents track student performance on state standards.
Markets web-based solutions that assist in student placement, progress monitoring, and accountability through
diagnostic and prescriptive tests, simulated high-stakes tests, lesson-progress tests, and standards-based and
cumulative tests.
Develops both off-the-shelf and customized tests for district, state, and national usage. Also partners with the
College Board to develop the SAT.
Provides customized test-preparation materials for students and adults to improve their performance on
academic, licensing, and certification exams.
Provides web based curriculum and assessment products through partnerships with schools.
Designs and implements customized large-scale and local assessments for both general and special education,
and offers resources to guide educators through assessment issues.
Develops Measures of Academic Progress (MAP), a computerized adaptive assessment program that provides
educators with information they can use to tailor teaching to the individual student for academic achievement.
Provides customized and off-the-shelf online and print assessments, data management and collection solutions,
and reporting solutions for districts and states.
QUSA.OB Implements large-scale assessment programs through its research, psychometric, and test-development
services.
Develops assessment systems for reading, math, language acquisition, writing, and standards mastery to help
districts satisfy state standards and achieve AYP objectives.
MFW
Offers a web-based assessment platform with a content-neutral structure and multiple delivery capabilities. Used
to manage tests, to develop new ones, to administer them online or on paper, and to report results.
Markets online, state standards-based learning programs
Delivers online and print formative-assessment programs in math, ELL/ESL, and reading, and will introduce
science and social studies assessments in the fall of 2006.
Provides scheduling, delivery, test content, scoring, and reporting tools for large-scale online assessments in
subjects such as math, reading, and writing. School management and student database management systems.
Offers services in development, implementation, and evaluation of assessments on the school, district, state, or
national level in subjects such as literacy, math, and science.
Vantage Learning
WestEd
Source: BMO Capital Markets and Eduventures.
Technology in the K-12 Sector

A 2011 report by Innosight Institute found that schools spent more than $60 billion equipping
students with computers over the past 20 years. Advancements in software, mobile
technologies, and cloud-based computing have prompted new companies to enter this market
with innovative, easy-to-use and affordable content and tools, such as online learning aids,
learning management systems, interactive whiteboards, tablets, e-readers, and course
management software.
K-12 ed-tech
estimated 3.6%
CAGR through
2018
A member of BMO
According to Gartner research, an estimated $9.2 billion will be spent on technology in the
US K-12 sector in 2013. Based on Gartner forecasts, we estimate this spending will grow at a
roughly 3.6% CAGR, reaching $11 billion in 2018, mostly led by increases in the software
and services segments (see Exhibit 61).
Financial Group
64
September 2013
K-12 Education
BMO Capital Markets
Exhibit 61. US K-12 Technology Revenues (20102018E)
Total Spending ($ in bil.)
$12
Software
Internal Services
Hardware
IT Services
Telecommunications
2010
2011
2012
2013E
2014E
2015E
2016E
2017E
2018E
Source: Gartner estimates.
Most of the K-12

ed-tech budget is
at the district level
A 2012 survey by Simba Information found that the primary source of technology funding for
most schools was at the district level, and is thus highly sensitive to economic fluctuations
(see Exhibit 62). We believe this has led to large discrepancies in technology spending across
districts; while some schools are purchasing new iPads for students, others still use computer
hardware purchased in the 1990s.
Exhibit 62. Sources of Technology Funding for US K-12 Schools

District budget
School general budget
Don't know
Federal funding
Other
District bond
State/regional agency grant
Private grant
33.5%
22.5%
15.2%
11.0%
5.5%
4.4%
4.2%
3.7%
Source: Simba Information.
We have provided details on the various component of K-12 ed-tech spending below.
Software is the
K-12 software market. Using Gartners definition, software is the largest component of US
fastest growing
K-12 technology spending, and is expected to reach an estimated $2.83 billion in 2013, or
about 31% of all K-12 technology spending. It is expected to be the fastest-growing
component of K-12 technology spending, increasing at an 8.1% CAGR to $4.2 billion in
2018. The Software & Industry Information Association (SIIA) pegs the K-12 software
market as being much larger, estimating that $7.76 billion was generated in K-12 software
and digital content/resources in 2011 up from $7.5 billion in 2010.
component of K12 ed-tech;

estimated 8.1%
CAGR through
2018
Learning
management
systems (LMS)
A member of BMO
We believe Learning Management Systems (LMS) are likely one of the largest software
expenditures for schools, and have been a core area of investment in education technology in
recent years. Originally designed as an administrative tool to help manage and organize the
Financial Group
65
September 2013
K-12 Education
BMO Capital Markets
classroom, LMS have evolved into virtual eco-systems that link students, teachers, and
parents in an online environment where all aspects of learning can be monitored, analyzed,
and managed.
LMS have many areas of focus, including course and assignment delivery, assessment
tracking and analytics, social and collaborative networking, and demographic and socioeconomics student information systems. Modern LMS increasingly utilize cloud-based
technologies and open source development to enable real-time access and easier installation
and configuration of content and user functions. While various LMS do exist as separate
systems, the lines between them are increasingly becoming blurred by hybrid systems that
incorporate several functions as single solutions.
While LMS have been around since the 1990s, adoption quickened following NCLB, which
required schools to report performance data in ways only supported by electronic data
systems. While these systems may have initially been geared more toward the managerial
functions of running a school and tracking student performance, recent growth has also been
driven by the increase in digital curriculum and virtual class initiatives. Additionally, the
move to CCS and the economic stimulus package in 2009 also incentivized investments in
LMS. We believe these drivers, along with improving technology and growing acceptance of
the benefits of LMS, have driven widespread adoption in recent years. According to a Simba
Information survey, the penetration rate of LMS in K-12 schools ranges from 68% to 88%,
depending on how LMS is defined.
As service offerings vary widely, the definitions of different kinds of LMS are constantly
changing. However, we have provided the three following categories of LMS as defined by
Simba Information. We note that many of these companies also provide LMS products to the
postsecondary education space, and believe these definitions are roughly consistent across
both K-12 and higher learning.
1.
Traditional LMS. These represent standalone learning management systems and include
leading commercial open-source products such as Blackboard, Desire2Learn, and
Moodle. Traditional LMS include the full suite of products that provide the infrastructure
for online course delivery, collaboration, and management functions. These are opensystems in that they can work with content and technology provided by outside
companies.
2.
LMS Lite. These are newer systems that offer alternatives to the traditional model and
allow more flexibility both in terms of price and customization. These systems generally
have fewer features but are more user-friendly and focus on specific functions such as
course supplements, data management, or augmenting a current LMS with a social
networking function. These products are sometimes available free online with costs
incurred at varying service levels. Companies providing these products include Edmodo,
Schoology, and Sophia.
3.
A member of BMO
Enterprise platforms. These are broad infrastructure solutions that integrate an LMS
with other enterprise functions such as student information systems or curriculum
management. They are often marketed by publishers and tied to proprietary products as is
the case with Houghton-Mifflin Harcourts Pinpoint.
Financial Group
66
September 2013
K-12 Education
BMO Capital Markets
PreK-12 LMS
Given these broad definitions, it is difficult to gauge the size of the LMS market. However, in
its estimate of market size, Simba Information defined an LMS as organization software that
enables the administration, tracking, and reporting of student information across all types of
education activities; the delivery of courses; and the facilitation of collaboration and
communication. As shown in Exhibit 63, Simba estimates the US PreK-12 market for LMS
amounted to roughly $305 million in 2011-2012, and forecasts it to grow to about
$377 million in 2014-2015, a CAGR of about 7.3%.
market expected
to grow at a 7.3%
CAGR through
2014-2015
Exhibit 63. US PreK-12 LMS Sales (20112012 to 20142015)

LMS Sales
$400
% change y/y
8.5%
8.0%
($ millions)
350
7.5%
300
7.0%
6.5%
250
6.0%
200
5.5%
2011-2012
2012-2013
2013-2014
2014-2015
Source: Simba Information and BMO Capital Markets.
Drivers of LMS adoptions in schools include:
States efforts to comply with data management requirements recommended by the ED

(this was part of the requirement for receiving stimulus aid following the Great
Recession).
The growing use of online virtual schools (fully online school) and blended learning (a
mix of online and classroom based learning). According to Innosight Institute, the
number of students taking online courses grew from 45,000 in 2000 to more than
4 million in 2010.
Potential educational benefits of using an LMS.
We believe cost remains a key barrier to LMS adoption. In a 2012 survey by Simba, more
than 43% of schools cited cost as the biggest impediment to LMS implementation. However,
we believe this may drive schools to experiment with lower-cost LMS Lite technologies,
which has helped drive innovation in the industry.
Most of the purchase decisions on LMS are still made at the district level, but we expect
cooperation at the state level to increase as states pursue common standards. According to
Simba Information, commercial LMS providers are the most common, accounting for 42.9%
of district systems; this is followed by 11.8% that are developed within the district and 4.7%
made available by the state. We expect district systems may gain traction as more schools
form cooperative consortiums to develop technology capabilities at lower costs.
PreK-12 LMS
market is very
fragmented
A member of BMO
The commercial LMS industry is very fragmented and competitive with many providers who
operate within different niches. According to a Simba survey (2012 latest available) Moodle
(open source) was the most common LMS provider, followed by Pearson (see Exhibit 64).
Financial Group
67
September 2013
K-12 Education
BMO Capital Markets
Exhibit 64. PreK-12 School Market Share of LMS Vendors (2012)

Other
Moodle (open source)
Pearsons Learning Studio
Blackboard (including Angel and Learning and Elluminate)
Houghton Mifflin Harcourt Pinpoint
Global Scholar Pnnacle Suite
STI Classroom
Desire2Learn
It's Learning
52.6%
18.5%
11.9%
6.6%
4.1%
2.9%
2.5%
0.6%
0.4%
Source: Simba Information.
Included in the Other category, which makes up more than half of this market, are
companies that provide some LMS capabilities but are not considered full LMS providers.
These include CompassLearnings Odyssey, Edmodo, Houghton Mifflins Data Director
McGraw Hill Educations ConnectED, Pearsons (PSO) Successmaker and Plato Learning
Environment. We believe this high level of fragmentation will continue to drive M&A in the
sector as companies seek to provide the full suite of technology offerings.
We believe states efforts to comply with national standards and guidelines have helped shape
how LMS have developed in recent years as schools implement systems that comply with
state standards. For example, in return for receiving stimulus money from the 2009 Recovery
Act, states were required to meet the 12 criteria established as part of the 2007 America
COMPETES Act that required various data management capabilities (see Exhibit 65).
Exhibit 65. America COMPETES Act Requirements

Criteria
1. Unique student identifier
2. Student-level information about transfers, dropouts, and grade completion
3. State data audit system
4. Data on students not tested, by grade and subject
5. Student-level transcript information
6. Student data on transitions to higher education, including remedial courses
7. Student-level demographic, program-participation data
8. Capacity to communicate with higher education data systems
9. Yearly testing data for individual students
10. Capacity to match student data to individual teachers
11. Student-level college-readiness test scores
12. Other data on student preparation for higher education
Source: Education Week, US Department of Education and BMO Capital Markets.
Additionally, to help states ensure that data systems met NCLB mandates, the Data Quality
Campaign (DQC) established a common road map for state information systems. Most states
have made significant progress on meeting these voluntary benchmarks (see Exhibit 66).
A member of BMO
Financial Group
68
September 2013
K-12 Education
BMO Capital Markets
Exhibit 66. States Progress Toward Meeting Data System Elements (2005 and 20092011)
Essential Element
1. A unique student identifier that connects student data across key databases across yea
2. Student-level enrollment, demographic and program participation information
3. The ability to match individual students' test records from year to year to measure acad
4. Information on untested students and the reasons they were not tested
5. A teacher identifier system with the ability to match teachers to students
6. Student-level transcript data, including information on courses completed and grades e
7. Student-level college readiness test scores
8. Student-level graduation and dropout data
9. The ability to match student records between P-12 and postsecondary systems
10. A state data audit system assessing quality, validity and reliability
2005
36
38
32
25
13
7
7
34
12
19
Number of States*
2009
2010
50
52
51
52
50
52
47
49
24
35
23
37
36
46
51
52
33
41
51
52
2011
52
52
52
51
44
41
50
52
49
52
Source: National Center for Education Statistics and BMO Capital Markets. (*) Includes the District of Columbia and Puerto Rico.
DQC also recommended 10 State Actions to ensure data can be linked across education
systems and is accessible to stakeholders. Exhibit 67 outlines states progress in meeting these
actions. We note attainment was the highest in 2012, but trends have been choppy.
Exhibit 67. States Progress Toward Meeting Data System Actions (20102012)
State Action
1. Link state K-12 data systems with early learning, postsecondary education, workforce,
social services and other critical agencies
2010
10
No. of states
2011
2012
11
14
2. Create stable, sustained support for robust state longitudinal data systems
32
27
35
3. Develop governance structures
40
36
40
4. Build state data repositories (e.g., data warehouses) that integrate student, staff,
financial and facility data
40
44
45
5. Implement systems to provide all stakeholders with timely access to the information
they need while protecting student privacy
6. Create progress reports with individual student data that provide information
educators, parents and students can use to improve student performance
23
29
36
7. Create reports that include longitudinal statistics on school systems and groups of
students to guide school-, district-, and state-level improvement efforts
27
36
42
8. Develop a purposeful research agenda and collaborate with universities, researchers

and intermediary groups to explore the data for useful information
28
31
38
9. Implement policies and promote practices, including professional development and

credentialing, to ensure educators know how to access, analyze and use data
appropriately
10. Promote strategies to raise awareness of available data and ensure that all key
stakeholders, including state policymakers, know how to access, analyze and use the
information
23
26
Source: National Center for Education Statistics and BMO Capital Markets. (*) Includes the District of Columbia and Puerto Rico.
K-12 hardware
K-12 hardware market. Using Gartners definition, hardware spending, and computers (e.g.,
sector estimated
networking equipment, PCs, notebooks, tablets and other electronic devices) is expected to
represent roughly 14% of total US K-12 technology spending in 2013, reaching roughly $1.31
billion. Using Gartner estimates, we forecast roughly 3% CAGR growth to $1.52 billion in 2018.
3% CAGR through
2018
These products are generally provided by the largest global computer companies including
Apple (AAPL), Dell (DELL), Hewlett-Packard (HPQ), Panasonic, Sony, and Samsung.
However, there are many niche companies with products serving the education market,
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Financial Group
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K-12 Education
BMO Capital Markets
including Amplify Education (part of News Corp.), Brainchild, Educad Learning Solutions,
EduMetry, and eInstruction Corp.
Almost all US
public schools
have computers
with internet
A May 2010 (latest available) report by the NCES found that 97% of US public schools have
instructional computers with internet access inside classrooms and that the average number of
computers per classroom was three. Using average class sizes per the OECD (2007-2008
school year), this amounts to roughly 7-8 students per computer (see Exhibit 68).
access
Exhibit 68. Technology Hardware Use and Penetration in K-12

Schools (Fall 2008)
Computing and Technology Hardware
Schools with fixed instructional computers in classroom
School with mobile laptop cart
Schools with available take-home computers
Average number of fixed computers per classroom
Average number of students per computer (including mobile laptops)
Technology Devices
Handheld device (i.e. blackberry) for teachers
Handheld device (i.e. blackberry) for students
LCD and DLP Projectors
Videoconference Units
Interactive Whiteboards
Classroom/student response systems
Digital cameras (still and video)
MP3 Players/iPods
Document cameras (image transferring devices)
Distribution of instructional computers
Laptops on carts
Classrooms
Computer labs
Library/Media centers
other
97%
58%
6%
3
3
% of schools
with device
15%
4%
97%
22%
73%
38%
93%
13%
52%
Students/Teachers
per device
4
21
32
308
65
144
74
69
59
% of computers
14%
51%
27%
6%
2%
Wireless Access
No access
Only from mobile laptops to cart
Access in part of school
Access in whole school
22%
9%
30%
39%
Disagree
23%
60%
Tech infrastructure is adequate

Funding for technology is adequate
Agree
77%
40%
Source: National Center for Education Statistics and BMO Capital Markets.
Younger students
have greater
access to
technology than
their older
According to the Simba Information survey, students at elementary schools generally had
more access to technology than those at middle and high schools. Among the most commonly
used products were computers, interactive whiteboards, and projectors, although tablets and ereaders have made significant inroads considering the short period of time schools have been
using them (see Exhibit 69).
counterparts
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K-12 Education
BMO Capital Markets
Exhibit 69. Technology Hardware Use and Penetration in K-12

Schools (20112012)
Elementary
73.7%
79.5%
61.6%
82.3%
67.4%
36.3%
12.3%
19.8%
3.9%
43.9%
Interactive whiteboards
Projectors
Document camera
Desktop computers
Laptop/netbook computers
Tablet computers/iPads
Ereaders
MP3 players/iPods
Smartphones
Student ressponse systems/clickers
Middle/Jr.High
57.0%
63.2%
46.7%
63.2%
56.7%
25.4%
12.5%
16.0%
4.4%
37.4%
High School
53.9%
58.6%
44.4%
57.4%
53.9%
28.4%
13.9%
15.8%
9.3%
35.6%
Don't Know
1.1%
0.9%
6.5%
0.4%
1.6%
9.3%
19.1%
18.2%
21.1%
8.9%
Source: Simba Information and BMO Capital Markets.
However, despite the growing prevalence of in-school computing, we believe several

implementation hurdles remain, including:
Implementation, support, and infrastructure especially difficult for wireless

implementations and the increasing number of devices on a network.
Professional development mainly teacher and administrator training.
Integration and interoperability complicated by the existence of legacy systems and

platform-specific tools.
K-12 IT Systems Market. Another portion of K-12 technology spending includes systems that
help school districts manage and analyze back-office operations, as well as administrative and
transactional data. Traditionally, these enterprise-level applications were primarily operated in
isolation from instructional activities and were reserved for larger school districts with more
than 25,000 students. Recently the market among medium- to small-sized school districts has
grown as schools look to integrate human resources, finance, and procurement system
(HRFPS) and instructional data. This has reduced the deal size, which was typically in excess
of $1 million.
Future growth in the HRFPS segment is expected to be driven by the trend of connecting
entire districts through LMS, as well as the need for data-driven decision making. Still, these
complex business management systems have high switching costs, and therefore, we project
somewhat limited year-over-year growth. Leading providers in this segment include IBM
(IBM), Lawson Software, Oracle (ORCL), Pearson (PSO), and SunGard.
K-12 Online Schools. Online learning generally consists of two formats: (1) fully online
virtual schools (100% online); and (2) blended learning (combined online with in-class
learning).
Drivers of K-12 online learning include technological advancements, greater access, a need to
cut costs, and a robust market of new product development from new and existing players.
Additionally, we believe online learning has benefitted from an overall positive legislative
environment and greater public support.
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K-12 Education
Various estimates
of the K-12 online
school market,
BMO Capital Markets
Some estimates of the size of this market include the following:
Evergreen estimates there were approximately 275,000 students enrolled in full-time

online schools in the 2011-2012 school-year - up from 250,000 in the prior year.
Additionally, there were 620,000 online course enrollments (one student on a onesemester-long course) in 28 state virtual schools.
The National Alliance for Public Charter Schools estimates that of the 4,921 charter
schools in 2009-2010, about 219 (4.5%) were virtual schools and 134 (2.7%) were hybrid
virtual schools. We note there were an estimated 6,000 charter schools in the 2012-13
school year, but the virtual school breakdown was not available.
According to the NCES, in the 2009-2010 school year (latest data available), there were
an estimated 1.82 million enrollments in distance education courses in K-12 school
districts, almost all of which were online courses, with about 74% at the high school
level.
In 2011, approximately 40 states operated or authorized online schools that students may
attend full or part time, with 30% of high school and 19% of middle school students
having taken at least one course either blended or fully online. In addition, 30 states and
Washington, D.C. have statewide full-time online schools, while 27 states have state
virtual schools.
but all show a

small but robust
segment
We provide some detail on differing models based on research provided by Evergreens

Keeping Pace with Online Learning below:
Single-district online programs are created by a district primarily for students within
that district. While they may be fully online, most provide supplemental online courses
for students enrolled full-time in the district and accessing most of their courses in a
physical school. Single district programs are the fastest-growing segment of both online
and blended learning.
Multi-district fully online schools are the main education providers for their students,
who do not need to go to a physical school to access any aspect of their education
(although they may do so). These schools focus on fully online schools that operate
across multiple school districts and often draw students from an entire state.
State virtual schools are created by legislation or by a state-level agency. They are
often, but not always, administered by a state education agency and funded by a state
appropriation or grant to provide online learning opportunities to students across the
state. They also may receive federal or private foundation grants, and they sometimes
charge course fees to help cover operating costs. Some of the largest state virtual
programs include:
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Florida Virtual School, founded 1997, with 303,329 course enrollments in 2012.
North Carolina Virtual Public School, founded in 2007, with 97,170 course
enrollments in 2012.
Alabama ACCESS, founded in 2005, with 44,332 course enrollments in 2012.
Financial Group
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September 2013
K-12 Education
BMO Capital Markets
Consortium and online programs often are developed by districts, education service
agencies, or intermediate service units that wish to create efficiencies by combining
resources. They usually serve students from multiple districts that join the consortium.
Postsecondary programs include many private pay options, but this report focuses on
programs working with school districts to provide publicly funded options to students.
We believe the growth of public online schools represents an enormous opportunity for
vendors of educational technology products. According to the 2008 Sloan survey (latest
available), independent vendors were the third most common supplier of fully online content,
and the fourth most common supplier of blended programs (see Exhibit 70).
Exhibit 70. Online Content Providers to Public K-12 Schools (2008

Survey)
Instruction Providers
Postsecondary institution
State virtual school in state (i.e., state-centralized K-12 courses)
Independent vendor
Education service agences (e.g., BOCES, COE, IU)
Another local school district or other district in state
District (i.e., delivered centrally from the district)
State virtual school in another state
Cyber (i.e., online) charter school in district
Other schools in district
Districts or schools in other states (excluding virtual schools)
Other
% of Districts Using Provider

Fully Online
Blended
47%
27%
41%
15%
35%
18%
29%
15%
21%
19%
17%
35%
10%
2%
9%
7%
6%
5%
5%
2%
2%
2%
Source: Sloan Consortium and BMO Capital Markets.
K-12 online
schools more
prevalent at
higher grade
We believe online learning is more prevalent at the higher grade levels, where demand for
credit recovery, AP classes, and other alternative learning is higher, whereas lower grade
levels require more student/teacher interaction and supervision (see Exhibit 71; 2008 survey is
latest data available).
levels
Exhibit 71. Percentage of Students in Online Courses by Grade

Level (2008 Survey)
Grade
K-5
6-8
9-12
Other
Fully Online
21%
15%
64%
<1%
100%
Blended
1%
20%
78%
<1%
100%
Total
14%
17%
69%
<1%
100%
Virtual schools
can be more
profitable than
brick-and-mortar
charter schools
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Virtual schools should generate larger profits than their brick-and-mortar charter peers. While
they typically receive the same amount of per-student funding (albeit less than that given to
traditional public schools), they have a lower cost structure (i.e., no buildings, fewer
teachers, etc.) An October 2006 report by consultants Augenblick, Palaich & Associates
estimates that start-up costs for a virtual school serving 500 students would be in the
$1.5 million range, and annual FTE costs were estimated at $7,200-$8,300 per full-time
student. However, we believe there are a number of scale benefits similar to most technologydriven businesses, allowing larger virtual school operators to generate sizeable margins,
despite being funded at lower rates than traditional bricks-and-mortar schools.
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September 2013
K-12 Education
BMO Capital Markets
In Exhibit 72, we outline the cost similarities and differences between operating virtual and
brick-and-mortar schools.
Exhibit 72. Cost Types: Brick and Mortar vs. Virtual Schools
Brick-and-Mortar School Only
Buildings and grounds maintenance
Security
Transportation
Energy
Computer and internet access for
every teacher
Substitute-teacher costs (for sick
days or professional development)
Athletics
Music program (e.g., band)
Online School Only

Space for offices and computer lab
for students
Course-management system
Course content
Computer and Internet access for
every teacher and student
Mobile-communication device for
teachers (e.g., cellphone) and
network
Technology support (e.g., help desk,
course updating, server
maintenance)
Marketing and advertising
Nursing services
Both
Administration
Teachers
Students
Professional development
Student-information system
State testing system
Textbooks
Courses and course outlines
approved by governing board
Access to computers
Special education services
Student support (counseling, library)
Network infrastructure
Telephones and network
In many instances, the virtual school model is similar to the charter school model, where a
not-for-profit entity receives the charter and hires an education management firm, or an EMO,
to operate the school. According to the National Education Policy Center, there were 104
EMO-operated virtual schools in 2011-2012 (latest available), with 95 of these operated by
for-profit EMOs. Of the schools operated by for-profit EMOs, the bulk were run by five largesized organizations: K12 Inc. (LRN), Leona Group, Mosaica Education, Pearsons (PSO)
Connections Academy, and White Hat Management.
K-12 online
schools growth
drivers and
headwinds
Unique drivers of K-12 online learning include:
Credit recovery and supplementary courses.
Parental choice or child need for an online or distance environment.
Higher quality of online offerings and improved access.
The increasing acceptance of charter schools and raising of enrollment caps.
The growth of district-led online schools and online consortium schools.
Philanthropic initiatives and grants such as the Bill and Melinda Gates Foundation and
the Dell Foundation.
Hurdles to growth include the following:
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Fiscal caps. While virtual schools may reduce per-student funding costs, funding models
where money does not follow the student are vulnerable to cuts in state and federal
spending programs.
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K-12 Education
BMO Capital Markets
Student outcomes. As of yet, there are no definitive studies on the outcomes of 100%
online education. In fact, recent EDs Annual Yearly Progress data (AYP) found that
many fully online for-profit EMO schools performed below their ground-based peers. We
believe this is driving more district-led online school models as parents, teachers, and
administrators seek non-profit, local alternatives that often have a ground-based
component.
Enrollment caps. Many states put limitations on virtual school enrollment, prohibit
cross-district enrollment, or require certain teacher certifications. We believe online

schools will continue to be subject to strong enrollment regulation.
Accreditation. As online school accreditation is relatively new and uncharted territory,
we believe substantial risk remains to both consumers and providers, as consumers may
enroll in unaccredited schools while providers may be subject to evolving accreditation
standards.
Ownership models. Online charter schools are often operated under a charter held by a
non-profit entity, which then hires a for-profit company to run and manage the school.
We believe this model has created some controversy among those who believe state
funding should not be funneled to for-profit schools.
We believe the relatively mixed M&A record in this space speaks to the difficulty the private
sector has had in building for-profit online schools. Except for K12 (LRN), the track record
for public company investment in this space has been subpar:
In January 2007, Apollo Group (APOL) acquired Insight Schools, which served roughly
600 students in Washington State, for $15.1 million. However, after continuing losses,
APOL sold the business in February 2011 to the Washington Posts (WPO) Kaplan unit.
In May 2011, K12 Inc. (LRN) purchased Kaplans K-12 assets including Insight Schools.
In October 2007, DeVry (DV) acquired Advanced Academics, which operated virtual
high schools in six states, for $27.5 million. Then, in August 2012, the company
announced it was taking a $19 million impairment charge at this unit in FY4Q12, owing
to disappointing revenue performance. In August 2013, DeVry announced plans to sell
the unit.
Recent notable technology deals in the K-12 space include:
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In March 2012, Plato Learning acquired Archipelago Learning for $291 million, a 23%
premium to the stocks prior closing price and EV/TTM EBITDA multiple of 14.3x.
In August 2011, Renaissance Learning announced plans to be taken private by private

equity firm Permira for $440 million. The price was a 26% premium over the stocks prior
close and implied an EV/TTM EBITDA multiple of roughly 10.9x EV/TTM EBITDA.
In August 2011, Apollo Group (APOL) announced the acquisition of Carnegie Learning,
a developer of learning tools for K-12 students, for $96.5 million. The rationale was to
de-emphasize Carnegies K-12 business while using the companys software for its
students at its own postsecondary schools.
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K-12 Education
BMO Capital Markets
In July 2011, Blackboard was taken private by Providence Equity Partners for
$1.64 billion, a 21% premium to the stocks close prior to the announcement and a
roughly 11.6x EV/TTM EBITDA multiple.
In November 2010, News Corporation (NWSA) acquired Wireless Generation, a K-12

provider of digital curriculum and student assessment and performance software, for
$360 million.
Other K-12 Services

Using prior Eduventures definitions, we have defined three categories in the Other K-12
Services segment within K-12 education:
Other K-12
services: declined
through 2010,
expected 2.5%
CAGR through
2018
1.
Professional development
2.
Tutoring and test preparation
3.
Outsourced school administration
It was difficult to accurately assess the size of this market owing to classification differences.
Nevertheless, using prior Eduventures estimates and more recent Outsell projections, we
estimate that roughly $6.9 billion in revenues will be generated from the Other K-12 services
market in 2013, increasing by roughly 2.9% from 2012. We are cautiously optimistic that
growth will continue and forecast revenues to increase 2.5% CAGR thereafter, reaching
roughly $7.7 billion in 2017 (see Exhibit 73). We believe professional development may
experience the highest growth rate as teachers transition to CCS-based curricula.
Exhibit 73a. Other K-12 Revenues: 20022018E
Revenues (Billions)
Tutoring/Test Prep
Total y/y change
10%
8%
6
6%
5
4
4%
2%
2
0%
20
18
E
20
17
E
20
16
E
20
15
E
20
14
E
20
13
E
20
12
E
20
11
E
20
10
20
09
20
08
20
07
20
06
20
05
20
04
-2%
20
03
20
02
Note: Shaded area represents recessionary period. Source: BMO Capital Markets estimates and
Eduventures.
Professional development. In recent years, more focus has been placed on improving
teaching quality as a means to improve student outcomes. While the initial impetus for this
stemmed in part from the original NCLB Act, which required schools to ensure that all
teachers were highly qualified (HQTs), we believe professional development has become a
more integral part of K-12 education as new teacher tracking and accountability systems
become more widespread, and as schools adopt CCS.
We believe the original HQT requirement was successful in raising awareness of teacher
quality and development issues, as this required all teachers have a bachelors degree and
state certification. In recent years, the percentage of schools reporting HQT compliance has
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76
September 2013
Annual % change
Professional Development
Outsourced School Administration
$8
K-12 Education
BMO Capital Markets
been in the high 90% area vs. the low 90% area in the early 2000s. We note this measure has
come under criticism as some believe the standards have been watered down.
While ensuring teacher quality standards in some form will likely remain a part of ESEA
reauthorization, the switch to the CCS may be the next catalyst for increased professional
development as compliance involves a new set of teaching standards. However, as CCS is
only voluntary at this point, the amount of investment schools choose to make in this area is
open to wide speculation at this point. However, we note several companies have started to
market CCS compliant development programs, including Achieve3000, Inspiration Software,
and McRel.
In addition to helping schools comply with standards, we believe professional development
also has the potential to improve retention. In a 2004 study published in the American
Teachers Journal, turnover for first-year teachers with comprehensive induction, which
includes targeted and ongoing professional development, was only 9% versus 20% for those
teachers with no induction.
Professional
development:
expected 3%
CAGR through
2018
It is very difficult to estimate the size of the K-12 professional development market. Using
prior Eduventures estimates, we estimate that roughly $3.77 billion will be spent on K-12
professional development in 2013, increasing roughly 3.3% from the prior year. We are
cautiously optimistic that growth will continue, and forecast 3% CAGR thereafter, reaching
roughly $4.36 billion in 2018 (see Exhibit 73).
Exhibit 73b. K-12 Professional Development Revenues: 2002

2018E
Prof. Dvlpmt. Revenues ($ bil.)
4%
% y/y change
3%
2%
3
1%
0%
-1%
% y/y change
Revenues (Billions)
$5
-2%
18
E
20
16
E
17
E
20
20
14
E
15
E
20
20
12
E
13
E
20
20
11
E
20
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
-3%
Eduventures.
Most development
provided
internally
However, given historical trends, budget pressure, and cost-cutting we believe for-profit
businesses may likely capture only a small piece of this pie. Responding to the Great
Recession, several schools retained professional development in house as a means to save
jobs. In addition, many districts procure professional development locally or regionally, often
from former employees, universities, and smaller outfits whose people they know. According
to an article in Education Week, Pearson (PSO) estimated that in 2007 about half of
professional development was provided internally or by regional education service agencies, a
quarter by nonprofits such as universities, 15% by individuals from outside the district, and
just 10% by for-profit organizations.
Federal funding for teacher quality had remained relatively flat for much of the past decade
(see Exhibit 74).
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Exhibit 74. Teacher Development Budget Programs (FY2009

FY2014E)
($ in mil.)
Effective Teachers and Leaders State Grants
Improving Teacher Quality State Grants
Ready to Teach
Teacher and Leader Innovation Fund
Teacher Incentive Fund
Advanced Credentialing
Teacher and Leader Pathways
Transition to Teaching
Teacher Quality Partnership
Teachers for a Competitive Tomorrow
Baccalaureate STEM and Foreign Languages
Masters STEM and Foreign Languages
Teach for America
School Leadership
Total
CR
Request
FY2009 FY2010 FY2011 FY2012 FY2013 FY2014
0
0
$0
$0 $2,467 $2,467
$2,947 $2,947
2,465
2,467
0
0
0
0
0
0
0
0
0
0
0
0
400
400
97
400
399
299
0
0
11
11
0
0
0
0
0
0
0
0
0
0
44
44
41
26
0
0
50
43
43
43
0
0
0
0
0
0
0
0
1
1
0
0
0
0
1
1
0
0
0
0
0
18
0
0
0
0
19
29
29
29
0
0
$3,170
$3,494
$2,977
$2,864
$2,867
$2,867
Source: BMO Capital Markets and US Department of Education. Note: CR refers to the continuing
resolution reached for they FY2011 budget. FY2013 represents White Houses request.
The three funding programs are defined as follows:
Effective Teachers and Leaders State Grants promote and enhance the teaching profession
through recruitment, preparation, incentives, and retention. The grants are intended to increase
the effectiveness and improve the preparation of teachers and principals.
Online tools offer

affordable
development
options
The Teacher and Leader Innovation Fund makes competitive awards to states and Local
Education Authorities (LEAs) to improving the effectiveness of the education workforce in
high-need schools by creating the conditions needed to identify, reward, retain, and advance
effective teachers, principals, and school leadership teams in those schools.
We believe growth opportunities in this market exist in online professional development tools
as schools have sought less expensive alternatives to traditional in-class professional
development. Additionally, we believe teachers are increasingly using online professional
learning networks for advice, opinions, discussions, collaboration, and lesson planning. These
platforms generally resemble free social networking sites and include ASCD Edge, Classroom
2.0, Edmodo, and Edweb.net.
Market participants in the professional development segment typically fall into one of three
categories: content providers, consultancies, and professional development organizations.
Content providers offer professional development training that aligns with their core business
of educational content sales. Consultancies enter into contracts with the school, district, or
state to provide professional development services. Finally, professional development
organizations focus exclusively on providing development training.
Although the market remains highly fragmented, professional development providers include
a range of publishing companies (e.g., Houghton Mifflin, Pearson) and not-for-profit
providers (e.g., National Center on Education and the Economy, or NCEE). In addition, notfor-profit universities as well as certain for-profit schools (e.g., Laureate Educations Walden
University, Apollo Groups University of Phoenix, and Education Managements Argosy
University) serve this segment of the market. A list of selected K-12 professional
development providers can be found in Exhibit 75.
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September 2013
K-12 Education
BMO Capital Markets
Exhibit 75. Leading K-12 Professional Development Providers

Company (Parent)
AED (Academy for Educational Development)
Canter (Laureate Education)
Edvantia
Ticker
Knowledge Delivery Systems

McREL (Mid-Continent Research for Education
and Learning)
Pearson Pearson Learning Teams, Assessment PSO
Training Institute
School Improvement Network
Solution Tree
Teachscape
Description
Non-profit agency
Provides online, self-guided, self-paced continuing education courses.
Not-for-profit corporation focused in six specialty areas: program evaluation, applied research,
data analytics, school coaching, district performance improvement, and state education
agency capacity building.
Offers online, on-campus, regional, and national workshops throughout the year where
educators can brainstorm, develop new strategies, and gain practical solutions to issues in
teaching and learning. Also trains teachers to become district-level coaches in math and
reading.
Online professional development
Nonprofit, nonpartisan education research laboratory where knowledge about what works in
education is turned into practical guidance for educators
Provides programs such as district professional development, distance and site-based
graduate courses, and master's degree programs.
Known for its Video Jounral of Education programs
Provides comprehensive, research-based professional development for K12 educators
Provides online courses, materials, and regional and national conferences for schools and
districts.
Focuses on professional development programs that helps teachers improve student literacy
rates, principally operating in the western United States.
WestEd Quality Teaching
Source: BMO Capital Markets and Education Week.
importance
A more emerging area of professional development includes teacher evaluation programs.

While controversial, several states and districts are pressing ahead with plans to find new
ways to evaluate teacher performance. States implementing teacher review systems include
Delaware, Georgia, New York, Rhode Island, and Tennessee, among others.
NCLB was early
Tutoring and test preparation. This market comprises third-party providers of test
catalyst, but
preparation and tutoring services for students, with revenues paid by schools and school
districts. In the early 2000s, NCLB was a catalyst for this industry as it required schools to
purchase supplemental education services (SES) from third-party providers. However, we
believe the SES market has struggled in recent years for several reasons including
underutilization, lack of funding to states, and increasing waivers granted to schools freeing
them from NCLB mandates. While we expect tutoring companies selling to private purchasers
will continue to have a niche, we expect the larger opportunity of selling directly to schools
will be difficult.
Teacher
evaluations
gaining
growth now
sluggish
While it is very difficult to estimate the size of the K-12 tutoring and test preparation market,
we have seen estimates as high as $5-$7 billion (Education Industry Association). Using prior
Eduventures estimates, we estimate that just under $1 billion will be spent on K-12 tutoring
and test preparation in 2013, down about 1.5% from the prior year. We are cautiously
optimistic that the sector will once again grow, though project it will take some time to get
back to its prior peak (see Exhibit 76).
A member of BMO
Financial Group
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September 2013
K-12 Education
BMO Capital Markets
Exhibit 76. K-12 Tutoring and Test Preparation Revenues: 2002

2018E
Tutoring/Test Preparation Revenues ($ bil.)
30%
% y/y change
25%
20%
1.0
15%
10%
0.5
5%
% y/y change
Revenues (Billions)
$1.5
0%
8E
6E
7E
20
1
20
1
5E
20
1
3E
2E
4E
20
1
20
1
20
1
1E
20
1
20
1
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
-5%
20
02
0.0
Eduventures.
We attribute the mid-2000s growth in this sector to NCLB. Under the original framework of
NCLB, schools not meeting AYP for two consecutive years were required to use a portion of
Title I funding to provide SES to students in the form of after-hours programs, in-school
tutoring, or online instruction. While this helped drive strong growth in this segment (an
estimated CAGR of 17% from 2002 to 2006, according to Eduventures), As shown in Exhibit
77, the total number of tutoring service providers more than tripled to 3,050 between 2003
and 2008 (latest data available), mostly attributed to private providers. Between May 2003
and May 2008 the share of private SES providers increased to 88% from 60%, while the share
of district and school providers decreased to 10% from 32%.
Exhibit 77. Approved Providers of Supplemental Education

Services (20032008)
3,000
Private providers
School districts and public schools
Other
Number of providers
2,500
2,000
1,500
1,000
500
0
2003
2004
2005
2006
2007
2008
Source: BMO Capital Markets estimates and US Department of Education.
Number of
providers has
fallen dramatically
A member of BMO
However, we believe demand for private SES has waned as school budgets have come under
pressure and NCLB waivers have enabled schools to provide SES themselves, as opposed to
outsourcing to third parties. In August 2013, the head of the Education Industry Association
was quoted in Education Week stating that he thought the number of providers has fallen 50%
form its peak. Additionally, we have some conflicting research as to the overall effectiveness
of SES programs.
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K-12 Education
Fraud, scandals
complicate SES
business
Large companies
and technology
products still
prevalent
BMO Capital Markets
Further complicating this industry are the allegations of fraud on behalf of some SES providers.
In May 2012, the Princeton Review was accused of fraudulently billing New York City schools
for millions of dollars in reimbursement for tutoring services over the period from 2006 to 2010
(we note the Princeton Review discontinued its SES business in 2010). Additionally, in March
2006, privately held Platform Learning and Newton Learning were accused of offering cash to
principals and gifts to students in New York City to boost attendance in their programs.
While the growth in this industry that followed NCLB is not likely to return, we believe the
larger providers not reliant on federal funds and that have achieved some scale represent
relatively more stable investments. These include Huntington Learning, Kaplan (a subsidiary
of Washington Post [WPO]), Kumon, and Sylvan Learning. We also believe continued
technology and online enabled products will continue to emerge, adding more investment
opportunities in this sector. Companies that specialize in online tutoring and test preparation
include domestic providers such as Tutor.com (acquired by IAC in January 2013) and
Smarthinking, and offshore providers such as Edcomp Solutions and TutorVista. We believe
websites such as Khan Academy would also fit into this description. We have provided a list
of companies providing K-12 tutoring and test preparation services in Exhibit 78.
Exhibit 78. Leading K-12 Tutoring and Test Preparation Providers

Provider
A to Z In-Home Tutoring
Brainfuse Inc.
Club Z! Inc.
EdisonLearning
Educateonline
Failure Free Reading
Huntington Learning Centers
Kaplan K12 Learning Services
Knowledge Learning Corp.
Kumon North America
Newton Learning - Edison Learning
PLATO Learning
Princeton Review
Sylvan Learning Systems
University Instructors Inc.
Ticker
Type
Types of Delivery
WPO
SES/private
SES
SES/private
SES/other public
SES
SES/private
SES/private
SES/other public
SES/other public
SES/private
SES/other public/private
SES
Individual tutoring; small-group instruction

Individual and online tutoring
Individual and online tutoring; large- and small-group instruction
Large-group instruction
Large- and small-group instruction
Individual instruction; large- and small-group instruction
Large-group instruction
Computerized instruction
Large- and small-group instruction
Individual tutoring; online courses; small-group instruction
Source: BMO Capital Markets and Eduventures.
EMOs a
Outsourced school administration. Education management organizations (EMOs) were
flourishing part of
introduced in the early 1990s and manage traditional K-12 public schools on behalf of a
school district (contract schools) or manage charter schools as the charter holder (charter
schools) or under contract with the charter holder (contract charters). EMOs grew out of
widespread interest in market-based school reform, and, in the early years, were mostly
contract schools. However, with the rise of the school voucher system and charter schools
both models that allowed taxpayer funds to follow students to independent schools EMOs
have increasingly moved toward charter school management (typically managing schools for
another entity that held the charter) and contract charter management.
K-12 landscape
EMOs have been controversial as some view them as diverting funds from traditional schools,
while others do not support the for-profit motive. Nevertheless, they have flourished in recent
years owing to greater political acceptance and advances in technology that have created a
new market for online K-12 learners. While concerns over quality and outcomes remain, we
believe the EMO model will continue to grow. However, as shown in charts below, the nonA member of BMO
Financial Group
81
September 2013
K-12 Education
BMO Capital Markets
profit side of this business is growing faster than that of their for-profit peers - a trend we
expect to continue in the near- to mid-term.
Non-profit EMOs
outnumber forprofits, and
gaining share
According to data from the National Education Policy Center (NEPC), there were 296 EMOs
in the 2010-2011 school year, a roughly 30% CAGR from only six in 1995-96 (see Exhibit
79). However, much of this growth has come from non-profit EMOs, which represented
roughly 67% of the total in 2010-2011.
Exhibit 79. Number of For-Profit and Nonprofit EMOs (19962011

School Years)
250
For Profit EMOs
Nonprofit EMOs
200
150
100
50
2010-2011
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
2004-2005
2003-2004
2002-2003
2001-2002
2000-2001
1999-2000
1998-1999
1997-1998
1996-1997
1995-1996
Note: NEPCs Measurement methodology changes frequently and may not include some smaller EMOs.
Source: National Education Policy Center and BMO Capital Markets.
When looking at the number of EMO managed schools, the trend is somewhat similar. As
shown in Exhibit 80, for-profit EMO school growth outpaced that of non-profit schools early
in the 2000s, but has been stagnant in recent years, losing share to non-profit schools, which
represented about 61% of the total in 2010-2011.
Exhibit 80. Number of For-Profit and Nonprofit EMO Schools

(19962011 School Years)
1400
For-profit EMO schools
1200
Non-profit EMO schools
1000
800
600
400
200
2010-2011
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
2004-2005
2003-2004
2002-2003
2001-2002
2000-2001
1999-2000
1998-1999
1997-1998
1996-1997
1995-1996
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But for-profit
Finally, when looking at students in EMO schools, for-profit student growth has largely
outpaced that of non-profit growth. However, as with the two charts above, for-profit student
growth appears to be flattening while non-profit student growth remains on an upswing (see
Exhibit 81). We note that, on average, for-profit EMO schools enroll considerably more
students, at 520 per school, versus 328 for non-profit schools in the 2010-2011 school year.
We attribute this to the greater scaling abilities of virtual schools, which skew toward the forprofits.
EMOs have
relatively larger
schools (in terms
of number of
students)
Exhibit 81. Number of For-Profit and Nonprofit EMO Students

(2002-2011 School Years)
450,000
For-profit EMO students

375,000
Non-profit EMO students
300,000
225,000
150,000
75,000
2010-2011
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
2004-2005
2003-2004
2002-2003
2001-2002
We attribute non-profit EMO growth to several factors including better technology and virtual
offerings, and the emergence of non-profit consortiums that have formed in recent years to
help schools build virtual offerings through the sharing of resources, technology and best
practices. Additionally, given concerns over education quality and outcomes, we believe
consumers tend to prefer non-profit based education alternatives (if available) as they are
often viewed as having fewer conflicts of interest. Still, we note non-profit EMOs may still
purchase content from for-profit providers.
District
takeovers
Political
environment
becoming more
favorable to
EMO model
A member of BMO
We have also seen instances where for-profit EMOs have taken over entire schools districts
that have been underperforming. In July 2012, for-profit provider Leona Group LLC was
invited to take over the three schools in the Highland Park, Michigan school district after
years of academic underperformance and accusations of financial improprieties. This follows
Muskegon Heights, Michigans decision the same month to hire for-profit provider Mosaica
Education to run that districts four schools; that district faced some similar issues.
Despite the controversy, we believe the EMO model is here to stay. This has partly been
driven by growing dissatisfaction with traditional schools that has led to more support for
alternative models. Additionally, we believe the political environment is relatively favorable,
and note the current Secretary of Education, Arne Duncan, is on record as a strong supporter
of the charter school system. While a reauthorization of ESEA may lead to more regulation,
this may also bring more legitimacy and stability to the business model.
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Quality concerns
Negative publicity
EMOs: expected
2.6% CAGR
through 2018
BMO Capital Markets
However, we believe fully online for-profit EMOs face the toughest criticism when it comes
to quality, as these outcomes are likely the hardest to measure. According to the NEPC, forprofit EMO schools were not far below the national rate, with 48% making AYP compared to
52% of all public schools in the 2010-2011 school year. But when looking only at for-profit
virtual schools, those making AYP fell to 27%. We note some of this may be skewed, as
virtual schools often cater to lower performing student groups.
A headwind for the sector remains the negative fallout from high-profile failures. For
example, in April 2012 the Missouri Board of Education voted to close six charter schools
operated by Imagine Schools, citing poor performance and allegations of financial
improprieties. In New Orleans, many of the charter schools that partnered with for-profit
operators following Hurricane Katrina in 2005 eventually severed those ties in ensuing years.
In 2002, Pennsylvania took over the Philadelphia school district and gave 45 schools to forprofit and non-profit EMOs to manage; however, by 2010, the district had taken many of
those schools back owing to poor results. This has resulted in some negative legislation, such
as in New York, where although the charter school cap was raised in May 2010, the state
banned operators from hiring for-profit entities to manage schools.
It is very difficult to estimate the size of the K-12 outsourced school administration market.
Using prior Eduventures estimates, we estimate that just over $2 billion will be spent on K12 outsourced school administration in 2013, increasing about 3% from the prior year. We are
cautiously optimistic that annual growth will continue and forecast 2.6% CAGR, reaching just
over $2.3 billion in 2018 (see Exhibit 82).
Revenues (Billions)
$2.5
Outsourced School Admin. Revenues ($ bil.)
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
% y/y change
2.0
1.5
1.0
0.5
20
17
E
20
18
E
20
15
E
20
16
E
20
13
E
20
14
E
09
08
07
06
05
04
10
20
11
E
20
12
E
20
20
20
20
20
20
20
03
20
20
02
0.0
% y/y change
Exhibit 82. K-12 Outsourced School Administration Revenues

(20022018E)
Eduventures.
The EMO segment has a number of different components:

Charter schools are independent publicly funded schools typically governed by a group or
organization under a legislative contract or charter with the state or jurisdiction. The charter
exempts the school from having to comply with state or local regulations. In return, the school
must meet accountability standards articulated in its charter, which is reviewed periodically
(typically three to five years). Often highly politicized, charter schools are widely viewed as a
disruptive movement within education, as these schools are often formed by groups that are
unsatisfied with current educational options and seek to create something that provides an
educational alternative or challenges the status quo. Additionally, as charter holders often
contract with private companies to run all or part of the schools, charter schools have become
a key component of market-based education models.
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Charter schools are often formed with a more pointed mission than traditional schools, and
often have specific goals to teach certain curricula, appeal to specific demographics or attain
certain academic goals. As a result, governance systems vary widely, but often include a blend
of non-profit and for-profit agencies. A typical example may be a non-profit group that holds the
charter, but contracts with a for-profit company to operate the school or provide curricula. In
recent years there has been an increase in the number of not-for-profit Charter Management
Organizations (CMO) such as Aspire Schools and Knowledge Is Power Program (KIPP). We
believe growth drivers of this industry include favorable regulatory policies, poor performance
of traditional schools, greater public acceptance of charters, and the rise of virtual learning.
Industry has
shown solid
growth
The first charter school was approved in Minnesota in 1992 and the industry has shown
impressive growth since. According to the National Alliance for Public Charter Schools
(NAPCS), there were nearly 6,000 K-12 charter schools serving nearly 2.3 million students in
the 2012-2013 school year. Since the 1999-2000 school year, the number of charter schools
has grown on average by roughly 11% annually, while charter school enrollment has
increased at roughly 15,5% annually, clearly outpacing the less than 1% average K-12
enrollment growth over the same period (see Exhibit 83). According to the NAPCS, for the
2010-2011 school year (latest data available), roughly 68% of all charter schools were
freestanding organizations, 12% were run by EMOs, and 20% run by CMOs.
Schools
2,500,000
6,000
Students
2,000,000
5,000
4,000
1,500,000
3,000
1,000,000
2,000
500,000
1,000
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
0
1993-94
No. of Students
7,000
1992-93
No. of Charter Schools
Exhibit 83. K-12 Charter Schools and Enrollment (19921993 to

20122013)
Note: Number of students prior to 1995-96 school year was not available.
Source: BMO Capital Markets, National Alliance for Public Charter Schools, Charter School Leadership
Council and Center for Education Reform.
Charter schools
represent about
3% of total K-12
enrollment . . .
Data from NCES varies slightly, but it estimates that in the 2010-2011 school year (latest data
available), there were 5,274 charter schools operating in the US (roughly 3.3% of all K-12
schools), serving about 1.8 million students (roughly 3% of total enrollment; see Exhibit 84).
Exhibit 84. K-12 Market by Segment: Number of Schools and

Enrollment (20102011 School Year)
Public
Private
Charter
Total
Schools
# of schools
93,543
33,366
5,274
132,183
total %
72.3%
25.8%
4.1%
102.1%
Enrollment
(x1000)
total %
47,391
87.0%
5,391
9.9%
1,787
3.3%
54,569
100.2%
Students
Per School
507
162
339
336
Source: Center for Education Reform, BMO Capital Markets and US Department of Education National
Center for Education Statistics.
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85
September 2013
K-12 Education
State regulations
limit growth
But acceptance
growing
High waitlists at
charter schools
BMO Capital Markets
The growth of charter schools is highly dependent on state and local regulation. Currently,
according to the NCES, the nine states that do not have any charter programs include
Alabama, Kentucky, Montana, Nebraska, North Dakota, South Dakota, Vermont,
Washington, and West Virginia. However, even states that allow charters do so at varying
degrees, and often impose limitations on enrollment and growth. According to the NAPCS, 23
states had some type of caps on charter schools and enrollment in the 2009-2010 school year
(latest available). This results in different charter penetration rates across the country.
Nevertheless, while states and districts continue to tussle on charter regulations, we believe
the environment for charters schools has generally become more favorable over time. In 2009,
President Obama called on states to lift charter caps, and, in recent years, several states
including Arkansas, Louisiana, Massachusetts, Michigan, New Hampshire, and Oregon have
lifted (though not always removed) charter caps, with others, such as Texas, considering
similar action. In general, we attribute this change to states desires to save costs while
addressing the issue of perpetually underperforming schools. But public perception of charters
has also been turning more positive. According to a September 2011 Kappan/Gallup poll,
70% of Americans approved of the concept of charter schools.
Another indicator of growing demand for charters is the high level of students on wait lists.
According to the NAPCS, 610,000 students were on wait lists to attend charter schools in the
fall of 2011 (latest available) - up dramatically from 365,000 students in the fall of 2008, the
first year of the survey (see Exhibit 85). According to the survey, 64% of charter schools
reported having children on their waiting list, with an average list of 228 students per school.
We believe waiting lists continue to grow and note a quick web search turns up many stories
providing anecdotal evidence.
Exhibit 85. Total Charter School Demand (20082009 to 20112012

School Years)
3,000,000
Charter school enrollment
Charter school demand
2,500,000
Students
2,000,000
1,500,000
1,000,000
500,000
0
2008-09
2009-10
2010-11
2011-12
Source: National Alliance for Public Charter Schools and BMO Capital Markets. Note: Charter school
demand data only tracked back to 2008-09. 2011-12 demand data is BMO estimate.
Virtual education
driving growth
A member of BMO
We attributed some of this increase in demand to the growth of online learning and virtual schools.
While states are increasingly offering their own virtual school options, the private sector has led
this growth. According to NEPC, students enrolled in EMO-operated virtual schools had grown to
115,000 in the 2010-2011 school year (latest available) from 11,500 in 2003-2004.
Financial Group
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Private school
The growth in charter school enrollment coincides with a decline in private school enrollment.
According to NCES, enrollment in private schools of roughly 5.39 million in the 2010-2011
school year (latest available) was down nearly 15% from a peak of 6.32 million in the 20012002 school year (see Exhibit 86). As of percentage of total K-12 enrollment, private schools
represented 9.8% in the 2010-2011 school year down from a peak of 12.7% in the mid1980s.
enrollment
declining as
charter school
enrollment rises
Private school enrollment (millions)
Private School Enrollment (in millions)
% of total K-12 enrollment
13%
12%
6
11%
5
10%
9%
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
Percentage of total K-12 enrollment
Exhibit 86. K-12 Private School Enrollment and Percentage of

Total K-12 Enrollment (Fall 1970 to Fall 2010)
Note: Enrollment for fall of each year, not all years available. Tuition data for 2001-2002 and 2005-2006
are BMO estimates.
Financial hurdles
One impediment to the charter schools sector is the lack of funding relative to traditional
schools. Typically, charter school operators must fund real estate, facility, and other start-up
costs on their own; preliminary data from an April 2013 survey by the NEPC shows that charter
schools that rent their facility from a private organization spend more (10.2%) than schools that
own their facility (9.4%) and those that rent the facility from a school district (2%).
Additionally, charter schools typically receive less funding overall; according to the Center
for Education Reform, funding is about 27% less at roughly $7,600 per student versus
$10,400 for traditional public schools (2010-2011 school year; latest available). This requires
charters to find alternate funding sources, either private lenders or bank loans. Additionally,
we believe this has helped drive the growth of consortiums of charter groups and management
organizations, which often make it easier to source funding initial costs.
Growth has not

been without
controversy
Research is mixed
A member of BMO
Charter schools remain somewhat controversial, however. What was originally intended as an
experimental arm for traditional schools where new ideas could be tested has evolved into an
industry that is sometimes viewed as more of an adversary than a partner. While advocates of
the industry view charters as a healthy dose of market-based stimulus for a failing system,
detractors view charters as not providing any better outcomes while luring students and
funding away from already struggling traditional schools.
Part of the controversy stems from the mixed research on charter school outcomes. Given the
high degree in variability of charter schools (demographics, mission, teaching style), it is
difficult to compare results to traditional schools or even other charters. While there are
dozens of studies on the subject, two high profile examples of recent (and somewhat mixed)
research include:
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A June 2009 report by Stanfords Center for Research on Education Outcomes (CREDO)
analyzed data on more than 70% of the nations charter school students in 15 states and the
District of Columbia. The study found that 46% of charter school students had math gains
that were statistically indistinguishable from their public school peers, while 17% of
charter students exceeded traditional students and 37% fell below. However, the study
found much variation across states.
A June 2010 report by Mathematica examined the performance of students who were
admitted to charter middle schools through a randomized lottery process against those who
were not. On average, the research found the charter school students performed no better or
worse than traditional public schools. However, charter schools were more effective for
lower-income and lower-achieving students and less effective for higher-income and
higher-achieving students. In addition, the study found charter schools in large urban
districts had a positive impact on math achievement, while charter schools outside large
urban districts had a negative impact.
There are many other issues that confront this sector as well. For one, there have been several
highly publicized incidents of charters being closed owing to financial mismanagement.
Additionally, the sector is often criticized for being unwelcoming of teacher unions, having
selective student enrollments, and creating political tensions among state and local regulators.
Contract schools
While not as common as they once were, contract schools are public schools operated by
private organizations, typically under management agreements with local school boards.
Unlike charter schools, contract schools do not require specific statutory authority but are
created through a contract between a school management company and a school board.
However, like charter schools, contract schools are accountable for student performance and
may lose contracts if they fail to meet specified standards. In addition, contract schools are
typically less expensive to fund as they often use existing facilities and therefore do not
require real-estate-related financing as do charter school operators. In addition, both
organizations are almost exclusively funded through taxpayer dollars and operate under a
profit motive that encourages efficiencies not found in public schools.
Top EMOs
With the exception of K12 (LRN) and Connections Academy (owned by Pearson [PSO]), all
of the major EMOs (charter and contract school operators) are privately held, although not all
are for-profit (e.g., KIPP). A list of the top 20 for-profit and not-for-profit EMOs (ranked by
enrollment) can be found in Exhibits 87 and 88.
A member of BMO
Financial Group
88
September 2013
K-12 Education
BMO Capital Markets
Exhibit 87. Top 20 For-Profit Educational Management Organizations (ranked by

students in 20102011 school year)
Rank
1
8
2
3
4
5
6
7
9
10
11
12
13
14
15
16
17
18
19
20
Company
K12, Inc. (LRN)
Charter Schools USA*
National Heritage Academies
Imagine Schools
EdisonLearning (formerly Edison Schools)
Academica
Connections Academy (PSO)
The Leona Group, LLC
White Hat Management LLC
Mosaica Education
Altair Learning Management
Insight Schools
SABIS Educational Systems
Victory Schools
Constellation Schools
OmniVest Properties Management, LLC
The Romine Group
CS Partners, LLC
Cambridge Education LLC
Global Educational Excellence
Location
Herndon, VA
Fort Lauderdale, FL
Grand Rapids, MI
Arlington, VA
New York, NY
Miami, FL
Baltimore, MD
Phoenix, AZ
Akron, OH
New York, NY
Columbus, OH
Portland, OR
Eden Prairie, MN
New York, NY
Parma, OH
Newtown, PA
Utica, MI
Hartland, MI
Westwood, MA
Ann Arbor, MI
Public Schools
Under
Management
49
58
67
83
49
56
14
61
46
33
1
8
9
15
18
8
5
13
6
9
That are
Charter
Schools
37
48
67
83
33
56
11
61
45
32
1
8
9
14
18
8
5
13
0
9
Students in
Managed
Schools
65,396
50,000
42,503
38,656
28,863
23,424
20,403
17,947
15,245
10,520
8,361
8,049
6,735
5,829
3,925
3,843
3,665
3,626
3,067
3,003
Note: Charter Schools USA data obtained from company and website. Source: BMO Capital Markets based on information compiled by the
National Education Policy Center, University of Colorado at Boulder.
Exhibit 88. Top 20 Not-For-Profit Educational Management Organizations (ranked by

students in 20102011 school year)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Organization
Knowledge is Power Program (KIPP Foundation)
Partnership for Los Angeles Schools
Cosmos Foundation, Inc.
Academy for Urban School Leadership
Aspire Public Schools
Green Dot Public Schools
Concept Schools
Options for Youth
American Quality Schools
Responsive Education Solutions
Alliance for College-Ready Public Schools
IDEA Public Schools
Uncommon Schools
PPEP and Affiliates
UNO Charter School Network
Achievement First
Uplift Education
ICEF Public Schools
Lighthouse Academies
YES Prep Public Schools
Location
San Francisco, CA
Los Angeles, CA
Houston, TX
Chicago, IL
Oakland, CA
Los Angeles, CA
Rosemont, IL
Hesperia, CA
Chicago, IL
Lewisville, TX
Los Angeles, CA
Weslaco, TX
New York, NY
Tucson, AZ
Chicago, IL
New Haven, CT
Irving, TX
Los Angeles, CA
Framington, MA
Houston, TX
Public Schools
Under That are Charter
Management
Schools
102
102
21
0
33
33
19
0
30
30
18
18
25
25
8
8
13
13
38
38
18
18
16
16
16
16
12
12
13
13
20
20
17
17
15
15
12
12
8
8
Enrollment
28,261
18,815
16,711
9,843
9,816
8,943
8,384
8,308
7,576
7,324
6,873
6,855
5,568
5,554
5,404
5,293
4,681
4,473
4,469
4,286
Source: BMO Capital Markets based on information compiled by the National Education Policy Center, University of Colorado at Boulder.
A member of BMO
Financial Group
89
September 2013
K-12 Education
BMO Capital Markets
Special education schools are specialty schools that serve children with special education
needs (e.g., autism, learning disabilities). Most of these students are eligible for public
funding under the Individuals with Disabilities Education Act (IDEA) that was reauthorized
in December 2004 with most provisions taking effect in July 2005. We believe this market is
relatively more stable during difficult times as government is generally very reluctant to
reduce this funding owing to political pressures.
Roughly 13% of
US public school
population gets
special education
services provided
According to the ED, in the 2010-2011 school year (latest data available) nearly 6.4 million
school-age children in the US roughly 13% of the total US public school enrollment
received IDEA funding; this is down from the peak of 6.7 million in 2006-2007 (see Exhibit
89). We believe this decline is not necessarily owing to fewer students needing these services,
but rather to more stringent eligibility requirements owing to budget constraints.
by ED
Students served under IDEA (in mil.)
15%
% of total public school enrollment
14%
13%
12%
4
11%
3
10%
2
9%
2008-09
200405
200001
199697
199293
7%
198889
0
198485
8%
198081
197677
Total Served Under IDEA (mil.)
% of Public School Enrollment
Exhibit 89. Students Served Under IDEA (19761997 to 20102011

School Years)
Source: BMO Capital Markets and National Center for Education Statistics.
$78.3 billion spent

on special
education
students in 19992000 school year;
likely now well
above $100 billion
Post-stimulus
spending returns
to more historical
levels
A member of BMO
The latest estimate we have for the size of the special education market is from a 2004 study
by the American Institute for Research Special Education Expenditure Project (SEEP). In the
1999-2000 school year, approximately $50 billion was spent on special education services in
the US or roughly $8,080 per special education student. Another $27.3 billion was spent on
regular education services for these students, while an additional $1 billion was spent on other
special needs programs (e.g., Title I, English language learners), for a grand total of
$78.3 billion, or about $12,369 per student. Given inflation along with the continued increase
in the special needs population, it is likely that total spending is now well above the
$100 billion level.
The current IDEA expired in June 2010 and has yet to be reauthorized, though funding has
continued to be provided. The budget proposal for annual funding has remained relatively flat
at around $12 billion since FY2005 (excluding a $12.2 billion stimulus boost in FY2010; see
Exhibit 90). We note federal funding is normally will below the 40% (i.e., full funding)
levels promised in the original 1975 IDEA.
Financial Group
90
September 2013
K-12 Education
BMO Capital Markets
Exhibit 90. IDEA Funding; (Excluding Stimulus; FY2001FY2014E)

IDEA Funding ($ bil.)
25%
y/y change
20%
15%
10
10%
5%
5
0%
% y/y change
Funding (Billions)
$15
-5%
FY
FY
20
01
20
0
FY 2
20
0
FY 3
20
0
FY 4
20
0
FY 5
20
0
FY 6
20
0
FY 7
20
0
FY 8
20
0
FY 9
20
1
FY 0
20
1
FY 1
20
1
FY 2
20
1
FY 3
20
14
-10%
Source: BMO Capital Markets and Department of Education. Note: FY2010 excludes $12.2 billion in ARRA
funds. FY2012 represents White Houses request.
States may lower

special education
funding under
recent guidance
Voucher funding
reaches
$533 million
Companies
serving special
education market
Traditionally, states were required to maintain special education budgets at current funding
levels to comply with the federal maintenance of effort rule, which requires such funding be
either flat or up year to year, with violations risking the loss of federal funding. However, ED
guidance in mid-2011 allowed states to reduce special education funding in one year, then be
in compliance the following year as long as they met the new reduced level (vs. the prior
formula, which penalized states until they spent at the previous maximum level). While this
may provide more flexibility to states, it could allow special education funding levels to
decrease somewhat.
Over recent years, dissatisfaction with the level of special education provided by public
schools has led to the development of state programs to provide vouchers for special
education students to attend private schools, potentially providing new types of government
funding for providers of these programs. While controversial, these programs are slowly
making headway. According to the Alliance for School Choice, nine states, the District of
Columbia, and one county in Colorado had voucher programs in 2012-2013, enrolling nearly
98,000 students via $533 million in state and federal funding. This compares to just 25,000
students in five states with about $168 million in funding in the 2009-2010 school year. We
believe voucher programs will continue to grow, but note the system remains controversial.
We believe the escalating costs of special education also present opportunities for businesses
that can provide consulting services. Additionally, we note the use of virtual technologies for
special education has also started finding a niche. Some businesses in this space include the
following:
A member of BMO
Operators of alternative or special education schools, such as privately

Education Group, Camelot Schools, Community Education Partners,
Services of America, Specialized Education Services, Inc (ESA) and
Managements LifeSkills Centers and publicly held Providence Service
(PRSC) and Universal Health Services (UHS).
Financial Group
91
held Aspen
Educational
White Hat
Corporation
September 2013
K-12 Education
BMO Capital Markets
Product and service companies that have offerings specifically designed for specialeducation students, including publicly held Cambium Learning Group (ABCD), Catapult
Learning, Futures Education, Renaissance Learning, Scientific Learning (SCIL) School
Specialty (SCHS), and GlobalScholar.
A list of recent transactions of K-12 schools and behavioral healthcare schools (i.e.,
therapeutic) can be found in Exhibits 91 and 92, respectively.
A member of BMO
Financial Group
92
September 2013
K-12 Education
BMO Capital Markets
Exhibit 91. K-12 Schools Recent Transactions (20062013)

($ in millions)
Annc.
Transaction
Date
Jul-13
Jun-13
Jun-13
May-13
May-13
Apr-13
Apr-13
Feb-13
Jan-13
Jan-13
Nov-12
Sep-12
Jul-12
Jun-12
Mar-12
Mar-12
Feb-12
Jan-12
Oct-11
Oct-11
Oct-11
Oct-11
Sep-11
Sep-11
Aug-11
Jul-11
Jul-11
May-11
May-11
Apr-11
Apr-11
Apr-11
Feb-11
Jan-11
Nov-10
Jul-10
May-10
May-10
Apr-10
Mar-10
Feb-10
Feb-10
Jan-10
Jan-10
Sep-09
Sep-09
Sep-09
Sep-09
Sep-09
Jul-09
Jun-09
May-09
May-09
Jan-09
Dec-08
Oct-08
Aug-08
Jul-08
Jul-08
Jul-08
Jul-08
Jun-08
Jun-08
Jun-08
May-08
Apr-08
Apr-08
Apr-08
Mar-08
Mar-08
Mar-08
Mar-08
Mar-08
Mar-08
Mar-08
Feb-08
Feb-08
Jan-08
Oct-07
Aug-07
Jun-07
May-07
May-07
Apr-07
Apr-07
Feb-07
Feb-07
Jan-07
Dec-06
Sep-06
Sep-06
Aug-06
Aug-06
Jun-06
Jun-06
May-06
Apr-06
Target
Lexia Learning Systems, Inc.
Subtext Media, Inc.
Clubhouse Child Care Center, Inc.
Urban International School
WCL Group
Linkman International Language Institute
Cognita Schools, Ltd. (49% stake)
TutorVista Global Pvt. Ltd. (20% stake)
School Specialty
Tutor.com
Editure Professional Development & JBHM Education Group
South Hill Academy
NonPublic Educational Services
Moodlerooms and NetSpot
PrepMe
UP Inc
Windsor Management Group
School-Link Technologies
Edline Holdings
Literacy First
Class.com
Connections Education
Fredericksburg Children's Academy
PrepMe
C2 Educational Systems
Kaplan Virtual Education
Nobel Learning
K12 Inc. (13% stake)
Youth & Family Centered Services
International School of Berne
Insight Schools
Camelot Schools (Education Services Division)
American Education Corporation
Sistema Educacional Brasileiro (School Learning Systems Division)
KC Distance Learning
Pine Crest Private School
AcadeMedia AB
Plato Learning
Imagine Schools (7 Charter Schools)
Oriental University City (10%)
Acorn Care & Education
The Rhoades School
Kent Lep 1 (64%)
Laurel Springs School
Bradford Schools (34%)
Pysslingen Frskolor Och Skolor
Specialized Education Services
Crayon Campus
Netmedia Education
SoftTouch
Fusion Academy
Goalview Performance Information Systems
Southern Highlands Preparatory School
Cambridge Education
Shreiner Academy
Nord Anglia Education
Theducation (16%)
Provost Systems
Sandcastle Private School
11 Charter Schools
Learning.com (51%)
Bearfoot Lodge
Didaktus Skolor
World Class Learning Schools & Systems
UVS Gymnasium (Two Schools in Malm & Kristianstad)
Camelback Desert School
Jardines Vitamina (40%)
Nackademin (Two Schools)
Catapult Learning
ABC Learning Centres Learning Care Group Division (60%)
Little Sprouts
Justin Craig Education
IvyGlen Schools
Advanced Academics
Power-Glide
eInstruction
ABC Learning Centres (12%)
Barnstable Academy
Sagemont Virtual (University of Miami Online High School)
Virtual Sage
Nobel Learning Communities (One School)
Forward Steps Holdings
Insight Schools
La Petite Academy
Aspen Education Group
Educate
College Coach
Education Station (Catapult Learning Division)
Honor Roll School
Nobel Learning Communities (Six Schools)
Child Development Schools
Camelot Schools
Acquiror
Rosetta Stone, Inc.
Little Jewels Learning Center, Inc.
Loyalist Group Limited
Nord Anglia Education
CIBT Education Group Inc.
KKR
Pearson
Bayside Finance
IAC
Weld North & KKR
The Indian Public School
Catapult Learning, LLC
Blackboard
PLATO Learning
DMG (Naviance)
Benesse Holdings
Tyler Technologies
Heartland School Solutions
Blackboard
Catapult Learning
Cambium Learning
Pearson
Phoenix Children's Academy (Audax)
Ascend Learning
Serent Capital
K-12
Technology Crossover Ventures
Acadia Healthcare
K12 Inc.
Kaplan
The Riverside Company
K-12
Pearson
K-12
Phoenix Children's Academy
EQT Partners
Thoma Bravo
Inland Public Properties Development
Khazanah Nasional Berhad
Entertainment Properties Trust
Teachers Private Capital
Kier Group
Entertainment Properties Trust
HSBC Infrastructure Company
Polaris
CGP, Prairie Capital & Twin Bridge Capital
Mini-Skool
Its Learning
AbleNet
Public Consulting Group
Knowledge Learning
Barings Private Equity (Asia)
Skanditek Industrifrvaltning
Edison Schools
Mini-Skool Early Learning Centres
Imagine Schools
Educomp Solutions
Mini-Skool Early Learning Centers (Audax Group)
Anew Learning
Sovereign Capital Partners
Framtidsgymnasiet i Gteborg
AXA & South Cone Administradora General de Fondos
Medstrms Invest & Spinn Investment
JMI Equity
Morgan Stanley Private Equity
Piper Private Equity
Bain Capital
DeVry
K12
Everitt Investments (Temasek Holdings)
Kaplan
Kaplan
Private Preschool Provider
Apollo Group
CRC Health (Bain Capital)
Citigroup, Sterling
Knowledge Learning
Private Preschool Provider
Glencoe Capital
Charterhouse Group
Value
$22.5
NA
NA
$0.3
$237.0
NA
NA
$128.4
NA
NA
$2,400.0
NA
$10.0
NA
NA
$324.3
NA
$118.6
$23.5
NA
$14.9
NA
$4.5
$400.0
NA
NA
NA
NA
$149.0
$125.8
NA
$2.0
NA
NA
$39.3
$460.9
$63.1
NA
$440.1
$109.1
$61.2
$43.9
$44.1
NA
NA
$5.6
$170.0
$12.0
NA
NA
NA
NA
NA
NA
NA
NA
$1.6
$30.0
NA
$357.4
NA
NA
NA
$82.0
$24.5
NA
$7.5
$75.0
NA
$0.4
NA
NA
$100.0
$420.0
NA
NA
$2.1
$1,274.8
$27.5
$4.1
NA
$344.2
NA
NA
NA
$1.9
$48.1
$15.5
$339.4
NA
$535.0
NA
$6.0
$3.0
$2.0
NA
NA
Mean:
Median:

Revenue
NA
NA
NA
0.5 x
NA
NA
NA
NA
NA
NA
1.1 x
NA
NA
NA
NA
4.4 x
NA
1.1 x
2.0 x
NA
NA
NA
1.0 x
2.1 x
NA
NA
NA
NA
0.6 x
2.2 x
NA
NA
NA
NA
1.9 x
1.9 x
1.7 x
NA
1.5 x
1.7 x
NA
NA
NA
NA
NA
NA
NA
1.5 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
2.3 x
NA
NA
NA
NA
NA
NA
0.5 x
2.3 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
1.7 x
NA
NA
NA
4.0 x
NA
NA
NA
NA
NA
4.3 x
0.8 x
NA
1.6 x
NA
0.2 x
NA
NA
NA
NA
2.1 x
1.5 x
EBITDA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
5.7 x
NA
NA
NA
NA
12.7 x
NA
7.8 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
8.7 x
14.6 x
NA
NA
NA
NA
9.9 x
14.6 x
25.4 x
NA
14.0 x
7.0 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
12.8 x
NA
NA
NA
NA
NA
NA
NA
11.9 x
NA
NA
NA
NA
NA
12.7 x
NA
NA
NA
12.1 x
NA
NA
NA
16.6 x
NA
NA
NA
NA
NA
NA
10.1 x
NA
15.2 x
NA
NA
NA
NA
NA
NA
11.9 x
11.2 x
A member of BMO
Financial Group
93
September 2013
K-12 Education
BMO Capital Markets
Exhibit 92. Behavioral Healthcare Schools Recent Transactions (20052013)

($ in millions)
Annc.
Date
Mar-13
Jan-13
Dec-12
Nov-12
Nov-12
Oct-12
Sep-12
Jun-12
Mar-12
Nov-11
Apr-11
Jan-11
Apr-10
Jan-10
Jan-10
Jan-10
Oct-09
Jun-09
Mar-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Mar-08
Aug-07
Jun-07
May-07
Mar-07
Mar-07
Oct-06
Sep-06
Sep-06
Sep-06
Sep-06
Jul-06
Jul-06
Jul-06
May-06
Apr-06
Feb-06
Feb-06
Feb-06
Jan-06
Dec-05
Dec-05
Dec-05
Nov-05
Oct-05
Oct-05
Sep-05
Sep-05
Sep-05
Jul-05
Jul-05
Jun-05
May-05
Feb-05
Target
Peak Behavioral Health Services
Eating Recovery Centers
Monte Nido
Behavioral Centers of America
AmiCare Behavioral Centers
Foundations Recovery Network
Timberline Knolls
Ascend
Essential Learning
Crisis Prevention Institute
Youth & Family Centered Services
Camelot Schools (Education Services Division)
Positive Options
Acorn Care & Education
Baggium Ab
Stubbs House Children's Care
SRK Konsultation AB
Specialized Education Services
Dementia Care Specialists
SoftTouch
Psychiatric Solutions (5.7%)
Care Resources
Family and Children's Services
Structure House
United Medical (5 Inpatient Facilities in Florida & Kentucky)
Bayside Marin Recovery Center
Community Education Centers (Investment)
CiviGenics
Camp Huntington
Residential Youth Treatment Facility
National Treatment Network (Five clinics)
Sober Living by Sea
Kids Behavioral Health
Senad Group
Remuda Ranch
National Deaf Academy
Alternative Behavioral Sciences
Hometown Opportunities
Family Based Strategies
CRC Health (North Castle, DLJ)
A to Z In-Home Tutoring
CorSolutions
Kids Behavioral Health of Utah
Corphealth
SageWalk
Ombudsman
Keystone Education and Youth Services
Drawbridges Counseling Services and Oasis Comprehensive Foster Care
AlphaCare Resources
ChildrenFirst
Alternative Behavioral Counseling Services
Priory Group Limited (Doughty Hanson)
Ardent Health Services (20 Facilities)
Children's Behavioral Health
Tregynon Hall and Aran Hall
Gateway Learning
Acquiror
Lee Equity
Centre Partners
Acadia Healthcare
Acadia Healthcare
Nick Pritzker
Acadia Healthcare
Vista Equity Partners
Brockway Moran and Partners
Acadia Healthcare
The Riverside Company
Teachers Private Capital
FSN Capital Partners
Bettercare Keys
CapMan Oyj
CGP, Prairie Capital & Twin Bridge Capital
AbleNet
Daniel Alonso Grupo
Res-Care
Children's Behavioral Health
CRC Health
Psychiatric Solutions
CRC Health
LLR Partners, Primus Capital Funds
Community Education Centers
CRC Health
Riverside
CRC Health (Bain Capital)
CRC Health
CRC Health
Acadia Healthcare
Three Delta
Haven Behavioral Healthcare (Thoma Cressey)
ResCare
Providence Service
Bain Capital
Providence Service
Matria Healthcare
Horizon Health
Humana
Aspen Education (Warburg Pincus, Frazier, Sprout)
Educational Services of America (Trimaran Capital Partners)
Providence Service
Providence Service
ResCare
ABN AMRO
Providence Service
Senad Group
Educate
Transaction
Value
NA
$135.0
NA
$149.9
$113.0
NA
$90.0
$517.0
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$103.0
NA
$10.0
NA
$120.0
NA
$53.0
$100.0
NA
$1.1
NA
$331.6
NA
NA
NA
$240.5
NA
NA
$250.0
NA
$0.4
$720.0
$1.6
$445.0
$9.9
$54.0
NA
NA
NA
$0.5
$4.7
$61.0
NA
$1,537.3
$566.7
$14.5
$22.9
$8.0
Mean
Median

Revenue
EBITDA
NA
NA
NA
2.5 x
1.8 x
NA
2.7 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
2.2 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
2.3 x
NA
NA
NA
NA
NA
NA
1.3 x
NA
NA
3.1 x
0.4 x
3.7 x
0.8 x
NA
NA
NA
NA
NA
1.4 x
2.0 x
NA
5.6 x
1.9 x
1.6 x
NA
NA
2.1 x
1.9 x
NA
NA
NA
13.5 x
9.0 x
NA
8.0 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
13.7 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
14.8 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
11.7 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
4.8 x
NA
NA
10.2 x
10.1 x
A member of BMO
Financial Group
94
September 2013
Postsecondary Education
BMO Capital Markets
Postsecondary Education: Tough Near

Term, but Solid Long Term
Many companies
proactively
slowing their own
growth
The postsecondary education sector has over a dozen companies trading in US equity markets and is
the most developed sector in the education industry from an investment perspective, in our opinion.
However, the stocks in this sector have been extremely volatile over the past decade, reacting to
changes in enrollment growth trends and other operating fundamentals, as well as regulatory and
funding-related concerns. Recent regulatory changes have caused a number of providers to alter
aspects of their business models, proactively slowing their own growth, with many companies
shrinking in size as the focus shifts to outputs (e.g., graduation rates) from inputs (e.g., enrollment
growth). While we believe this will make the industry stronger from an operational, regulatory and
public perception perspective, the transition period has been painful for the sector and its investors.
Postsecondary School Market Overview

Postsecondary education (commonly referred to as higher education) includes programs
offered by colleges, universities, and similar facilities. The schools tend to be grouped under
three distinct categories:
Public not-for-profit schools (e.g., Penn State University).
Private not-for-profit schools (e.g., University of Pennsylvania).
Private for-profit schools (e.g., Apollo Groups University of Phoenix).
We have used data for degree-granting postsecondary institutions from the US Department of
Educations (ED) National Center for Education Statistics (NCES) for most of our analysis, as this
data series goes the farthest back historically. This data excludes those attending institutions that
are not eligible for Title IV (i.e., federal financial aid) and therefore likely understates the size of
the market.
Per the NCES, just under 21 million students enrolled in degree-granting postsecondary
institutions during the 2011-2012 school year (latest data available). Enrollment fell roughly 0.1%
from the prior school year. While minor, this was the first annual decline since the 1995-1996
school year. While the NCES had projected that enrollment in degree-granting postsecondary
institutions would grow at roughly a 1.2% annual rate from the 2010-2011 to 2021-2022 school
years, it had assumed some growth (1.3%) in that first year something that did not occur.
Parthenon Group
projects relatively
stagnant
enrollments over
the next five years
A member of BMO
Although not faulting the NCES, we are using projections for the next five school years as
provided by the Parthenon Group, which uses a detailed model based on changes in population,
unemployment, length of unemployment and marketing spending among other factors, to estimate
postsecondary enrollment. Using this data, postsecondary enrollment is expected to remain
somewhat stagnant through the 2016-2017 school year, actually decreasing at an 0.7% rate
reaching 20.2 million students that year (see Exhibit 97). After that period, we project some
improvement, although do not expect total enrollments to increase significantly.
Financial Group
95
September 2013
BMO Capital Markets
24
10%
21
8%
18
6%
15
4%
12
2%
9
0%
-2%
3
0
Annual Percentage Change
Enrollment (in mil.)
Exhibit 97. Postsecondary Degree Granting Enrollment (1967-1968

to 2021-2022E School Years)
-4%
1967- 1971- 1975- 1979- 1983- 1987- 1991- 1995- 1999- 2003- 2007- 2011- 2015- 201968
72
76
80
84
88
92
96
00
04
08
12 16E 20E
Total Enrollment
Percentage Change
Note: Shaded areas represent US recessionary periods. Source: BMO Capital Markets estimates based on
projections from The Parthenon Group and US Department of Education National Center for Education
Statistics.
Four-year schools
enroll the bulk of
degree-seeking
students
A member of BMO
We were only able to obtain NCES projections for enrollment growth for four-year schools
(i.e., those that provide mostly bachelors degrees and above) and two-year schools (i.e., those
that specialize in associates degrees, such as community colleges); projections for less than
two-year schools (i.e., typically non-degree programs such as vocational institutions) were
unavailable. As shown in Exhibit 98, the bulk of students (about 13.3 million, or roughly
63%) attending degree-granting postsecondary institutions during the 2011-2012 school year
were enrolled at four-year schools, with the remaining 7.7 million (roughly 37%) enrolled at
two-year schools (e.g., community colleges). The NCES projects relatively similar growth
rates for enrollment at each school type (1.2% CAGR) through the 2021-2022 school year.
Financial Group
96
September 2013
BMO Capital Markets
Exhibit 98. Postsecondary Degree Granting Enrollment by School

Type (1965-1966 to 2021-2022E School Years)
24
4-year
2-year
21
Enrollment (mil.)
18
15
12
9
6
3
0
1965-66
1970-71
1975-76
1980-81
1985-86
1990-91
1995-96
2000-01
2005-06
2010-11
2015-16E 2020-21E
Statistics.
Bulk of students
in undergraduate
programs, though
postbaccalaureate
enrollment
expected to grow
at faster rate
Another way to segment the NCES enrollment projections is via those enrolled at degreegranting undergraduate programs (i.e., associates and bachelors), versus those enrolled at
degree-granting postbaccalaureate programs (i.e., masters and above, including first
professional degrees). As shown in Exhibit 99, the bulk of students (about 18.1 million, or
86%) attending degree-granting postsecondary institutions during the 2011-2012 school year
(latest data available) were enrolled in undergraduate programs, with roughly 2.9 million
students (14%) in postbaccalaureate programs. NCES projects postbaccalaureate students to
grow at a faster rate relative to their undergraduate counterparts (1.6% vs. 1.2% CAGR)
through the 2021-2022 school year, boding well, in our view, for companies such as Capella
Education (CPLA) that specialize in higher-end degreed programs.
Exhibit 99. Postsecondary Degree Granting Enrollment by Degree

Type (1967-1968 to 2021-2022E School Years)
24
Undegraduate
Postbaccalaurate
21
Enrollment (mil.)
18
15
12
9
6
3
0
1967-68
1973-74
1979-80
1985-86
1991-92
1997-98
2003-04
2009-10
2015-16E
2021-22E
Statistics.
A member of BMO
Financial Group
97
September 2013
Postsecondary
expenditures have
sustained 7.7%
annual growth for
more than 40
years, though
BMO Capital Markets
Postsecondary is the second largest of the countrys four education segments (behind K-12); it
generated roughly $483 billion in revenue in the 2011-2012 school year (latest data available),
according to the NCES. This level of spending represented roughly 3% of the US annual
gross domestic product that year. Since the 1969-1970 school year, the amount spent on
postsecondary education has increased at a 7.7% average annual rate, although the rate has
slowed to low single digits in recent years.
slower in recent
years
We conservatively
forecast 3%
annual growth in
expenditures
through 2021-
When expected annual enrollment increases are coupled with increases in annual tuition
(assumed to be in the 2%+ range), we project total postsecondary expenditures should grow
roughly 3% annually, reaching an estimated $649 billion in the 2021-2022 school year (see
Exhibit 100). This is much slower than the sectors historical average annual growth rate -- a
rate we believe benefited from a strong increase in college participation, especially in the
1980s. In addition, we believe annual growth will be somewhat sluggish early in this period,
as it typically lags in an economic recovery.
2022, slower than

average
Exhibit 100. US Postsecondary Expenditures (1969-1970 to 20212022E School Years)

$700
Total Expenditures
16%
y/y % change
14%
Expenditures ($ in bil.)
600
12%
500
10%
400
8%
300
6%
200
y/y % change
the 8% historical
4%
100
2%
0
0%
1969- 1973- 1977- 1981- 1985- 1989- 1993- 1997- 2001- 2005- 2009- 2013- 2017- 202170
74
78
82
86
90
94
98
02
06
10
14E
18E
22E

Statistics.
Long-Term Drivers for Postsecondary Education Growth

We believe a number of longer-term drivers exist for continued growth in postsecondary
education:
A member of BMO
Increasing employer-driven demand for skilled professionals;
Increasing employee-driven demand as a result of the potential earnings premium;
Increased participation of non-traditional (i.e., older) students;
Increased acceptance of online degrees (discussed in detail separately).
Financial Group
98
September 2013
Unemployment
rate for those with
less than a high
school diploma
skyrocketed
during Great
Recession and
BMO Capital Markets
Increasing demand for skilled professionals. While apparent before, the Great
Recession had a more significant impact on the job prospects for the lesser educated. As
shown in Exhibit 101, unemployment rates for those with less than a high school diploma
skyrocketed well above historical rates. While this rate has fallen from the 15.9% record high
reached in November 2010, the 11% rate as of July 2013 was well above the rates for high
school graduates with no college (7.6%), those with less than a bachelors degree (6%) and
for college graduates (3.8%).
remains high
Exhibit 101. Unemployment Rate by Education Type (19922013YTD)

Unemployment Rate
16%
12%
College graduate
Less than a bachelor's degree
High school graduate, no college
Less than a high school diploma
8%
4%
0%
1992
1993
1995
1996
1998
1999
2001
2002
2004
2005
2007
2008
2010
2011
2013
Note: Data are seasonally adjusted. Shaded area represents recessionary period. Source: Bureau of Labor
Statistics, National Bureau of Economic Research, and BMO Capital Markets.
Another way of looking at this is by analyzing rates of employment growth by education levels.
As shown in Exhibit 102, from 1990 through 2010, employment for those with a bachelor's
degree and higher grew in each of the five-year periods - which included three recessions and
continued to grow so far this decade. The same cannot be said for those with lower education
levels.
Exhibit 102. Percentage Change in Workforce by Education Level

(1990-2013YTD)
1990-1995
4%
1995-2000
2000-2005
2005-2010
2010-2012
3.3% 3.2%
3.2%
2%
1.7%
2.5% 1.9% 2.0%
1.4%
1%
0.6%
0.8% 0.2%
-1%
-1.4%
-0.2%
Bachelor's
degree or
higher
-0.1%
Some college
or Associate's
degree
0%
High school
diploma or less
% annual change in employment
3%
-2%
-2.0%
-3%
Source: Georgetown University Center on Education and the Workforce based on Bureau of Labor Statistics
data.
A member of BMO
Financial Group
99
September 2013
Employers need
more educated
workers; jobs
requiring a
graduate degree
among the
fastest-growing
categories
BMO Capital Markets
As a result of technological advances and the continued globalization of the economy, we

believe higher levels of education have become, and will continue to be, a prerequisite for many
positions. The Bureau of Labor Statistics (BLS) projects that by 2020, roughly 20.5% of those
employed will be required to have a bachelors degree or higher, up from 20% in 2010. Jobs for
this segment of the population are expected to increase by 17.5% over this period (1.6% CAGR)
faster than the overall employment market, which is expected to increase at a 14.3% rate
(1.3% CAGR). Jobs requiring graduate education are projected to be among the fastest-growing
categories (e.g., jobs requiring a masters degree; up 21.7% or 2% CAGR). Interestingly, jobs
requiring a minimum of an associates degree (up 16.7% or 1.6% CAGR) are expected to rise at
a faster rate than those requiring a bachelors degree (up 18% or 1.7% CAGR; see Exhibit 103).
Exhibit 103. Employment by Education and Training Category

(2010-2020E)
Education Level
Doctoral or professional degree
Master's degree
Bachelor's degree
Bachelor's degree or higher
Associate degree
Postsecondary nondegree award
Some postsecondary (below bachelor's)
Some college, no degree
High school diploma or equivalent
Less than high school
Total
Number (in 000's) 2010-2020E

% Chg.
2010
2020E
4,410
5,286
19.9%
1,986
2,417
21.7%
22,171
25,872
16.7%
28,567
33,576
17.5%
7,995
9,435
18.0%
6,524
7,625
16.9%
14,519
17,060
17.5%
812
954
17.5%
62,090
69,666
14.1%
37,082
42,327
14.1%
143,068 163,582
14.3%
% of workforce
2010
2020E
3.1%
3.2%
1.4%
1.5%
15.5%
15.8%
20.0%
20.5%
5.6%
5.8%
4.6%
4.7%
10.1%
10.4%
0.6%
0.6%
25.9%
25.9%
25.9%
25.9%
100.0% 100.0%
Source: BMO Capital Markets and Bureau of Labor Statistics Employment Outlook, 2010-2020.
College degree
has high return
on investment
Potential earnings premium. The income premium associated with a postsecondary education
has been widely documented, and we believe it has not gone unnoticed by the public. According
to economists at the Federal Reserve Bank of Chicago, for each additional year of completed
schooling, an individuals earnings increase, on average, by roughly 11%. This correlation
between education and income is highlighted in Exhibit 104; in 2012, the median weekly
earnings of US employees with a bachelors degree was significantly higher than the median
weekly earnings for those with only a high school education ($1,066 versus $652).
Exhibit 104. Median Weekly Earnings by Education Category

(2012)
$1,500
$1,373
$1,066
1,000
$652
500
$749
$471
0
Less than a high
school diploma
High school
graduate, no
college
Some college or
associates
degree
Bachelors
degree only
Advanced
degree
Source: BMO Capital Markets and Bureau of Labor Statistics.
A member of BMO
Financial Group
100
September 2013
Income gap has,

for the most part,
expanded over
time
BMO Capital Markets
The income gap between high school graduates and those with additional education has, for
the most part, been expanding over time, especially for workers who have obtained a
bachelors degree or higher. In 2011 (latest data available), the average annual earnings (per
Census Bureau data) for an individual with a bachelors degree and one with an advanced
degree were, respectively, 83% and 171% higher than a person with only a high school
diploma. By comparison, the same ratios were only 57% and 113% in 1975 (see Exhibit 105).
Earnings Relative to HS Grad.
Exhibit 105. Average Annual Earnings Relative to Average Annual

Earnings of High School Graduates (1975-2011)
Not a High School Graduate
Some College/Associate Degree
Bachelor's Degree
Advanced Degree
3.0x
2.5x
2.0x
1.5x
1.0x
0.5x
1978
1982
1986
1990
1994
1998
2002
2006
2010
Over ones lifetime, education can make a meaningful difference. In a Georgetown University
Center on Education and the Workforce report Projections of Jobs and Education Requirements
Through 2018 (June 2010), the authors calculate lifetime earnings by educational level. As
shown in Exhibit 106, the return on an investment in education appears to more than pay off.
Exhibit 106. Estimated Average Lifetime Earnings by Education

Level
$5,000,000
$4,650,588
4,500,000
$4,029,948
$3,837,239
4,000,000
$3,380,060
3,500,000
3,000,000
2,500,000
$2,239,548
2,000,000
1,500,000
$2,254,765
$1,767,025
$1,198,447
1,000,000
500,000
0
High school
dropout
High school Some college Associate's

graduate
degree
Bachelor's
degree
Master's
degree
Professional
degree
PhD
Source: Georgetown University Center on Education and the Workforce.
A member of BMO
Financial Group
101
September 2013
Students age 25
or older have
grown at faster
rate than
traditional
students; that
trend is expected
to continue, albeit
at slower rates
BMO Capital Markets
Influx of older students. While thoughts of postsecondary education may bring back
memories of a leafy campus and fraternity initiations, much of the growth in the sector in
recent years has been driven by non-traditional students. As shown in Exhibit 107, according
to the NCES, the number of 25- to 44-year-old students grew from 4.9 million in fall 1987 to
8.4 million in fall 2009 (latest data available), a total increase of roughly 73% (2.4% CAGR),
above the roughly 62.5% increase (2.1% CAGR) in the total number of postsecondary
students over that timeframe. The NCES forecasts that, in the future, an increasing percentage
of this age cohort will attend college, as more working adults see the benefits of
postsecondary education. Students age 25-44 are expected to increase 22% (1.8% CAGR),
reaching 10.2 million in fall 2021, relative to the expected 12.3% increase (1.1% CAGR) for
all postsecondary students. Roughly 11.5% of all 25- to 44-year-olds are expected to be
enrolled in postsecondary institutions by fall 2021, up from about 10.2% in fall 2010 (latest
data available).
11
10
9
8
7
6
5
4
3
2
1
0
Number of enrollees
12%
% of population
10%
8%
6%
4%
2%
0%
1987
1990
1993
1996
1999
2002
2005
2008
2011
% Attending Postsecondary
No. of Enrollees (Millions)
Exhibit 107. Number of 25- to 44-Year-Old Students and as

Percentage of Population (Fall 1987-2021E)
2014E 2017E 2020E
Market is still far

from saturated:
just under 31% of
US population
older than 25
holds a bachelors
Despite this increase, we believe the market is far from saturated. As shown in Exhibit 108, in
2012 (latest data available), only 30.9% of the US population older than 25 had a bachelors
degree or more. This percentage has increased significantly from 9.1% in 1964 (roughly 50
bps annually). The percentage of the US population with an associates degree or higher has
risen to 40.6% from 18% over the same period. While we by no means believe these
percentages will approach 100%, they should continue higher from here.
degree or higher
Exhibit 108. Percentage of US Population Older Than 25 with

Bachelors Degree or More (1964-2012)
32%
Percentage
1.2%
y/y change
1.0%
24%
0.6%
16%
0.4%
12%
0.2%
8%
4%
0.0%
0%
-0.2%
Source: BMO Capital Markets and Postsecondary Education Opportunity from data compiled by the US
Census Bureau.
A member of BMO
Financial Group
102
September 2013
y/y change
0.8%
20%
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
% with Bachelors
28%
BMO Capital Markets
Unfortunately, the postsecondary sector faces some potential headwinds:

Number of 18- to
Unfavorable demographics. While the non-traditional student gets a lot of press and focus, most
24-year-olds to
postsecondary students are still in the traditional 18- to 24-year-old range; in the 2011-2012
school year (latest data available), roughly 11.9 million in this age group were enrolled in US
degree-granting granting institutions, representing nearly 57% of all students and nearly 72% of
full-time students, according to the NCES.
peak in 2013, and

not trough until
2021
This traditional age cohort is expected to reach its peak in 2013 at just over 31.4 million just
above its prior peak (30.5 million in 1981). This age group is expected to decline thereafter, not
reaching its trough until 2021 at just over 30 million (see Exhibit 109).
Exhibit 109. US Population: Age 18- to 24-Years Old (1981-2021E)

Total: 18-24 Years
% y/y chg
3%
2%
24
1%
16
0%
-1%
8
-2%
0
Annual % Change
Population (Millions)
32
-3%
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014E 2017E 2020E
College
Declining college continuation rate. While the percentage of high school students enrolled in
continuation rate
college peaked with the fall 2009 entering class (70.1%), it has fallen thereafter, reaching 66.2% in
fall 2012. We believe this may reflect some aspect of countercyclicality (i.e., improving job market
attracting recent high school graduates), as this rate peaked just after the end of the Great
Recession. Over the long term, the percentage of high school students enrolling in college will
likely not go much beyond the 70% level for the foreseeable future, as it has become the norm
for most students to continue their education beyond high school (see Exhibit 110).
hit all-time high in

fall 2009, showing
impact of Great
Recession, but
has fallen
thereafter
Exhibit 110. Percentage of High School Students Entering College

(Fall 1960 to Fall 2012)
Percentage Attending College
75%
% y/y change
5%
60%
3%
2%
45%
1%
0%
30%
% y/y change
Percentage Attending College
4%
-1%
-2%
15%
-3%
-4%
0%
-5%
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Note: Shaded areas represent recessionary periods. Source: BMO Capital Markets, US Department of
Education National Center for Education Statistics, and Postsecondary Education Opportunity.
A member of BMO
Financial Group
103
September 2013
Two-year schools
continuation rates
has increased to
the detriment of
the rate at fouryear schools
BMO Capital Markets
When segmenting by school type, there have been some diverging trends. While the
continuation rate for students entering two-year schools has continued to climb reaching an
all time high of 28.8% in fall 2012 the rate of students going to four-year schools has been
choppier, falling to 37.% in fall 2012, its lowest since fall 1991 (see Exhibit 111). We believe
this is indicative of students questioning the value proposition of higher education, with many
shifting to less costly schooling of two-year schools. We discuss this theme further later in our
report.
Exhibit 111. Percentage of High School Students Entering College

By School Type (Fall 1975 to Fall 2012)
Two-year schools (left axis)
Four-year schools (right axis)

46%
30%
44%
27%
42%
24%
40%
21%
38%
36%
18%
34%
20
1
20 1
12
E
09
10
20
20
07
08
20
20
05
06
20
20
03
04
20
20
01
02
20
20
99
00
20
19
97
98
19
19
95
96
19
19
19
19
19
19
93
94
32%
91
92
15%
Note: Shaded areas represent recessionary periods. Source: BMO Capital Markets, US Department of
Education National Center for Education Statistics, and Postsecondary Education Opportunity.
For-Profit Postsecondary School Market Overview

Recent headlines
revived memories
of a checkered
past
For-profit market
share: estimated
peak of 5.9% of
postsecondary
revenues in 20112012 school year
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The most significant component within the for-profit postsecondary sector is the schools
market, formed of companies that run for-profit (also called proprietary) schools. In its early
days, this sector developed an unpleasant reputation, owing to allegations of fraudulent
activities regarding government funding at certain correspondence and back-of-thematchbook schools. Although recent headlines may have brought reminders of those days,
we believe the migration of most of the publicly held companies beyond their original
vocationally oriented roots (e.g., Career Education, DeVry), the introduction of more
professional management -- often through private equity involvement, as well as regulatory
changes, have helped, for the most part, to clean up the reputation of the for-profit sector.
Per the NCES, for-profit postsecondary schools generated $28.2 billion in revenues in the
2010-2011 school year (latest data available), or roughly 5.9% of the $476 billion in the US
postsecondary sector that year. Although this percentage appears small, it should be noted that
for-profit postsecondary revenues have increased at roughly a 19.5% CAGR since the 19971998 school year, when only $2.8 billion were generated (about 1.3% of the total). We believe
that year represented the peak market share for the sector (in terms of revenues).
Financial Group
104
September 2013
For-profit market
share likely to
shrink in near- to
intermediate term,
with estimated
1.6% CAGR
growth in
revenues through
2017-2018 school
year
BMO Capital Markets
Given issues facing the industry as it transitions to the new normal under proposed
regulatory changes, as well as the headwinds as the economy expands, we project the forprofit sector will shrink in the near- to intermediate term, with revenues falling to just under
$27 billion in the 2013-2014 school year (5.4% share). While the final impact of any new
gainful employment regulations is still unknown, we believe sector revenues will then
stabilize and begin to grow thereafter, albeit at slower than historical rates. We forecast forprofit postsecondary will reach roughly $31.6 billion in the 2017-2018 school year, capturing
approximately 5.6% of the roughly $566 billion in postsecondary expenditures expected in
that year. This equates to a 1.6% CAGR in revenues from the 2010-2011 school year (see
Exhibit 112). The estimated 6% growth expected in the 2017-2018 school year is closer to the
long-term run rate in the mid- to high-single digits we expect for the sector.
Spending (in $bil.)
$35
28
7%
6%
5%
4%
3%
2%
1%
0%
For-Profit Revs. (in $bil.)

Market Share
21
14
7
FY
19
FY 98
19
FY 99
20
FY 00
20
FY 01
20
FY 02
20
FY 03
20
FY 04
20
FY 05
20
FY 06
20
FY 07
20
FY 08
20
FY 09
20
FY 10
2
FY 011
20
FY 12E
20
FY 13E
20
FY 14E
20
FY 15E
20
FY 16E
20
FY 17E
20
18
E
Market Share
Exhibit 112. For-Profit Postsecondary School Revenues (19971998 to 2017-2018E School Years)
Statistics.
For-profit
enrollment
represents 10.9%
of the total;
schools are
typically small
A member of BMO
According to the NCES, just under 2.4 million students enrolled in the 3,393 for-profit
postsecondary institutions (both degree-granting and non-degree granting) eligible for Title
IV (i.e., federally funded financial aid) in the US as of fall 2011 (2011-2012 school year). A
February 2012 working paper by the National Bureau of Economic Research estimates that
three are as many as 670,000 additional students attending institutions not eligible for Title IV
funding, bringing the size of the market to more than three million students. Although the forprofit sector represented roughly 46.9% of all institutions as of fall 2011, it only served 10.9%
of all postsecondary students, as for-profit schools tend to be much smaller than their not-forprofit counterparts. The average size of a for-profit institution was roughly 695 students,
relative to the typical public institution at nearly 7,600 students and private not-for-profit
institutions which average nearly 2,400 students (see Exhibit 113).
Financial Group
105
September 2013
BMO Capital Markets
Exhibit 113. For-Profit as Percentage of Total Institutions and

Enrollment (Fall 2011)
Institutions
Number % of Total
2,011
27.8%
1,830
25.3%
3,393
46.9%
7,234
100.0%
Public
Private not-for-profit
Private-for-profit
Total
Students (in 000's)

Number % of Total
15,244
70.7%
3,955
18.3%
2,358
10.9%
21,557
100.0%
Avg. Size
7,580
2,161
695
2,980
Note: Degree and non-degree granting institutions. Source: BMO Capital Markets and US Department of
Education National Center for Education Statistics (NCES 2012-174rev).
Market share fell

in fall 2011 school
year; likely
continued to
decline in fall
2012
We have historical data for for-profit sector at degree granting institutions since the fall 1976
school year. As shown in Exhibit 114, the sector has gained a considerable amount of share over
that period, rising from 0.4% of total enrollment in the fall 1976 school year to 9.6% in the fall
2010 school year. However, enrollment at degree granting institutions in the for-profit sector fell
roughly 3% in the fall 2011 school year the first annual increase since the fall 1990 school
year with the sectors market share declining to 9.3%. We believe this trend continued in the
fall 2012 school year.
Exhibit 114. For-Profit as Percentage of Total Enrollment (Fall

1976 - Fall 2011)
For-profit enrollment
For-profit market share
10%
9%
1.8
Enrollment (in mil.)
8%
1.5
7%
6%
1.2
5%
0.9
4%
3%
0.6
2%
0.3
0.0
1976-77
For-profit market share
2.1
1%
0%
1981-82
1986-87
1991-92
1996-97
2001-02
2006-07
2011-12
Note: Shaded area represents recessionary period. Degree granting institutions only. Source: BMO Capital
Markets and US Department of Education National Center for Education Statistics
For-profit
enrollment
represented 13%
of unduplicated
headcount in the
2011-2012 school
A sizable number of for-profit schools likely do not participate in Title IV programs, although
the data is difficult to access. In addition, as many for-profit schools accept students on a rolling
basis throughout the year, this fall snapshot may underrepresent the for-profits share of the
market. Under an unduplicated headcount measurement, the sector served roughly 13% of
enrollment in the 2011-2012 school year down from the 13.5% record high in the prior year
(latest data available; see Exhibit 115).
year down from

13% in prior year
A member of BMO
Financial Group
106
September 2013
BMO Capital Markets
Exhibit 115. For-Profit as Percentage of Total Enrollment

Unduplicated Headcount (2011-2012 School Year)
Institution Type
Students (in 000s):
Public not-for-profit
4-year
2-year
Less than 2-year
Subtotal
4-year
2-year
Less than 2-year
Subtotal
Private for-profit
4-year
2-year
Less than 2-year
Subtotal
All institutions
Undergraduate
As % of total:
4-year
2-year
Less than 2-year
Subtotal
4-year
2-year
Less than 2-year
Subtotal
Private for-profit
4-year
2-year
Less than 2-year
Subtotal
All institutions
Graduate
Total
7,919
10,626
91
18,636
1,813
0
0
1,813
9,732
10,626
91
20,449
3,178
71
21
3,270
1,561
0
0
1,561
4,738
71
21
4,830
2,047
735
517
3,300
25,206
462
0
0
462
3,836
2,509
735
517
3,762
29,042
27.3%
36.6%
0.3%
64.2%
6.2%
0.0%
0.0%
6.2%
33.5%
36.6%
0.3%
70.4%
10.9%
0.2%
0.1%
11.3%
5.4%
0.0%
0.0%
5.4%
16.3%
0.2%
0.1%
16.6%
7.0%
2.5%
1.8%
11.4%
86.8%
1.6%
0.0%
0.0%
1.6%
13.2%
8.6%
2.5%
1.8%
13.0%
100.0%
Source: BMO Capital Markets and US Department of Education National Center for Education Statistics
(NCES 2013-289).
Most for-profit
students attend
degree-granting
institutions
A member of BMO
Although the bulk of for-profit institutions are non-degree granting (i.e., they focus on
diploma and certificate programs and not on providing degrees, such as associates and
bachelors degrees), the majority of for-profit students are enrolled in degree-granting
institutions. As shown in Exhibit 116, most of the students at for-profit schools (nearly 81%)
attend programs at degree-granting institutions, with an average size of just under 1,500
students per institution.
Financial Group
107
September 2013
BMO Capital Markets
Exhibit 116. For-Profit Institutions and Enrollment by Degree Type

(Spring and Fall 2011)
Degree granting
Non-degree granting
Total
Institutions
Number % of Total
1,311
41.1%
1,878
58.9%
3,189
100.0%
Students (in 000's)

Number % of Total
1,957
80.7%
402
16.6%
2,358
97.2%
Avg. Size
1,493
214
740
Note: Institutional data as of spring 2011; enrollment data as of fall 2011. Source: BMO Capital Markets and
US Department of Education National Center for Education Statistics (NCES 2012-280).
Most for-profit
students attend
four-year
institutions
The largest portion of for-profit students attend four-year institutions (e.g., bachelors
programs), even though those represent the smallest number of for-profit institutions. As
shown in Exhibit 117, as of fall 2011, over 64% of for-profit students attended school at fouryear institutions, even though those institutions represented just over 20% of all Title IV
eligible for-profit institutions.
Exhibit 117. For-Profit Institutions and Enrollment by School Type

(Spring and Fall 2011)
4-year
2-year
Less than 2-year
Total
Institutions
Number % of Total
648
20.3%
1,017
31.9%
47.8%
1,524
3,189
100.0%
Students (in 000's)

Number % of Total
1,559
64.3%
486
20.0%
313
12.9%
2,358
97.2%
Avg. Size
2,406
478
205
740
Note: Degree and non-degree granting institutions. Institutional data as of spring 2011; enrollment data as of
fall 2011. Source: BMO Capital Markets and US Department of Education National Center for Education
Statistics (NCES 2012-280).
Public not-forprofits dominate

higher ed,
A further breakdown of enrollment by school type can be found Exhibit 118. Public not-profit
schools tend to enroll the bulk of students across all school types, except at less-than-two-year
schools, where for-profits dominate, with over 78% of all enrollments.
although forprofits dominate

at less-than-twoyear schools
A member of BMO
Financial Group
108
September 2013
BMO Capital Markets
Exhibit 118. Enrollment by School Type and Market Share (Fall 2011)
No. (000's)
% No. (000's)
%
Four-year schools:
Undergraduate
Graduate
Subtotal
Two-year schools
Less than two-year schools
Total
Market share by school type:
Four-year schools:
Undergraduate
Graduate
Subtotal
Two-year schools
Less than two-year schools
Total
6,626
1,421
8,048
7,126
71
15,244
62.7%
48.5%
59.6%
93.0%
17.7%
70.7%
43.5%
9.3%
52.8%
46.7%
0.5%
100.0%
2,679
1,209
3,888
51
16
3,955
25.4%
41.2%
28.8%
0.7%
4.0%
18.3%
67.7%
30.6%
98.3%
1.3%
0.4%
100.0%
Private for-profit
No. (000's)
%
1,258
301
1,559
486
313
2,358
11.9%
10.3%
11.6%
6.3%
78.3%
10.9%
53.3%
12.8%
66.1%
20.6%
13.3%
100.0%
Total
No. (000's)
10,563
2,932
13,495
7,663
400
21,557
%
49.0%
13.6%
62.6%
35.5%
1.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Note: Degree and non-degree granting institutions. Source: BMO Capital Markets and US Department of Education National Center for
Education Statistics (NCES 2012-2174rev).
For-profit
demographics:
skewed toward
female, older, and
minority with
lower academic
performance prior
to enrolling
A member of BMO
A typical student at a for-profit postsecondary school is somewhat different from one who
attends a not-for-profit institution. For-profit programs tend to enroll more females (especially
for non-degree programs, i.e., less than two-year schools), older students, and non-white
students, though this can be largely dependent on program type and other factors. For
example, Corinthian Colleges (COCO) Everest schools have a predominantly female
population, likely owing to their focus on allied healthcare programs, while Universal
Technical Institutes (UTI) skews more heavily toward male students, owing to its focus on
automotive repair and the like. In addition, for-profit students tend to be more broadly
distributed among all three program types (i.e., diploma/certificate, two-year schools, and
four-year schools), skew more toward attending full time (likely because they favor shorter
duration programs) and have a lower academic performance prior to enrolling (see Exhibit
119).
Financial Group
109
September 2013
BMO Capital Markets
Exhibit 119. Student Demographics: For-Profit vs. Not-For-Profit
Distribution (1)
Type (1)
Gender (1)
Race/ethnicity (1)
Attendance (1)
Age (2)
A member of BMO
For-Profit
Public Not-for-Profit
Private Not-For-Profit
4-year school: 66%
4-year school: 53%
4-year school: 98%
2-year school: 21%
2-year school: 47%
2-year school: 1%
Less than 2-year school: 13%
Undergraduate: 87%
Undergraduate: 91%
Undergraduate: 69%
Graduate: 13%
Graduate: 9%
Graduate: 31%
Total: 35% male, 65% female
4-year school: 37% male, 63%
female
female
female
2-year school: 35% male,
65% female
57% female
67% female
Less than 2-year school: 23% male,
77% female
57% female
67% female
Total: 39% white, 42% non-white,
18% multi-race/ unknown/
10% multi-race/unknown/
17% multi-race/unknown/
nonresident alien
nonresident alien
nonresident alien
4-year school: 39% white, 38% non-
white, 21% multi-race/unknown/
nonresident alien
nonresident alien
nonresident alien
2-year school: 39% white,
49% non-white, 10% multi-race/
unknown/nonresident alien
Less than 2-year school: 37% white,
Total: 74% full-time, 26% part-time
4-year school: 67% full-time, 33%
part-time
part-time
part-time
2-year school: 89% full-time,
11% part-time
61% part-time
21% part-time
Less than 2-year school: 83% full-
time, 17% part-time
time, 45% part-time
time, 39% part-time
Average age (est.): 32 years
Younger than 18: 0%
Younger than 18: 5%
Younger than 18: 2%
18-24 years old: 27%
40 and older: 24%
40 and older: 10%
40 and older: 12%
Financial Group
110
September 2013
Annual income
(3)
BMO Capital Markets
For-Profit
Dependent students:
Dependent students:
Dependent students:
Under $20,000:
Under $20,000:
Under $20,000:
24%
performance (4)
8%
$20,000-$39,000: 17%
$20,000-$39,000: 12%
$40,000-$59,000: 17%
$40,000-$59,000: 18%
$40,000-$59,000: 14%
$60,000-$79,000: 12%
$60,000-$79,000: 15%
$60,000-$79,000: 13%
$80,000-$99,000:
$80,000-$99,000: 13%
$80,000-$99,000: 14%
$100,000 and over: 10%
$100,000 and over: 26%
$100,000 and over: 39%
Independent students:
Under $20,000:
Under $20,000:
Under $20,000:
7%
51%
39%
36%
$20,000-$39,000: 30%
$20,000-$39,000: 28%
$20,000-$39,000: 26%
$40,000-$59,000: 11%
$40,000-$59,000: 15%
$40,000-$59,000: 16%
$60,000-$79,000:
5%
$60,000-$79,000:
7%
$60,000-$79,000:
9%
$80,000-$99,000:
2%
$80,000-$99,000:
7%
$80,000-$99,000:
6%
$100,000 and over: 2%

Prior academic
12%
$20,000-$39,000: 30%
Average SAT scores prior to
$100,000 and over: 6%
$100,000 and over: 7%
Average SAT scores prior to enrolling: 538 (math); 549 (reading)*
enrolling: 433 (math); 413 (reading)
Average ACT composite score prior to enrolling: 23.4*
Average ACT composite score prior
Average grade point average: 3.33*
to enrolling: 20.6
Average grade point average: 3.03
Note: Totals may not add to 100 owing to rounding. Sources: (1) National Center for Education Statistics Report 2012-174rev; Enrollment in
Postsecondary Institutions, fall 2011 data; (2) National Center for Education Statistics Digest of Education Statistics 2012 Table 226, fall 2011 data;
(3) Career College Association Fact Book 2013 using NCES data for 2007-2008 school year (4) FastWeb survey fall 2009 entering class. *Not-forprofit data applies to all seniors and was not segmented between public and private not-for-profit attendees.
Given the profile of its student base, the sector has often been tagged as serving a lower
quality demographic, which unfortunately skews comparisons to its traditional peers on
many outcome measures (as shown later in this section).
A member of BMO
Financial Group
111
September 2013
BMO Capital Markets
Advantages of For-Profit Schools

Advantages of
for-profit schools
We believe the for-profit sector both degree-granting (e.g., associates, bachelors) and nondegree granting (e.g., diploma, certificate) is highly attractive to students owing to its
pragmatic, student-centered, and job-oriented focus. In our view, for-profit postsecondary
providers capture an underserved market by offering job opportunities and career
development for those who may not be interested in the more traditional higher-education,
white-collar path but have the ability to earn a solid income. In addition, they tend to serve
populations that are less focused on by traditional schools, i.e., lower-income and/or working
adults. However, the landscape has gotten more competitive as a number of progressive notfor-profit institutions and third parties have entered this space.
Specifically, we believe for-profit programs are more attractive to the lower-income and
working adult population versus their closest competition, community colleges, for a variety
of reasons:
Future
employment
opportunities
most important
reason why
student choose
for-profit schools
A member of BMO
Greater focus on providing students with practical skills that are crucial to employers.
Ability to more quickly create and roll out new programs to better serve current market
demand.
Better customer service and support systems (i.e., we believe quality customer service is
a key differentiating factor in attracting students).
Larger budgets to support more expensive programs (e.g., equipment needed for
instruction in auto repair courses).
Greater ability to create alliances with corporations through advisory boards and other
programs (fewer conflicts of interest), thus potentially improving job placement rates and
establishing positive endorsements for their products.
The opportunity to offer stock options to faculty and staff, potentially providing a
competitive recruiting advantage.
Ability to finish programs at an accelerated pace (see details on Program Trends later in
this report).
Enrollment management advisor Noel Levitz conducts an annual survey of college students
called the National Student Satisfaction and Priorities Report, in which it determines the level
of importance that students place on various aspects of their student experience. As part of
this survey, the company asks students to rank the factors that drove their enrollment decision
and then segments that response by school type. For the past nine years, the top three factors
for students attending all types of not-for-profit institutions (public four-year, private fouryear, and public two-year) have ranked cost, academic reputation, and financial aid as their
top three factors (in various order). Interestingly, students attending for-profit schools have
rated future career/employment opportunities as the top factor over the same period (see
Exhibit 120) a factor that was not even in the top nine factors for students at not-for-profit
institutions. Given the recent economic crisis, financial aid has narrowed the gap as a close
number two factor.
Financial Group
112
September 2013
BMO Capital Markets
Exhibit 120. Survey: Important Enrollment Factors for Students Attending For-Profit
Postsecondary Institutions (Fall 2004 to Fall 2012)
Rank
1
2
3
4
5
6
7
8
9
Factor
Future career/employment opportunities
Financial aid
Academic reputation
Cost
Personalized attention prior to enrollment
School appearance
Geographic setting
Size of institution
Recommendations from family/friends
2004
6.47
6.27
6.16
6.05
5.95
5.64
5.64
5.49
5.30
2005
6.48
6.32
6.18
6.09
5.99
5.68
5.66
5.56
5.35
2006
6.50
6.36
6.19
6.12
6.02
5.68
5.66
5.58
5.39
2007
6.51
6.37
6.22
6.14
6.05
5.69
5.67
5.59
5.45
2008
6.44
6.30
6.16
6.10
5.98
5.61
5.62
5.54
5.43
2009
6.42
6.31
6.16
6.11
5.97
5.63
5.63
5.56
5.43
2010
6.40
6.35
6.17
6.14
6.04
5.81
5.69
5.64
5.46
2011
6.43
6.39
6.22
6.18
6.10
5.93
5.76
5.71
5.53
2012
6.45
6.39
6.24
6.18
6.12
5.94
5.79
5.73
5.56
Note: Ranking based on a 1-7 scale, with 7 being very important and 1 being not important. Data ranked by latest survey. Source: Annual
National Student Satisfaction and Priorities Report survey conducted by Noel Levitz.
Referral was top

reason for
inquiring about a
school across all
age groups; older
students value
A 2010 survey of students at both for-profit and not-for-profit schools by InsideTrack, a

provider of student coaching services, found some differences in inquiry reasons (i.e., why
potential students look at certain schools) when segmented by age group (under 25, 25-39,
and 40 and over). While referral was the top reason for all three age groups, program
availability was bit more important for older students, likely owing to trying to fit time for
class work within their busy schedules (see Exhibit 121).
program
availability
Exhibit 121. Reasons for Inquiring About a Postsecondary School

(2010)
Inquiry reason
Referral
Reputation
Availability of program
Location
Class format
Flexible scheduling
Admission requirements
Ease of admissions process
Finances
Customer service
Under 25
Rank
Percent
1
49.7%
2
14.3%
3
12.0%
4
10.9%
5
8.0%
6
1.7%
7
1.1%
7
1.1%
9
0.6%
10
0.0%
25 - 39
Rank
Percent
1
40.8%
4
10.8%
2
17.1%
3
12.2%
5
7.7%
8
2.1%
6
3.6%
7
3.4%
9
1.6%
10
0.7%
40 and Over
Rank
Percent
1
37.2%
5
8.1%
2
17.0%
3
14.9%
4
8.4%
9
1.6%
7
3.4%
7
3.4%
6
5.0%
10
0.6%
Source: InsideTrack 2010 survey.
Availability of
online courses
and innovation
also important
A member of BMO
Another survey of recent college graduates was conducted in December 2010 by Inavero in
partnership with CareerBuilder. When asked why they chose their school instead of another,
for-profit (or private sector as asked in this survey) schools stood out for their offering of
online courses and innovation. However, the schools also stood out negatively for their cost
(see Exhibit 122).
Financial Group
113
September 2013
BMO Capital Markets
Exhibit 122. Survey Results Why Recent Graduates Chose Their

College
Private Sector 2-Yr. Degree
Traditional University
Private Sector 4-Yr. Degree

Community College 2-Yr. Degree
School was relatively inexpensive

School was innovative in my area of study
Knew I could get into the school
Attendee recommendation
Offered online courses
Campus was close to home
Strong program area I wanted to study
0%
10%
20%
30%
40%
50%
60%
Source: Inavero/CareerBuilder December 2010 survey.
In the same survey, hiring managers and HR-decision makers were asked to determine what
they believed to be the strengths and weaknesses of graduates from for-profit (private
sector) schools. While strengths included the flexibility and quality of the education,
weaknesses included their poor reputation and lower quality (see Exhibit 123). This shows, in
our view, the continued difficulty the sector has in improving its reputation in the market.
Quality of
education cited
as both a pro and
con of for-profit
schools by hiring
managers
Exhibit 123. Hiring Manager Survey Results Pros and Cons of Private Sector Colleges
Cons of Private Sector Colleges
Pros of Private Sector Colleges
50%
Flexibility of education
Poor reputation of schools
37%
Quality of education
25%
Online classes
50%
Lower quality of education
43%
Negative environment
25%
24%
Cost/Access to financial aid
Cost is too high
25%
18%
Good environment
Low quality instruction
12%
15%
Easy to get accepted
Online classes aren't as good
11%
11%
Strong reputation within specific programs

7%
Close proximity to students
Poor job placement statistics
2%
Quality of professors
0%
3%
2%
Inconvenient locations at times
2%
Job placement assistance
10%
Quality of students is low
10%
20%
30%
40%
50%
0%
60%
10%
20%
30%
40%
50%
60%
A member of BMO
Financial Group
114
September 2013
BMO Capital Markets
Military and
Military Market
veterans market
The military and veterans market is another area where we believe the for-profit sector has made
greater inroads than its not-for-profit counterparts. According to a September 2011, NCES
report entitled Military Services Members and Veterans, in the 2007-2008 school year (latest
data available), there were just over one million active duty military, reservists, and veterans
enrolled in US postsecondary institutions, representing just over 4% of the total. Of those, the
bulk (3.1% of the total) were veterans (see Exhibit 124).
prime opportunity
for for-profit
sector
Exhibit 124. Military Service Members and Veterans Enrolled in

Postsecondary Institutions (2007-2008 School Year)
Undergraduates
Graduates
Total
No. (in 000s) % of total No. (in 000s) % of total No. (in 000s) % of total
Military students:
Veterans
Military service members
Active duty
Reserves
Total
Non-military students
Total
Among military students:
Received GI Bill education benefits
657
3.1%
107
3.1%
764
3.1%
139
76
872
20,055
20,927
0.7%
0.4%
4.2%
95.8%
100.0%
29
9
145
3,312
3,457
0.8%
0.3%
4.2%
95.8%
100.0%
168
85
1,017
23,367
24,384
0.7%
0.3%
4.2%
95.8%
100.0%
329
37.7%
29
20.0%
358
35.2%
Source: National Center for Educational Statistics.
It is likely that this population has grown in size since then. In July 2012, The American Council
on Education released From Soldier to Student II: Assessing Campus Programs for Veterans
and Services Members an update from its 2009 study. In that three-year period, the institutions
surveyed saw sizable increases across military-related enrollments, including active duty
students (up 125%), veterans (up 137%), and dependents (up 224%).
We have segmented our discussion between active duty/reservists and veterans.
Active duty military and reservists. According to the US Department of Defense (DoD), as
of July 31, 2013, there were nearly 1.4 million personnel on active duty in the US armed
forces and another nearly 1.1 million members in the reserves and National Guard (see
Exhibit 125).
A member of BMO
Financial Group
115
September 2013
BMO Capital Markets
Exhibit 125. Active Duty Military and Reserve Personnel (as of

July 31, 2013)
Army
Active Duty:
Officers
Enlisted
Cadets-midshipmen
Total
99,374
430,497
4,545
534,416
Navy
54,168
264,677
4,802
323,647
Marine
Corps Air Force
21,810
172,417
0
194,227
65,125
240,477
263,757 1,131,348
4,216
13,563
333,098 1,385,388
Reserves
As % of total
Active Duty:
Officers
Enlisted
Cadets-midshipmen
Total
Total
1,086,055
7.2%
31.1%
0.3%
38.6%
3.9%
19.1%
0.3%
23.4%
1.6%
12.4%
0.0%
14.0%
4.7%
19.0%
0.3%
24.0%
17.4%
81.7%
1.0%
100.0%
Note: Reserves data as of May 31, 2013. Source: US Department of Defense.
Each year, about 300,000 new service members are enlisted or commissioned to replace
retiring or separating members. However, this number is likely to decrease if, as expected, the
military continues to downsize.
Active military
market
underpenetrated
Most for-profit
schools provide
discount to
military students
Over $660 million

spent in FY2012 in
tuition assistance
to over 286,000
troops
A member of BMO
A relatively small portion of the military-enlisted population (i.e., non-officers) are college
educated; according to the DoD, in FY2012, just over 13% of them held only an associate's
degree and another 6% of them held a bachelors degree or higher. Furthermore, just under
58% of military officers do not have a graduate degree. In addition, military servicemen and
women are now encouraged to gain either associate degrees or bachelor degrees for
consideration in promotions to the next rank (and pay raises) in their military career. As such,
we believe this market is relatively underpenetrated. In addition, we believe the demanding
work schedules, along with the geographic distribution of this population is ideal for an online
delivery format (discussed in greater detail later in this section).
Each year, the DoD allocates funding for voluntary education whereby military personnel
receive tuition assistance for roughly 100% of students costs through its Uniform Tuition
Assistance program. For postsecondary classes, the limit is currently $250 per credit hour, with
a maximum annual benefit of $4,500. This rate was increased in FY2003 as an enticement to
increase military enlistment. As the per-credit rate is below the price points of most for-profit
providers at least at the undergraduate level - many offer military discounts to serve this
sector.
In FY2012, the DoD spent more than $568 million for tuition assistance for over 874,000
courses taken, an estimated additional $90+ million was spent on operational costs bringing to
the total to over $660 million in total costs for this program. More than 286,000 troops
enrolled in postsecondary courses, with nearly 49,000 degrees and nearly 1,800
certificates/licensures awarded during the year. The bulk (roughly 76%) of courses were taken
online, up from 76% in the prior year. The Army and Air Force are the biggest users of this
program, though growth has slowed across most branches (see Exhibit 126).
Financial Group
116
September 2013
BMO Capital Markets
Exhibit 126. Department of Defense Tuition Assistance Courses

Taken and Cost (FY2004- FY2012)
Courses Taken
FY2008
FY2009
FY2004
FY2006
FY2007
(000s)
Army
Navy
Air Force
Marine Corps
DoD Total
375.7
199.7
317.7
74.9
968.0
277.4
208.6
269.6
74.6
830.2
275.2
186.2
276.3
67.7
805.4
306.8
153.4
284.4
71.2
815.7
As % of total
Army
Navy
Air Force
Marine Corps
DoD Total
38.8%
20.6%
32.8%
7.7%
100.0%
33.4%
25.1%
32.5%
9.0%
100.0%
34.2%
23.1%
34.3%
8.4%
100.0%
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
-0.8%
-10.7%
2.5%
-9.2%
-3.0%
FY2004
FY2006
FY2007
% annual change
Army
Navy
Air Force
Marine Corps
DoD Total
FY2010
FY2011
FY2012
321.5
162.0
278.7
72.4
834.6
365.7
144.7
270.6
76.8
857.8
377.2
136.9
273.9
78.8
866.8
380.2
134.5
282.3
77.2
874.1
37.6%
18.8%
34.9%
8.7%
100.0%
38.5%
19.4%
33.4%
8.7%
100.0%
42.6%
16.9%
31.5%
9.0%
100.0%
43.5%
15.8%
31.6%
9.1%
100.0%
43.5%
15.4%
32.3%
8.8%
100.0%
11.5%
-17.6%
2.9%
5.1%
1.3%
4.8%
5.6%
-2.0%
1.7%
2.3%
13.8%
-10.7%
-2.9%
6.1%
2.8%
3.1%
-5.4%
1.2%
2.5%
1.0%
0.8%
-1.8%
3.1%
-2.0%
0.8%
Total Cost
FY2008
FY2009
FY2010
FY2011
FY2012
$224.1
90.4
189.6
58.2
$562.3
$224.7
89.5
197.6
56.3
$568.1
($ 000s)
Army
Navy
Air Force
Marine Corps
DoD Total
As % of total
Army
Navy
Air Force
Marine Corps
DoD Total
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
39.9%
16.1%
33.7%
10.4%
100.0%
39.6%
15.8%
34.8%
9.9%
100.0%
% annual change
Army
Navy
Air Force
Marine Corps
DoD Total
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
0.3%
-1.0%
4.2%
-3.3%
1.0%
FY2004
N.A.
N.A.
N.A.
N.A.
N.A.
FY2006
N.A.
N.A.
N.A.
N.A.
N.A.
FY2010
N.A.
N.A.
N.A.
N.A.
N.A.
FY2011
$594
660
692
739
$649
FY2012
$591
666
700
730
$650
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
-0.5%
0.8%
1.1%
-1.3%
0.2%
Army
Navy
Air Force
Marine Corps
DoD Total
% annual change
Army
Navy
Air Force
Marine Corps
DoD Total
Average Cost per Course

FY2007
FY2008
FY2009
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Note: FY2005 data not available. N.A. Not Available. Source: BMO Capital Markets and Council of
College and Military Educators (CCME).
A member of BMO
Financial Group
117
September 2013
Average cost
roughly $650 per
course
BMO Capital Markets
While the total cost per course (excluding operational costs) is limited based on reimbursement
rates, the average cost per undergraduate course has remained below this limit (typically $750 or
three credits at $250 per credit). However, the pace of recent tuition hikes has brought it closer
to these levels. In FY2012, the average cost was roughly $650 per course -- $638 for
undergraduate courses and $750 for graduate courses (see Exhibit 127).
Exhibit 127. Department of Defense Tuition Assistance Average

Costs per Course (FY2002- FY2012)
Undergraduate
Graduate
Average Cost per Course
$750
600
450
300
150
0
FY2004
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
Source: BMO Capital Markets and Council of College and Military Educators (CCME).
Potential
reduction in DoD
In recent years, there have been a number of threats to this tuition assistance program owing to
budgetary pressures:
tuition assistance
Options available
if tuition
In October 2011, the Marine Corps announced new tuition assistance rules that cut the
maximum benefit for its service members from $4,500 per year to $875 per year and
reduced the tuition assistance from $250 per credit hour to $175 per credit hour. After much
pressure, these cuts were rescinded.
Effective March 1, 2013, the federal government instituted across-the-board budget cuts
known as sequestration at 8.2% for most discretionary programs, including those
overseen by the Department of Education (ED), after Congress was unable to reach a longterm deal on deficit reduction. Shortly thereafter, the Army, Air Force, Marine Corps, and
Coast Guard suspended new applications for their tuition assistance programs; (the Navy
did not take action but did considered making sailors pay for about 25% of their education
benefits). On March 26, 2013, President Obama signed into law the FY2013 federal
funding bill (H.R. 933) which restored these programs, although many education providers
cited some hiccups in enrolling military students during this period.
Even if future cuts to this program occur, military students would have other funding options
such as the following:
assistance is cut
A member of BMO
Title IV (federal financial aid) programs like Pell Grants. This would be most attractive for
younger or recently enlisted military members who most likely will be at annual income
levels that are Pell Grant-eligible.
Financial Group
118
September 2013
BMO Capital Markets
Tapping into G.I. Bill benefits while still enlisted through an option known as the Top-Up
Program. Under this program, enlisted members with two years of services can use up to
$17,000 of these benefits, allowing them to use these funds for 36-months (measured by
enrollment) over a 15-year period.
Cash or loans.
The previously cited NCES report on military and veterans education analyzed the types of
postsecondary institutions that military undergraduates attend. Despite conventional wisdom to
the contrary, in the 2007-2008 school year, for-profit institutions enrolled only 12% of military
undergraduates smaller than the 15% of total nonmilitary independent undergraduates they
serve (see Exhibit 128). However, given the accelerated attention the sector has paid to these
students in recent years, we believe that gap has been erased and potentially surpassed.
Exhibit 128. Where Military Undergraduates Attend (2007-2008

School Year)
Public two-year institutions

Public four-year institutions
Private not-for-profit four-year institution
For-profit institution
Others/attended more than one institution
Military
Undergraduates
43%
21%
13%
12%
9%
Nonmilitary
Independent
Undergraduates
49%
19%
9%
15%
8%
Source: National Center for Educational Statistics.
Students at forprofit schools are

large users of
military tuition
assistance; helps
stay below 90/10
threshold
In fact, according to the Senate Health, Education, Labor and Pensions (HELP) Committee
report released in July 2012, in FY2011, students at for-profit colleges used nearly half of the
total TA funding available -- $280 million of the $563 million disbursed during the year. That
is up from roughly 42% ($218 million of $515 million in benefits) in FY2009. One of the
main reasons for this increased penetration was that many for-profit schools targeted this
funding source to stay below the 90/10 threshold, which limits Title IV as a percentage of
cash-basis revenue to 90%, as DoD tuition assistance is excluded from the numerator. This
practice has created some controversy (see more details in the Regulatory Trends section later
in this document).
A list of the largest providers with students using the DoD tuition assistance program in
FY2012 (latest data available) can be found in Exhibit 129. As shown, six of the top 10
providers are for-profit schools, including American Public Educations (APEI) American
Military University, Bridgepoint Educations (BPI) Ashford University and Apollo Groups
(APOL) University of Phoenix. APEI is by far the largest provider to this sector across all
metrics and we believe serves the largest share of students in three of the five armed forces
(air force, coast guard, and marine corps).
A member of BMO
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119
September 2013
BMO Capital Markets
Exhibit 129. Top 50 Users of Department of Defense Tuition Assistance (Ranked by

FY2012 Students)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
School
American Military University (APEI)
University Of Maryland University College
Central Texas College
Ashford University (BPI)
University Of Phoenix (APOL)
Columbia Southern University
Embry Riddle Aeronautical University
Trident University International
Grantham University
Park University
Liberty University
Excelsior College
Columbia College
Coastline Community College
Pierce College
Saint Leo University
Fayetteville Technical Community College
Kaplan Higher Education Corporation (WPO)
Thomas Edison State College
DeVry University Inc. (DV)
Troy University
Webster University
Allied American University
Tidewater Community College
Colorado Technical University (CECO)
Minnesota State Colleges And Universities
Post University
University System Of Georgia
Vincennes University
Wayland Baptist University
The State University And Community College System Of Tennessee
North Dakota University System
National University System
Hawaii Pacific University
International Sports Sciences Association
South University - Montgomery (EDMC)
University Of North Carolina
Strayer Education Inc. (STRA)
State University Of New York System
University Of Oklahoma
Mississippi Institutions Of Higher Learning
Grand Canyon University (LOPE)
Inter American University of Puerto Rico
Pikes Peak Community College
Southwestern College - Kansas
Northwest Florida State College
Dlorah Inc. (NAUH)
Maricopa Community College District
Barton County Community College
Bellevue University
School Type
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Highest
Degree
Master's
Doctoral
Associate
Master's
Doctoral
Doctoral
Doctoral
Doctoral
Master's
Master's
Doctoral
Post-master's
Master's
Associate
Associate
Master's
Associate
Master's
Post-master's
Bachelor's
Doctoral
Doctoral
Bachelor's
Associate
Doctoral
Doctoral
Master's
Doctoral
Bachelor's
Master's
Post-master's
Post-master's
Master's
Post-master's
Associate
Master's
Doctoral
Master's
Doctoral
Doctoral
Doctoral
Doctoral
Doctoral
Associate
Master's
Bachelor's
Bachelor's
Associate
Associate
Doctoral
Students Courses
56,952 150,833
35,118
82,604
23,417
54,697
21,313
69,828
16,105
53,090
11,108
33,050
10,193
27,080
9,873
27,669
9,544
36,549
8,966
22,449
6,410
21,577
6,021
16,289
5,649
16,563
4,897
11,193
4,489
11,659
4,278
12,339
3,990
11,821
3,919
12,534
3,771
8,828
3,737
11,522
3,444
11,730
3,295
9,636
3,174
9,599
2,905
7,718
2,877
11,532
2,541
11,803
2,525
7,464
2,471
11,226
2,422
5,723
2,272
6,652
2,264
10,367
2,174
8,377
2,046
5,790
1,938
5,604
1,869
3,633
1,843
5,404
1,719
8,412
1,709
5,476
1,592
4,483
1,521
4,701
1,279
6,715
1,246
3,747
1,242
6,362
1,235
2,901
1,213
3,883
1,156
2,779
1,154
3,087
1,143
2,429
1,109
2,845
1,103
3,675
TA Funds
($ mil.)
$114.2
54.3
25.2
51.5
38.7
20.0
19.8
25.8
25.6
15.6
15.5
10.8
10.3
4.8
6.4
7.9
2.4
10.0
6.7
9.4
7.7
7.1
7.1
2.9
7.4
6.5
5.5
5.3
3.3
4.5
5.3
4.2
3.8
3.3
3.4
3.4
3.8
3.9
2.6
3.2
4.0
3.4
3.4
1.5
2.7
0.9
2.2
0.8
1.1
3.0
Source: Military Times Edge Magazine.
Veterans market
Veterans. According to the US Department of Veterans Affairs (VA), there were roughly 22.2
underpenetrated
million veterans in the US as of September 2011 (latest data available). According to a January
2011, VA report entitled Educational Attainment of Veterans: 2000 to 2009, during that
period, a higher percentage of veterans than non-veterans had completed some college, though
not a degree. Nevertheless, there was a significant increase in the percentage of veterans with a
bachelors degree from 14.9% in 2000 to 16.7% in 2009 (see Exhibit 130). However, the share
of veterans with a bachelor's degree still lagged well behind the percentage of the general
population. We still believe that this market is underpenetrated especially as recent and
expected troop reductions should increase the number of newly minted veterans.
A member of BMO
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120
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BMO Capital Markets
Exhibit 130. Bachelor's Degree Educational Attainment: Veterans

vs. Non-Veterans (FY2000- FY2009)
% of Population with Bachelors Degree
19%
Veterans
Non-Veterans
17.9%
18%
18.1%
18.1%
17.4%
17.0%
17.0%
16.1%
16.3%
16.2%
15.8%
16%
15%
17.0%
16.7%
17%
14.9%
15.0%
16.0%
16.4%
16.5%
16.7%
16.1%
15.0%
14%
13%
12%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: BMO Capital Markets and Department of Veterans Affairs.
Montgomery GI
Bill
Historically, veterans have been eligible for education benefits mainly through the GI bill, first
enacted in 1944 as the Servicemens Readjustment Act and then expanded in 1984 under the
Veterans' Educational Assistance Act (the Montgomery GI Bill). The maximum amount
awarded in the 2012-2013 academic year was just over $1,500 per month for living and
education expenses likely not enough to support seeking higher education without additional
assistance.. Nevertheless, very few of those eligible take advantage of these programs.
According to a 2009 analysis by the US Veterans Administration, less than 6% of veterans used
the complete amount available, and, on average, benefits are used for only 17 months of the 36
months of eligibility.
A 2008 analysis of US Department of Veterans Affairs data conducted by the Chronicle of
Higher Education shows a disproportionate number of students eligible for this funding attend
for-profit schools; while roughly 8% of postsecondary students attended for-profit institutions in
the 2006-2007 school year, 19% of those using GI bill benefits did the same (see Exhibit 131).
Exhibit 131. Where Students Use GI Bill Benefits (2006-2007

School Year)
Community college
Four-year public institution
For-profit institution
Private institution
Undetermined
Where Students Use

GI Bill Benefits
38%
36%
19%
6%
1%
Where Students
Attend
34%
38%
8%
19%
0%
Source: Chronicle of Higher Education and National Center of Education Statistics.
Exhibit 132 shows the top 10 schools attended by students using the GI Bill for FY2007 (latest
data available). As shown, seven of these schools are for-profit providers.
A member of BMO
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BMO Capital Markets
Exhibit 132. Top 10 Schools for GI Bill Recipients (FY2007)

Rank
1
2
3
4
5
6
7
8
9
10
School
University of Phoenix (APOL)
American Intercontinental University (CECO)
American Public University (APEI)
University of Maryland
Colorado Technical University (CECO)
Kaplan University (WPO)
Strayer University (STRA)
Grantham University
Florida Community College
Type
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Students
17,221
3,698
3,668
3,359
3,024
2,738
2,460
2,348
2,029
1,764
Source: US Department of Veterans Affairs.
Post 9/11 GI Bill

offers another
growth
opportunity
In recent years, more funding for veterans education has become available, likely spurring
growth in this segment. On June 30, 2008, President Bush signed the Post-9/11 Veterans
Educational Assistance Act of 2008, the so-called new or Post-9/11 GI Bill, expanding
education benefits for veterans who have served at least 90 days on active duty since September
11, 2001, including reservists and members of the National Guard; these benefits became
available effective August 1, 2009. According to the American Council on Education, this group
has roughly two million members. On January 4, 2011, President Obama signed into law the
Post-9/11 Veterans Educational Assistance Improvements Act of 2010 (Improvements Act),
which altered these benefits somewhat.
This program works as follows:
A member of BMO
The initial bill only funded programs at degree-granting schools (i.e., associate's degree or
higher). Effective October 1, 2011, non-degree programs were also included as the revised
bill funds programs at all accredited institutions.
Effective August 1, 2011, a single national cap of $17,500 applied for students at nonpublic and foreign institutions (initially there was a cap of up to the cost of in-state tuition at
the most expensive public institution of higher education in the state where the veteran is
enrolled). For students at public institutions, the benefit in effect is capped at in-state tuition
and fees for the program in which the student is enrolled. This maximum amount is set
annually; effective August 1, 2013, the rate is $19,198.31 for the 2013-14 academic year
up 6.2% from the prior year.
The benefit for tuition and fees is based on the net cost to the student after accounting for
state and federal aid, scholarships, institutional aid, fee waivers, and similar assistance,
rather than the total charges established by the institution under the initial bill.
Private institutions that participate in the Yellow Ribbon Program can waive up to half of
the remaining charges and receive the same amount from the federal government (per the
Veterans Administration, in the 2011-2012 school year, more than 2,600 schools were
participating in this program).
Students receive up to $1,000 per academic year for books and other education costs.
Financial Group
122
September 2013
BMO Capital Markets
The monies are available for 15 years after the last release of active duty of 90 consecutive
(or 30 days if released for disability). Individuals may receive up to 36 months worth of
benefits, depending on the length of active-duty service.
Effective October 1, 2011, students enrolled in distance learning were entitled to a housing
stipend, albeit in an amount less than the housing stipend available to students who enroll in
classroom-based and blended programs. Initially, such students did not receive monthly
housing stipends.
Service members may transfer these education benefits to family members (e.g., spouses
and children) under certain restrictions.
Initial Congressional Budget Office estimates were that the Post 9/11 GI Bill would cost US
taxpayers roughly $100 billion in the first 10 years up 170% from $37.2 billion, which had
been budgeted under the old GI bill as the average monthly cost will likely be more than the
monthly allotment of $1,321 that had been provided to veterans with at least three years of
active duty and were now full-time students. While there were some initial glitches in the first
year of implementation (e.g., processing delays), in the first three and a half years of the
program (through January 2013), the VA has provided $27 billion in Post-9/11 GI Bill benefits
to approximately 938,000 people under this program.
For-profit sector
capturing
disproportionate
amount of new
GI students
While these benefits are available across the postsecondary spectrum, we believe the for-profit
sector will capture relatively more of this funding, given their current disproportionate
penetration of this market. This has been true so far: in a March 2012 article in the Chronicle of
Higher Education, the authors cited data that in the first three years of the program (FY2009FY2011), students at for-profit schools received roughly 37% of the $4.4 billion paid out under
this program (see Exhibit 133). We noted earlier that students at for-profit schools represented
roughly 10.9% of total enrollment in the 2011-2012 school year (latest data available).
Exhibit 133. Post 9/11 GI Bill Recipients by School Type

(FY2009 - FY2011)
Public
Private-for-profit
Total
Amount Paid
In $bil. % of Total
$1.68
38%
$1.08
24%
$1.65
37%
$4.41
100%
Source: Chronicle of Higher Education from data provided by the US Department of Veterans Affairs.
According to the Senate HELP Committee, eight of the top ten recipients of Post-9/11 GI Bill
funds during FY2009-FY2011 were for-profit institutions (see Exhibit 134); we note that the
students actually receive the funding, not the institutions.
A member of BMO
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123
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BMO Capital Markets
Exhibit 134. Top 10 Schools for Post 9/11 GI Bill Funding

(FY2010-FY2011)
Company/Ticker
Apollo Group (APOL)
ITT Technical Institutes (ESI)
DeVry (DV)
Career Education (CECO)
Strayer Education (STRA)
Corinthian Colleges (COCO)
University of Maryland System
University of Texas System
($ in mil.)
FY2010
FY2011 % change
$77
$133
73%
60
113
88%
79
99
25%
48
96
100%
58
71
22%
32
49
53%
22
39
77%
20
31
55%
17
27
59%
20
25
25%
Note: Ranked by FY2011 funding. Source: Senate HELP Committee.
The Improving Transparency of Education Opportunities for Veterans Act of 2012, which was
introduced by Rep. Bilirakis (R-FL) and became law on January 10, 2013, requires colleges to
be more transparent about how they serve veterans and tighten rules regarding which institutions
may be eligible to have students participate in VA programs.
Unfortunately, the disproportionate amount of both DoD and VA funding at for-profit
institutions has attracted a lot of unwanted attention. Both the House and the Senate have
proposals on the floor to change the 90/10 calculation (which limits the amount of Title IV
funding at for-profit institutions to 90% of their annual cash-basis receipts) to include military
and veterans' education benefits on the 90% side. We have summarized the more pertinent bills
in Exhibit 135.
A member of BMO
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September 2013
BMO Capital Markets
Exhibit 135. Bills in 113th Congress Affecting Military and Veterans Education Benefits
DATE
BILL NUMBER & TITLE
INTRODUCED
SUMMARY
MEMBER OF
CONGRESS
8/1/2013
Military and Education Bill
The bill prohibits the use of any revenues derived from educational
assistance funds provided in any form under any Federal law for
advertising, marketing or student recruitment activities other than those
specifically authorized under title IV of the HEA or by the Secretary of Sen. Durbin
Defense. The bill also changes the current 90/10 calculation to prohibit
the inclusion of funds from voluntary military education programs as
part of the 10% in the 90/10 calculation.
4/26/2013
H.R. 1796: Troop Talent Act

of 2013
This bill seeks to ensure that the education and training provided to
members of the Armed Forces and veterans better assists members
and veterans in obtaining civilian certifications and licenses, and for
other purposes.
3/21/2013
S. 634: Service Members

Student Loan Relief Act
A bill to allow members of the Armed Forces and National Guard to

defer principal on Federal student loans for a certain period in
connection with receipt of orders for mobilization for war or national
emergency, and for other purposes.
PARTY &
COMMITTEE
STATE
D-IL
Rep. Duckworth,
Cosponsors: 83
D-IL
Veterans'
Affairs/Armed
Services
Sen. Tester,
Cosponsors: 2
D-MT
HELP
Sen. Lautenberg,
Cosponsors: 3
D-NJ
HELP
2/28/2013
S. 406: Students First Act
A bill to provide for new annual program review requirements of each

institution of higher education that meet certain criteria such as a
cohort default rate that exceeds the national average, a proprietary
institution that received more than 85 percent of the institution's
revenue from Federal funds, the institution has engaged in default
manipulation to name a few of on the list within the bill text.
2/7/2013
S. 257: GI Bill Tuition

Fairness Act of 2013
A bill to amend title 38, United States Code, to require courses of

education provided by public institutions of higher education that are
approved for purposes of the educational assistance programs
administered by the Secretary of Veterans' Affairs to charge veterans'
tuition and fees at the in-state tuition rate, and for other purposes.
Sen. Boozman,
Cosponsors: 3
R-AR
Senate
Veterans' Affairs
Committee
1/23/2013
H.R. 357" GI Bill Tuition

Fairness Act
To amend title 38, United States Code, to require courses of education

provided by public institutions of higher education that are approved for
Rep. Miller,
purposes of the educational assistance programs administered by the
Cosponsors: 42
Secretary of Veterans' Affairs and who is enrolled before August 1,
2014, to charge veterans' tuition and fees at the in-State tuition rate.
R-FL
Veterans' Affairs
1/23/2013
H.R. 331: To direct the

Secretary of Veterans Affairs
to permit the centralized
reporting of veteran
enrollment by certain groups
R-CA
Veteran Affairs
Amends veterans' educational assistance program reporting

requirements under which enrolled veterans (or eligible persons) and
educational institutions must report enrollment information to the
Rep. Calvert,
Secretary of Veterans Affairs (VA). Requires individuals and
Cosponsors: 5
educational institutions participating in the post-Vietnam era and post9/11 veterans' educational assistance programs to report to the
Secretary such enrollment and any updates on interruption or
termination of the education.
Note: Updated as of August 1, 2013. Source: APSCUs legislative matrix..
Should any of these bills pass, we believe they would impact several schools that serve this
demographic. Senator Harkin has released data regarding military-sourced funding of
educational expenses for the publicly held for-profit providers. The latest data (released in July
2012) is summarized in Exhibit 136. As shown, those with the most exposure (as a percentage
of revenues) include APEI, BPI, ESI, and STRA. (Senator Harkins committee appears to be
continuously tracking military tuition data, but only releases information sporadically and often
with revisions; hence, we caution this data may not be 100% accurate.)
A member of BMO
Financial Group
125
September 2013
BMO Capital Markets
Exhibit 136. Total Revenues From Military and Veterans Education

Benefits for Selected For-Profit Education Companies (FY2010)
TOTAL MILITARY REVENUES - FY2010
DoD Tuition
Total
Assistance/
Military and
MYCAA
Post GI-Bill
Veterans
FYE
Company
Ticker
American Public Education
APEI
12
$92.2
$9.4
$101.6
Apollo Group
APOL
62.8
81.6
144.4
Bridgepoint Education
BPI
12
38.4
12.0
50.4
Career Education
CECO
12
7.7
63.7
71.5
21.2
Corinthian Colleges
COCO
1.3
19.9
Capella Education
CPLA
12
2.1
8.9
11.1
DeVry
DV
9.0
43.9
53.0
58.5
Education Management
EDMC
3.0
55.4
Grand Canyon Education
LOPE
12
2.3
5.0
7.3
ITT Educational Services
ESI
12
0.3
87.5
87.8
Lincoln Educational Services
LINC
12
0.0
7.4
7.4
National Amer. Univ. Holdings
NAUH
1.6
1.4
3.0
Strayer Education
STRA
12
4.5
38.7
43.2
Universal Technical Institute
UTI
0.0
10.9
10.9
Washington Post
WPO
12
12.5
21.2
33.7
$238.0
$466.8
$704.8
Total
AS % OF REVENUES
Company
Ticker
APEI
FYE
12
49.7%
5.0%
Apollo Group
APOL
1.3%
1.7%
2.9%
BPI
12
5.9%
1.8%
7.7%
Career Education
CECO
12
0.4%
3.1%
3.5%
Corinthian Colleges
COCO
0.1%
1.1%
1.2%
Capella Education
CPLA
12
0.5%
2.2%
2.7%
DeVry
DV
0.5%
2.2%
2.6%
EDMC
0.1%
2.1%
2.2%
LOPE
12
0.6%
1.4%
2.0%
54.7%
ESI
12
0.0%
5.6%
5.6%
LINC
12
0.0%
1.2%
1.2%
NAUH
1.7%
1.4%
3.1%
Strayer Education
STRA
12
0.7%
6.3%
7.1%
UTI
0.0%
2.5%
2.5%
Washington Post
WPO
12
0.7%
1.1%
1.8%
1.2%
2.3%
3.5%
Total
Note: For purposes of this calculation, we have used revenues for the 12 months ended September 30, 2010 or the
closest period thereof. Source: Based on data collected by the Senate Health Education Labor and Pension
Committee (HELP) released in July 2012, BMO Capital Markets and Thomson.
A member of BMO
Financial Group
126
September 2013
BMO Capital Markets
Growth Components for For-Profit Postsecondary Schools

Why is for-profit
enrollment
It is no secret that enrollment in the for-profit sector has been shrinking. Among the
components:
declining?
Students questioning the value proposition of higher education;
Increasing competition for higher-degree-level students across the for-profit landscape

and a growing threat of not-for-profit online alternatives;
Less aggressive recruitment policies, owing to the incentive compensation ban (effective
July 1, 2011);
A shift toward recruiting "higher-quality students, including a number of initiatives

(e.g., orientation programs) limiting new student inflow (i.e., focus on outputs, not
inputs);
Financial aid limitations as Title IV funds become more restrictive (e.g., ATB students no
longer eligible);
Slowing demographic trends as growth in the traditional student cohort slows and will
soon decline;
Negative publicity, which has tainted the for-profit sector;
The counter-cyclical impact of a slowly improving economy leading to fewer potential

students returning to school as job opportunities improve;
Increasing student acquisition costs as schools are much more selective in marketing to a
very specific potential student base, while advertising costs have generally increased
along with strengthening economy.
We address most of these issues in detail throughout various sections in this report.
Long-term growth
rates in the new
normal: 6%-9%
revenues; 8%-12%
earnings
A member of BMO
While this sector has been and will likely continue to be under pressure for some time, we
believe eventually, trends will stabilize and the sector will once again begin to grow. However,
it is unlikely that the sector will ever again return to its double-digit top-line growth rates it
enjoyed for much of the prior two decades. Our long-term growth expectations can be found in
Exhibit 137, with the specific underlying components of each of these factors in the body of this
section.
Financial Group
127
September 2013
BMO Capital Markets
Exhibit 137. For-Profit Postsecondary Long-Term Annual Growth Expectations

Item
Annual Growth
Same school enrollment growth (includes

impact of program transplants)
New campus openings, facility expansions,
relocations
3%-4%
Roughly 2x the rate of the not-for-profit sector

Fewer campus openings; law of large numbers; each
new school has a lesser impact
0%-1%
Retention improvements
Subtotal (enrollment growth)
0%-1%
4%-6%
Tuition increases
Subtotal (revenue growth)
Comments
Greater focus on retention

Tuition at all-time highs; consumers still very price
sensitive. Competitive and regulatory pressures could
cap price increases
2%-3%
6%-9%
1.25x-1.5x revenue Each 1% increase in incremental revenues increases

growth
operating profits by roughly 1.25%-1.5%
8%-12%
Operating margin expansion

Total (earnings growth)
Source: BMO Capital Markets estimates.
Postsecondary Schools Enrollment Growth Trends

Enrollment at forprofit degreegranting
institutions has
increased 11.4%
CAGR since fall
1976 versus the
1.9% rate at all
degree granting
institutions
Longer-term historical enrollment data for the for-profit sector only exists for degree-granting
programs, which enrolled roughly 1.96 million students in the 1,311 institutions as of fall 2011
(roughly 2.36 million students were enrolled in the 3,189 for-profit postsecondary institutions
eligible for Title IV funding, including non-degree granting programs as cited previously). Even
including a decline in fall 2011, the 11.4% average annual increase in for-profit students at
degree-granting institutions since fall 1976 is significantly larger than the 1.9% average annual
increase for all postsecondary students in degree-granting institutions over the same period. This
has allowed the for-profit sector to significantly increase its market share since that time, when it
taught only 0.4% of all students at US degree-granting institutions versus the 9.3% penetration
reached as of fall 2011, though down from fall 2010s 9.6% rate (see Exhibit 138).
Exhibit 138. US For-Profit Enrollment at Degree-Granting

Postsecondary Institutions (Fall 1976 to Fall 2017E)
2,000
1,750
10%
Enrollment
Market share
8%
1,500
6%
1,250
1,000
4%
750
500
2%
250
0
1976-77
1981-82
1986-87
1991-92
1996-97
2001-02
2006-07
0%
2011-12 2016-17E
Statistics.
A member of BMO
Financial Group
128
September 2013
Market Share
For-Profit Enrollment (000s)
2,250
BMO Capital Markets
Our longer-term forecast assumes continued enrollment declines before bottoming in fall 2014,
with the sector growing thereafter reaching just over two million students (9.8% share) in fall
2017. By that time, for-profit enrollments should be growing near their low-single-digits
projected long-term growth rates.
We expect forprofit enrollments

to bottom in fall
2014
The bulk of the sectors share gains have come since fall 1997, when for-profit market share
increased from 3.5% in fall 1997 to 11.2% by fall 2010. Much of these gains were driven by
strong growth in degree-granting institutions, most specifically four-year institutions, as the
sector moved upscale from its vocational roots. While all major components within the forprofit sector saw enrollment declines in fall 2011, the sharpest drop (6.4%) was felt by two-year
schools (see Exhibit 139).
The sector has

moved upscale
from its
vocational roots
Exhibit 139. Postsecondary Enrollment Market Share Analysis (Fall 1997 to Fall 2011)
2005
2006
2007
2008
2009
2010
2011
CAGR
1997-2011
For Profits
1,187
1,323
1,380
1,480
1,798
2,239
2,426
2,358
11.4%
1,066
314
1,186
294
1,469
328
1,852
387
2,018
408
1,957
402
13.6%
5.5%
812
319
250
926
321
233
1,173
361
263
1,467
468
305
1,588
519
318
1,559
486
313
17.9%
6.2%
5.3%
1997
1998
1999
2000
2001
2002
2003
Total
518
553
629
673
766
853
984
Degree granting
Non-degree granting
329
189
364
189
430
198
450
223
528
238
594
259
712
281
880
307
1,011
312
4 years and above

At least 2 years, but less than 4 yea
Less than 2 years
156
210
152
188
216
150
240
229
160
258
229
186
321
242
203
383
250
220
461
285
238
620
317
252
751
319
253
Annual % change:
Total
6.8%
13.7%
7.0%
13.8%
11.4%
15.3%
20.7%
11.4%
4.4%
7.2%
21.5%
24.6%
8.3%
-2.8%
Degree granting
Non-degree granting
10.9%
-0.2%
18.1%
5.2%
4.6%
12.3%
17.2%
6.9%
12.7%
8.6%
19.8%
8.6%
23.7%
9.2%
14.8%
1.6%
5.4%
0.9%
11.3%
-6.6%
23.9%
11.8%
26.1%
17.8%
9.0%
5.3%
-3.1%
-1.4%
4 years and above

At least 2, but less than 4 years
Less than 2 years
20.5%
3.0%
-1.2%
27.5%
6.1%
6.4%
7.8%
-0.3%
16.4%
24.4%
5.7%
9.0%
19.0%
3.5%
8.7%
20.6%
13.8%
7.9%
34.5%
11.3%
5.9%
21.0%
0.6%
0.6%
8.1%
0.1%
-1.4%
14.1%
0.7%
-6.7%
26.7%
12.4%
12.9%
25.0%
29.5%
15.8%
8.3%
11.1%
4.5%
-1.8%
-6.4%
-1.6%
(in 000's)
2004
Total
14,383
14,413
14,577
15,029
15,568
16,182
16,346
Not For Profits

16,524 16,599 16,825
17,191
17,777
18,728
19,162
19,199
2.1%
Degree granting
Non-degree granting
14,174
209
14,185
228
14,361
216
14,862
166
15,400
168
16,017
195
16,189
148
16,392
132
16,477
123
16,693
132
17,062
129
17,634
143
18,575
152
18,998
164
19,037
161
2.1%
-1.8%
8,743
5,542
98
8,846
5,472
94
8,960
5,533
84
9,107
5,833
88
9,357
6,111
101
9,701
6,391
91
9,947
6,321
78
10,106
6,339
76
10,249
6,295
55
10,429
6,332
64
10,705
6,419
67
10,958
6,740
79
10,630
7,207
81
11,747
7,329
86
11,936
7,177
87
2.2%
1.9%
-0.9%
4 years and above

Less than 2 years
Annual % change:
Total
0.2%
1.1%
3.1%
3.6%
3.9%
1.0%
1.1%
0.5%
1.4%
2.2%
3.4%
5.3%
2.3%
0.2%
Degree granting
Non-degree granting
0.1%
9.2%
1.2%
-5.6%
3.5%
-22.8%
3.6%
1.0%
4.0%
15.9%
1.1%
-23.9%
1.3%
-10.8%
0.5%
-7.2%
1.3%
7.7%
2.2%
-2.3%
3.4%
10.9%
5.3%
6.2%
2.3%
8.1%
0.2%
-1.8%
1.2%
-1.3%
-3.9%
1.3%
1.1%
-11.0%
1.6%
5.4%
4.7%
2.7%
4.8%
14.8%
3.7%
4.6%
-9.8%
2.5%
-1.1%
-13.9%
1.6%
0.3%
-2.7%
1.4%
-0.7%
-27.9%
1.8%
0.6%
16.8%
2.6%
1.4%
4.3%
2.4%
5.0%
17.8%
-3.0%
6.9%
2.2%
10.5%
1.7%
6.6%
1.6%
-2.1%
0.7%
3.5%
3.7%
4.1%
4.3%
4.7%
5.0%
7.6%
7.9%
9.2%
10.7%
11.2%
10.9%
Degree granting
Non-degree granting
2.3%
47.5%
2.5%
45.2%
2.9%
47.9%
2.9%
57.2%
3.3%
58.6%
3.6%
57.1%
4.2%
65.5%
5.1%
69.9%
5.8%
71.8%
6.0%
70.4%
6.5%
69.5%
7.7%
69.6%
9.1%
71.8%
9.6%
71.2%
9.3%
71.3%
4 years and above

Less than 2 years
1.8%
3.6%
60.8%
2.1%
3.8%
61.4%
2.6%
4.0%
65.5%
2.8%
3.8%
67.9%
3.3%
3.8%
66.8%
3.8%
3.8%
70.8%
4.4%
4.3%
75.2%
5.8%
4.8%
76.8%
6.8%
4.8%
82.2%
7.2%
4.8%
79.5%
8.0%
4.8%
77.7%
9.7%
5.1%
76.9%
12.1%
6.1%
79.1%
11.9%
6.6%
78.7%
11.6%
6.3%
78.3%
32.2x
12.1x
2.3x
3.8x
2.9x
15.1x
19.0x
25.1x
3.2x
3.3x
6.3x
4.6x
3.6x
-14.6x
4 years and above

Less than 2 years
Total
For-profit vs. not-for-profit annual chg.
For Profits as % of Total

5.7%
6.7%
7.4%
5.5x
However, much of
the share lost in
fall 2011 was at
the undergraduate
Using a different data series, one can see that the sector gained share last decade across all
three major schools types two-year, undergraduate and graduate (see Exhibit 140).
Interestingly, much of the lost share in fall 2011 came at the undergraduate level, while
enrollment at for-profit graduate schools continued to gain some share.
level
A member of BMO
Financial Group
129
September 2013
BMO Capital Markets
Private-for-profit
500
Market share
4.8%
6.1%
4.8%
4.8%
4.8%
6.6%
8%
6.3%
5%
400
4%
350
3%
300
2%
250
1%
200
0%
Enrollment (000s)
2004
2005
1,500
Private-for-profit
1,250
Market share
1,000
750
6.9%
2006
2007
2008
Undergraduate Schools
2009
2010
2011
11.9%
12.4%
11.9%
7.3%
10%
8%
5.8%
6%
4%
250
2%
0%
2004
325
300
275
250
225
200
175
150
125
100
14%
12%
10.0%
8.2%
500
Enrollment (000s)
7%
6%
5.1%
% of total Enrollment
450
2-Year Schools
550
2005
2006
Private-for-profit
2007
2008
2009
Graduate Schools
Market share
9.2%
7.8%
2010
2011
10.1%
10.3%
11%
10%
9.3%
9%
8.2%
7.4%
8%
6.4%
7%
6%
5%
2004
2005
2006
2007
2008
2009
2010
2011
However, forprofit enrollments

have declined
over the last two
years
A member of BMO
More up-to-date enrollment data has been compiled by the National Student Clearinghouse
Research Center, although data is only available for for-profit four-year schools. As shown in
Exhibit 141, enrollment trends have been deteriorating for every sector within higher education,
but have been most profound in the for-profit sector, where enrollments have declined in each of
the last four major intake periods. We assume trends at for-profit two-year schools have been
fairly similar. Anecdotally, trends at less-than-two-year schools (mostly certificate programs)
have been less worse as students migrate toward these shorter-term programs, to minimize
student loan debt, among others reasons.
Financial Group
130
September 2013
Enrollment (000s)
Exhibit 140. Student Enrollment Private For-Profit Schools

Market Share by Type (Fall 2004 Fall 2011)
BMO Capital Markets
Exhibit 141. Annual Change in Enrollment (Fall 2010 to Spring

2013)
Fall
2010
Two-year schools
Four-year schools
Private not-for-profit four-year schools
Private for-profit four-year schools
All schools
0.3%
1.6%
2.7%
14.8%
2.3%
Spring
2011
-3.9%
2.0%
1.8%
9.0%
0.2%
Fall
2011
-1.6%
1.4%
3.3%
-3.8%
0.2%
Spring
2012
-1.1%
-0.1%
3.8%
-9.3%
-0.3%
Fall
2012
Spring
2013
-3.1%
-0.6%
0.5%
-7.2%
-1.8%
-3.6%
-1.1%
0.5%
-8.7%
-2.3%
Source: BMO Capital Markets and National Student Clearinghouse Research Center.
Has the sectors
In March 2012, The Parthenon Group published a study questioning whether the sectors
addressable
addressable market had been tapped. Specifically, the report cites that the sectors rapid growth
in the latter half of last decade caused schools to start many more students than can be replaced
by population growth and other demand factors. The firm calculates that the addressable market
-- US population age 18-44, household income below $50,000, no college degree and not
currently enrolled -- increases by roughly 800,000 students annually. According to the firm,
private sector schools (as they refer to this group) added 7 million students from the same
demographic from 2006 to 2010, including 1.8 million in 2010 alone. When including another
500,000 students enrolled at not-for-profit institutions, Parthenon estimates the addressable
market has shrunk from roughly 38 million to 30.5 million a roughly 20% decline (see Exhibit
142). In addition, the exclusion of Ability-to-Benefit (ATB) students, who are no longer eligible
to receive Title IV funds effective July 1, 2012, removes another 9 million students from the
target market, likely limiting any expected rebound in enrollment trends. Anecdotally, the
closure of a handful of for-profit schools in 2013 (e.g., American Career Institute, Sawyer
Schools, and Butler Business School) have been blamed to some extent on the exclusion of ATB
students form Title IV funding.
market been
tapped?
Exhibit 142. Parthenon Group Estimate of Addressable Market

Change (2006-2010)
Demographic Target Population
Growth of Non-Profit Students Enrolled
Private Sector Starts (5-year Cumulative)
Addressable Market
38.0
(0.5)
(7.0)
30.5
Note: Parthenon believes that roughly 90% of private sector school students come from household
incomes of less than $50,000. Source: Parthenon Group.
Postsecondary
education may
have some
counter-cyclical
trends
A member of BMO
Impact of economic cycles on total enrollment. We believe one of the most widely debated
matters for investors in postsecondary education stocks is their economic sensitivity. A 2003
study conducted by economists Harris Dellas and Plutarchos Sakellaris (using BLS data from
1968 to 1988) found that a 1% increase in the US unemployment rate led to roughly a 2%
increase in enrollments at US postsecondary institutions. This made intuitive sense (at least to
us), as enrollment growth should accelerate as the economy contracts (and labor markets loosen)
as the opportunity cost of enrolling in higher education is lower.
Financial Group
131
September 2013
Enrollment
growth rates:
inversely
correlated with
economic growth
BMO Capital Markets
The NCES data appear to corroborate that thesis. As shown in Exhibit 143, while the trends
vary, for the most part, overall enrollment growth in postsecondary schools begins to accelerate
in the year just before a recession. Growth remains somewhat strong during the recession year,
as well as in the year following the recession, before beginning to slow as the economy expands.
A similar pattern appears to be true for the Great Recession (December 2007 June 2009) as
enrollment growth accelerated in the 2007-2008 school year and continued thereafter before
slowing and then declining.
Exhibit 143. Economic Sensitivity: All Postsecondary Degree-Granting Schools Total

Enrollment Growth
Prior Recessionary Periods
Oct. 1969 - Mar. 1970
July 1974 - Mar. 1975
Apr. 1980- Sept. 1980
Oct. 1981 - Mar. 1982
July 1990 - Mar. 1991
Mar. 2001 - Nov. 2001
Average
Annual Enrollment Growth - All Postsecondary Degree-Granting Schools

4 Years Prior 3 Years Prior 2 Years Prior
Year Prior
Year Of
Year After 2 Years After 3 Years After 4 Years After
N.A.
N.A.
8.2%
8.7%
6.5%
7.2%
4.3%
3.0%
4.2%
7.2%
4.3%
3.0%
4.2%
6.5%
9.4%
-1.5%
2.5%
-0.2%
-1.5%
2.5%
-0.2%
2.8%
4.6%
2.3%
0.4%
0.3%
-1.8%
2.5%
-0.2%
2.8%
4.6%
2.3%
0.4%
0.3%
-1.8%
0.0%
2.1%
2.1%
2.3%
3.7%
2.1%
3.9%
0.9%
-1.3%
-0.2%
0.9%
0.0%
2.0%
3.5%
4.0%
4.3%
1.8%
2.1%
1.2%
2.2%
1.7%
3.0%
4.6%
4.3%
4.6%
1.0%
0.8%
0.5%
Recent Recession
Dec. 2007 - June 2009

2004-2005
2005-2006
2006-2007
2.1%
1.2%
1.6%
Year Prior
2007-2008
2.8%
Year Of
2008-2009
4.7%

2009-2010
2010-2011
2011-2012 2012-2013E
6.9%
2.9%
-0.1%
N.A.
Note: N.A. Not Available.

Source: BMO Capital Markets, US Department of Education National Center for Education Statistics, and National Bureau of Economic Research.
Enrollment
growth rates:
more correlated to
unemployment
rate
This relationship was confirmed by noted industry researcher Mark Kantrowitz (when he was at
www.finaid.org) in an August 2010 paper entitled Countercyclicality of College Enrollment
Trends. He compares annual fall enrollments with the US unemployment rate in the June of that
year. As shown in Exhibit 144, there appears to be a strong correlation in the annual changes of
both these metrics i.e., as the unemployment rate increases, so follows changes in enrollments
(and vice versa).
Exhibit 144. Comparison of Annual Changes in Total Enrollment

at All Postsecondary Degree-Granting Schools and
Unemployment Rate (1970-2011)
4%
3%
8%
2%
6%
1%
4%
0%
-1%
2%
-2%
0%
1970
-2%
1975
1980
1985
1990
1995
2000
% y/y change in total enrollment

% y/y change in unemployment rate
2005
2010
-3%
y/y % change in unemployment rate
y/y % change in total enrollment
10%
-4%
Note: Data represents annual change in fall enrollment compared to June unemployment rate each year.
Shaded area represents recessionary period. Source: www.finaid.org and BMO Capital Markets,
A member of BMO
Financial Group
132
September 2013
BMO Capital Markets
impact in for-
A 2003 paper by Dr. Sarah Turner at the University of Virginia focused on the same impact at
for-profit institutions, concluding that for-profit institutions may generate a greater
profit sector
enrollment response to cyclical fluctuations than counterparts in the not-for-profit and
Even stronger
public sectors, citing evidence that shows these schools can be more flexible than their not-
for-profit peers in responding to economic shocks (e.g., as demand increases they can more
easily add classroom space and do not face budget constraints from lower tax revenues as the
not-for-profit sector does).
As the historical data for the for-profit sector was not available prior to the 1976-1977 school
year, a similar analysis for changes in total enrollment for-profit sector alone is somewhat
limited (historical data for new enrollment growth was even more limited). Nevertheless, we
believe, even with the data available, one can see an analogous, and perhaps even stronger,
pattern just before and after a recession including the Great Recession (see Exhibit 145).
Exhibit 145. Economic Sensitivity: For-Profit Postsecondary Degree-Granting Schools

Total Enrollment Growth
Apr. 1980- Sept. 1980
Oct. 1981 - Mar. 1982
July 1990 - Mar. 1991
Mar. 2001 - Nov. 2001
Average
Annual Enrollment Growth - For-Profit Degree Granting Schools

Year Prior
Year Of
N.A.
17.5%
26.3%
8.3%
56.7%
36.3%
16.2%
8.9%
-1.3%
17.5%
26.3%
8.3%
56.7%
36.3%
16.2%
8.9%
-1.3%
3.1%
10.8%
-12.0%
15.4%
4.1%
-6.9%
7.8%
0.0%
-1.5%
3.6%
7.9%
10.9%
18.1%
4.6%
17.2%
12.7%
19.8%
23.7%
14.8%
12.1%
10.7%
17.0%
18.4%
25.8%
18.2%
11.2%
7.4%
5.0%
Recent Recession
Dec. 2007 - June 2009

2004-2005
2005-2006
2006-2007
23.7%
14.8%
5.4%
Year Prior
2007-2008
11.3%
Year Of
2008-2009
23.9%

2009-2010
2010-2011
2011-2012 2012-2013E
26.1%
9.0%
-3.1%
N.A.
N.A. Not Available.

We have long opined that enrollment trends at schools with shorter programs (i.e., less than two
year and two year) are more sensitive to economic cycles than trends at four-year schools. Given
the lower-quality student base, students at less than two-year and two-year programs would
likely be less serious in pursuing their education in a strong economic environment.
Conversely, in a weaker economic environment, enrollment trends should improve at a greater
rate at these schools relative to their four-year counterparts.
Countercyclicality is
stronger at
schools with
shorter programs;
this cycle, shorter
programs doing
less worse
A member of BMO
We believe the data bear this out. As shown in Exhibit 146, while enrollment growth
accelerates, on average, during the three-year period encompassing a recession (i.e., before,
during, and after), the rate of acceleration appears a bit stronger the more one moves down the
food chain, i.e., at both two-year schools and less than two-year schools. However, this
volatility also extends to the period thereafter and the rate of decelerating growth is strongest at
those schools that grew the fastest over the recessionary period. We believe that less than two
year schools are doing slightly less worse than their two-year school counterparts, as students
are drawn to the formers less expensive shorter certificate programs. We believe this trend
holds true whether these schools are for-profit or not-for-profit.
Financial Group
133
September 2013
BMO Capital Markets
Exhibit 146. Economic Sensitivity: Annual Total Enrollment Growth by School Type
Oct. 1969 - Mar. 1970
July 1974 - Mar. 1975
Apr. 1980- Sept. 1980
Oct. 1981 - Mar. 1982
July 1990 - Mar. 1991
Mar. 2001 - Nov. 2001
Average
Annual Enrollment Growth - 4 Year Schools

4 Years Prior 3 Years Prior 2 Years Prior Year Prior
Year Of Year After 2 Years After 3 Years After 4 Years After
10.6%
6.7%
6.6%
6.0%
3.8%
5.5%
1.7%
1.4%
2.0%
5.5%
1.7%
1.4%
2.0%
3.5%
5.8%
-1.2%
1.6%
-0.2%
-1.2%
1.6%
-0.2%
1.7%
3.0%
1.1%
0.0%
1.1%
-0.4%
1.6%
-0.2%
1.7%
3.0%
1.1%
0.0%
1.1%
-0.4%
0.1%
1.4%
2.1%
2.4%
2.5%
2.3%
1.5%
0.7%
-0.3%
0.1%
1.1%
1.4%
2.0%
1.8%
3.3%
4.2%
3.3%
3.0%
2.5%
3.2%
2.2%
2.3%
2.8%
2.8%
3.0%
0.9%
1.1%
0.7%
Recent Recession
Dec. 2007 - June 2009

2004-2005
2005-2006
2006-2007 2007-2008
3.0%
2.5%
2.2%
3.5%

Oct. 1969 - Mar. 1970
July 1974 - Mar. 1975
Apr. 1980- Sept. 1980
Oct. 1981 - Mar. 1982
July 1990 - Mar. 1991
Mar. 2001 - Nov. 2001
Average
Annual Enrollment Growth - 2 Year Schools

18.6%
13.0%
14.1%
18.5%
15.3%
12.2%
11.2%
6.9%
9.3%
12.2%
11.2%
6.9%
9.3%
13.0%
16.6%
-2.2%
4.1%
-0.4%
-2.2%
4.1%
-0.4%
4.7%
7.3%
4.2%
1.2%
-1.0%
-4.1%
4.1%
-0.4%
4.7%
7.3%
4.2%
1.2%
-1.0%
-4.1%
0.0%
3.3%
2.1%
2.1%
5.7%
1.7%
7.9%
1.2%
-2.7%
-0.6%
0.8%
-2.1%
1.9%
6.4%
5.1%
4.5%
-0.5%
0.8%
-0.9%
6.1%
4.7%
4.9%
8.6%
7.8%
7.8%
1.6%
0.7%
0.6%
Recent Recession
Dec. 2007 - June 2009

2004-2005
2005-2006
2006-2007 2007-2008
0.8%
-0.9%
0.5%
1.5%

Oct. 1969 - Mar. 1970
July 1974 - Mar. 1975
Apr. 1980- Sept. 1980
Oct. 1981 - Mar. 1982
July 1990 - Mar. 1991
Mar. 2001 - Nov. 2001
Average
Annual Enrollment Growth - Less than 2 Year Schools

N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
-2.3%
-0.3%
12.4%
10.9%
2.6%
1.5%
3.8%
-6.0%
N.A.
-2.3%
-0.3%
12.4%
10.9%
2.6%
1.5%
3.8%
-6.0%
Recent Recession
Dec. 2007 - June 2009

2004-2005
2005-2006
2006-2007 2007-2008
3.8%
-6.0%
1.8%
-4.5%
Year Of
2008-2009
4.3%
Year Of
2008-2009
5.3%
Year Of
2008-2009
14.0%

2009-2010
2010-2011
2011-2012 2012-2013E
6.4%
3.3%
1.2%
N.A.

2009-2010
2010-2011
2011-2012 2012-2013E
7.9%
2.1%
-2.4%
N.A.

2009-2010
2010-2011
2011-2012 2012-2013E
12.7%
4.9%
-1.1%
N.A.
Note: Data measures enrollments at degree-granting institutions. Source: BMO Capital Markets, US Department of Education National Center
for Education Statistics, and National Bureau of Economic Research.
Enrollment trends
for lower-skilled
programs tend to
be most volatile in
and around a
recession
A member of BMO
Given concerns regarding the impact of an economic recovery on enrollment trends, we

analyzed recent trends for three of the publicly held companies Corinthian Colleges (COCO),
Lincoln Educational Services (LINC), and Universal Technical Institutes (UTI) that specialize
in non-degreed programs, the area likely to be most affected by economic cycles. We note that it
was difficult to measure annual changes in enrollment just following the 2001 recession owing
to lack of data and restatements. Nevertheless, as shown in Exhibit 147, annual enrollment
growth for these three companies has been among the most volatile in the sector in and around
the Great Recession.
Financial Group
134
September 2013
BMO Capital Markets
Exhibit 147. Annual Changes in Ending Enrollment for COCO,

LINC, and UTI (March 31, 2005 June 30, 2013)
40%
30%
10%
Mar-13
Sep-12
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
-10%
Sep-05
0%
Mar-05
% annual change
20%
-20%
-30%

Lincoln Educational Services (LINC)
-40%
Universal Technical Institutes (UTI)
Note: Measures annual change in ending enrollment excluding acquisitions. Shaded area represents
recessionary period. COCO and LINC data restated for continuing operations where available. Source: BMO
Capital Markets and company reports.
Demand for
working-adultfocused programs
may actually be
cyclical
Companies with a larger working-adult student population, such as Apollo Group (APOL),
Capella Education (CPLA), and Strayer Education (STRA), complicate the debate about the
effect of economic cycles on for-profit enrollment trends. During the prior economic expansion,
when many for-profit publicly held companies began to see enrollment growth slow (mid- to
late 2004), these companies were somewhat less affected. We believe this reflects the nature of
their older students, who may take a longer-term perspective on the benefits of advanced
schooling than the younger generation. In addition, many of these students may have been
required by their companies to gain more skills for their current jobs, thereby providing a
support level for continued demand, even as the hiring markets picked up. As an economic
recovery matures and the labor market tightens, employer-sponsored tuition reimbursement
programs typically increase, potentially boosting enrollment growth rates. Therefore, we believe
programs aimed at working adults could be considered somewhat cyclical, or at least not as
counter-cyclical as other programs in the sector. However, we acknowledge that this component
of the sector is not necessarily immune from the current adverse environment.
Recent recession
Impact of economic cycles on new enrollment. Unfortunately, the data are not as illuminating
had sizable
(and available) for analyzing the impact of economic cycles on new enrollment. Though not as
apparent in prior cycles, the Great Recession certainly had an impact on growth in freshman
enrollment, a proxy for new enrollment. As shown in Exhibit 148, new enrollment increased
7.5% (CAGR) in fall 2009 from fall 2007 the fastest two-year CAGR increase since fall 1967
fall 1969. While comparable data were not available for new enrollment growth at for-profit
schools, a June 2010 report by the Pew Research Center cited an 11% annual increase for first
time, full time freshmen at for-profit schools for the fall 2009 class faster than the 6% and 2%
annual increases at public not-for-profit schools and private not-for-profit schools, respectively.
Interestingly, new enrollments have actually fallen in five of the last seven post-recession
periods (including following the Great Recession) in the second year after the recession ended
(fall 2010 for the post-Great Recession period). Trends worsened this time in the third year after
the Great Recession, with new enrollments falling another 2%.
impact on new
enrollment; new
enrollment tends
to fall two years
afterwards
A member of BMO
Financial Group
135
September 2013
BMO Capital Markets
Exhibit 148. Economic Sensitivity: All Postsecondary Degree-Granting Schools New

Enrollment Growth
Oct. 1969 - Mar. 1970
July 1974 - Mar. 1975
Apr. 1980- Sept. 1980
Oct. 1981 - Mar. 1982
July 1990 - Mar. 1991
Mar. 2001 - Nov. 2001
Average
Annual New Enrollment Growth - All Postsecondary Degree-Granting Schools

Year Prior
Year Of
17.7%
7.8%
5.6%
15.4%
3.9%
4.9%
2.7%
1.6%
3.4%
4.9%
2.7%
1.6%
3.4%
6.3%
6.3%
-6.7%
2.0%
-0.2%
-6.7%
2.0%
-0.2%
4.7%
3.4%
0.3%
-3.5%
-2.5%
-3.6%
2.0%
-0.2%
4.7%
3.4%
0.3%
-3.5%
-2.5%
-3.6%
-2.7%
-3.2%
1.2%
5.9%
-1.6%
-3.6%
0.9%
-4.1%
-1.1%
-1.3%
-2.4%
-0.3%
6.3%
3.2%
2.9%
2.9%
0.8%
1.5%
1.0%
2.1%
2.2%
4.0%
4.8%
2.2%
2.0%
-2.2%
-0.3%
-0.6%
Recent Recession
Dec. 2007 - June 2009

2004-2005
2005-2006
2006-2007
1.5%
1.0%
1.9%
Year Prior
2007-2008
2.5%
Year Of
2008-2009
9.0%

2009-2010
2010-2011
2011-2012 2012-2013E
6.1%
-1.7%
-2.0%
N.A.
Note: N.A. Not Available.

Using the aforementioned Kantrowitz analysis and comparing annual changes in new fall
enrollment to changes in the US unemployment rate the prior June shows some impact of
counter-cyclicality as well, though not as strong as the trend in total enrollment (see Exhibit
149).
10%
4%
8%
3%
6%
2%
4%
1%
2%
0%
0%
-2%
1970
1975
1980
1985
1990
1995
2000
2010
-1%
-2%
-4%
-3%
-6%
-8%
2005
% y/y change in new enrollment
y/y % change in unemployment rate
y/y % change in new enrollment
Exhibit 149. Comparison of Annual Changes in New Enrollment at

All Postsecondary Degree-Granting Schools and Unemployment
Rate (1970-2011)
-4%
% y/y change in unemployment rate
Note: Data represents annual change in fall enrollment compared with June unemployment rate each year.
Shaded area represents recessionary period. Source: www.finaid.org and BMO Capital Markets.
Two-year schools
experienced
greater volatility
in new
enrollments
A member of BMO
When drilling down by school type, it can be seen that much of the accelerating growth during
the Great Recession came from two-year schools, at both public not-for-profit (i.e., community
colleges) and private two-year schools (see Exhibit 150). However, those groups have also
experienced the larger declines in the post-Great Recession period. Unfortunately, we were
unable to segment the private-school growth between for-profit and not-for-profit schools.
Financial Group
136
September 2013
BMO Capital Markets
Exhibit 150. Economic Sensitivity: Annual New Enrollment Growth by School Type
Annual New Enrollment Growth - By School Type
Year Prior
Year Of
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012 2012-2013E
Most Recent Recession

Public Not-for-Profit:
Four-Year Schools
Two-Year Schools
Private (Not-for-Profit and For-Profit):
Four-Year Schools
Two-Year Schools
0.7%
0.5%
3.1%
-3.2%
3.8%
3.7%
3.4%
0.3%
3.0%
16.8%
3.5%
7.5%
1.8%
-3.1%
1.9%
-3.3%
N.A.
N.A.
4.6%
1.9%
7.9%
-10.4%
-1.4%
-11.7%
5.8%
-2.3%
6.4%
7.4%
5.9%
17.9%
-5.2%
2.5%
-2.8%
-18.5%
N.A.
N.A.
Note: N.A. Not Available. Source: BMO Capital Markets, US Department of Education National Center for Education Statistics, and National
Bureau of Economic Research.
Economic
expansion likely
means slower
growth
A member of BMO
We have summarized what we believe are the effects of economic cycles beyond enrollment on
this group in Exhibit 151. On the whole, we believe an improving economy has a detrimental
effect on the for-profit sector in terms of potentially slower growth rates and margin expansion,
although these changes tend to lag behind changes in economic cycles (i.e., enrollment growth
for many for-profit providers did not begin to accelerate until the second half of 2008, well after
the recession began in December 2007). Conversely, a slowing economy could benefit many
companies, specifically those specializing in non-degreed programs. However, we still believe
these companies can continue to show both solid top-line and bottom-line growth even during
an economic expansion, owing to the many secular growth attributes cited earlier.
Financial Group
137
September 2013
BMO Capital Markets
Exhibit 151. Analysis of Cyclical Affect on For-Profit Postsecondary Companies

Impact of Improving Economy
Impact of Worsening Economy
Acyclical Considerations
Negative: Rate of enrollment growth

decelerates, as opportunity cost of attending
school (i.e., working) increases
Positive: Rate of enrollment growth

accelerates, as opportunity cost of attending
school (i.e., working) declines (school
becomes safe haven in the face of a
challenging economy)
Sizable financial aid remains an attractive

option for students in both good and bad
economic times
Negative: Higher attrition (drop-out) rate as

students find it easier to find work without
higher education
Positive: Lower attrition (drop-out) rate

owing to fewer job alternatives
Continued education is advantageous:

in good economic times it is valuable in
pursuing promotions and crucial to
getting hired in a bad economic
environment
Negative: Competition from not-for-profits

intensifies as improving state tax revenues
result in budgetary increases and potentially
smaller annual tuition increases
Positive: Competition from not-for-profits

weaken as lower state tax revenues result
in budgetary cuts and hikes in tuition
High barriers to entry created through

grueling accreditation process
Negative: Tightening labor markets make it

more difficult to recruit faculty members
Positive: Loosening labor markets make it

easier to recruit faculty members
Negative: More expensive real estate

market and higher interest rates for
opening/expanding campuses (although
could lag changes in economic cycle)
Positive: Cheaper real estate market and

interest rates for opening/expanding
campuses (although could lag changes in
economic cycle)
Positive: Completion rates may actually

improve, as fewer students are forced to
work part-time owing to need
Negative: Completion rates may decline as

more students are forced to work part time
owing to need
Positive: Job placement rates and graduate

starting salaries improve, providing a positive
datapoint for marketing to new students and
retaining current ones
Negative: Job placement rates decline and

graduate starting salaries stagnate,
providing a negative data point for
marketing to new students and retaining
current ones
Positive: Tighter labor markets spur

Negative: Looser labor markets slow
increases in tuition reimbursement programs growth in tuition reimbursement programs
(benefits working-adult focused programs
(hurts working-adult focused programs)
such as those run by APOL and STRA)
Positive: Lower default rates on student
loans (although data is published on a
lagged basis)
Negative: Increased default rates on

student loans (although data is published on
a lagged basis)
Source: BMO Capital Markets.
While there are a number of large privately-held schools such as Alta Colleges, Bryant and
Stratton College, Concorde Career Colleges, The Keiser School and Rasmussen Colleges, we
have provided a summary of recent enrollment growth statistics for the publicly-held for-profit
companies (where data is more easily available), including the following:
A member of BMO
Total enrollments (Exhibit 152),
Year-over-year total enrollment growth (Exhibit 153),
Year-over-year new student enrollment (i.e., starts) growth (Exhibit 154), which would
include the impact of recent acquisitions, but is nevertheless a good leading indicator of
future changes in total enrollment, in our view.
Financial Group
138
September 2013
BMO Capital Markets
Exhibit 152. Select For-Profit Postsecondary School Operators Total Enrollment

(Fall 2003 - FY2013 YTD)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
TOTAL
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
2003
N.A.
211,265
N.A.
81,900
57,580
7,923
53,525
58,828
N.A.
36,947
N.A.
N.A.
20,138
12,561
N.A.
540,667
2004
N.A.
248,200
N.A.
99,467
66,831
11,086
51,497
66,179
N.A.
42,183
N.A.
N.A.
23,539
15,212
N.A.
624,194
2005
N.A.
269,400
N.A.
96,200
62,960
13,308
50,320
72,471
N.A.
44,331
19,824
N.A.
27,305
17,368
66,400
739,887
2006
14,794
291,800
N.A.
99,600
62,352
16,374
53,174
80,324
10,216
48,155
18,556
N.A.
31,372
17,523
69,800
814,040
Fall enrollment (CY)

2007
2008
25,290
38,900
325,000
384,900
12,716
30,547
118,600
85,200
66,719
74,265
20,268
24,063
66,745
94,058
95,868
110,825
13,448
21,957
53,675
61,556
19,463
22,404
N.A.
5,594
36,082
44,564
16,882
16,481
67,000
81,400
937,756
1,096,714
2009
55,300
455,600
54,894
102,100
87,966
30,738
112,615
136,000
34,218
79,208
31,509
7,773
54,317
18,802
103,849
1,364,889
2010
66,000
438,100
77,179
118,235
108,885
38,634
130,375
158,300
42,286
88,004
33,157
8,225
60,711
21,000
112,141
1,501,232
2011
87,300
373,100
90,597
104,400
91,107
35,755
134,582
151,200
44,486
79,219
22,526
9,390
54,233
18,500
79,657
1,376,052
2012
103,000
319,700
91,358
81,300
92,070
34,989
126,345
132,000
52,253
65,662
19,028
10,350
51,727
17,000
73,261
1,270,043
'03-12
CAGR
N.A.
4.7%
N.A.
-0.1%
5.4%
N.A.
10.0%
9.4%
N.A.
6.6%
N.A.
N.A.
11.1%
N.A.
N.A.
6.6%
'07-12
CAGR
32.4%
-0.3%
48.3%
-7.3%
6.7%
11.5%
13.6%
6.6%
31.2%
4.1%
-0.5%
N.A.
7.5%
0.1%
1.8%
6.6%
YTD
FY2012
96,950
358,400
93,742
85,900
91,608
36,945
127,825
138,325
45,357
68,760
18,001
10,619
47,566
16,033
71,795
1,307,824
YTD
FY2013
104,600
302,667
75,234
66,300
87,455
36,204
120,068
124,580
52,380
59,828
15,166
11,249
42,379
14,200
64,694
1,177,002
YTD '12-13
% chg.
7.9%
-15.6%
-19.7%
-22.8%
-4.5%
-2.0%
-6.1%
-9.9%
15.5%
-13.0%
-15.7%
5.9%
-10.9%
-11.4%
-9.9%
-10.0%
Note: Enrollments are headcount provided for the periods closest to fall of each calendar year. Some historical comparisons may be misleading
owing to restatements. Year-to-date enrollment represents quarterly averages for fiscal year. Net course registrations used for APEI. N.A. Not
Available. Source: BMO Capital Markets and company reports.
Exhibit 153. Select For-Profit Postsecondary School Operators Y-O-Y Change in Total
Enrollment (Fall 2003 - Fall 2012; YTD FY2012-FY2013)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
MEDIAN
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
2003
N.A.
28.3%
N.A.
N.A.
46.0%
N.A.
-2.7%
34.4%
N.A.
9.3%
N.A.
N.A.
21.8%
N.A.
N.A.
25.0%
2004
N.A.
17.5%
N.A.
21.4%
16.1%
39.9%
-3.8%
12.5%
N.A.
14.2%
N.A.
N.A.
16.9%
21.1%
N.A.
16.9%
2005
N.A.
8.5%
N.A.
-3.3%
-5.8%
20.0%
-2.3%
9.5%
N.A.
5.1%
N.A.
N.A.
16.0%
14.2%
N.A.
8.5%
2006
N.A.
8.3%
N.A.
3.5%
-1.0%
23.0%
5.7%
10.8%
N.A.
8.6%
-6.4%
N.A.
14.9%
0.9%
5.1%
5.7%

2007
2008
70.9%
53.8%
11.4%
18.4%
N.A.
140.2%
19.1%
-28.2%
7.0%
11.3%
23.8%
18.7%
25.5%
40.9%
19.4%
15.6%
31.6%
63.3%
11.5%
14.7%
4.9%
15.1%
N.A.
N.A.
15.0%
23.5%
-3.7%
-2.4%
-4.0%
21.5%
15.0%
18.6%
2009
42.2%
18.4%
79.7%
19.8%
18.4%
27.7%
19.7%
22.7%
55.8%
28.7%
40.6%
39.0%
21.9%
14.1%
27.6%
27.6%
2010
19.3%
-3.8%
40.6%
15.8%
23.8%
25.7%
15.8%
16.4%
23.6%
11.1%
5.2%
5.8%
11.8%
11.7%
8.0%
15.8%
2011
32.3%
-14.8%
17.4%
-11.7%
-16.3%
-7.5%
3.2%
-4.5%
5.2%
-10.0%
-32.1%
14.2%
-10.7%
-11.9%
-29.0%
-10.0%
2012
18.0%
-14.3%
0.8%
-22.1%
1.1%
-2.1%
-6.1%
-12.7%
17.5%
-17.1%
-15.5%
10.2%
-4.6%
-8.1%
-8.0%
-6.1%
'03-12
CAGR
N.A.
4.7%
N.A.
-0.1%
5.4%
N.A.
N.A.
N.A.
N.A.
6.6%
N.A.
N.A.
11.1%
N.A.
N.A.
5.4%
'07-12
CAGR
32.4%
-0.3%
48.3%
-7.3%
6.7%
11.5%
N.A.
N.A.
31.2%
4.1%
-0.5%
N.A.
7.5%
0.1%
1.8%
5.4%
Avg. YTD
FY2012
FY2013
21.6%
7.9%
-13.4%
-15.6%
8.5%
-19.7%
-21.5%
-22.8%
-16.3%
-4.5%
-5.2%
-2.0%
3.2%
-6.1%
-4.5%
-9.9%
10.6%
15.5%
-15.5%
-13.0%
-26.4%
-15.7%
14.2%
5.9%
-8.3%
-10.9%
-10.8%
-11.4%
-14.7%
-9.9%
-8.3%
-9.9%
Note: Enrollments are headcount provided for the periods closest to fall of each calendar year. Year-over-year change includes acquisitions. Some
historical comparisons may be misleading owing to restatements. YTD change measures average of annual change for quarters reported in
current fiscal year over same period in prior fiscal year. Change in net course registrations used for APEI. N.A. Not Available.
A member of BMO
Financial Group
139
September 2013
BMO Capital Markets
Exhibit 154. Select For-Profit Postsecondary School Operators Y-O-Y Change in New
Student Enrollment (FY2003-FY2013 YTD)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
MEDIAN
FY2003
N.A.
N.A.
N.A.
N.A.
30.8%
N.A.
-3.8%
14.3%
16.6%
38.9%
23.0%
N.A.
19.8%
FY2004
N.A.
N.A.
N.A.
N.A.
55.4%
N.A.
2.2%
65.9%
16.9%
21.1%
16.0%
N.A.
19.0%
FY2005
N.A.
N.A.
N.A.
N.A.
4.0%
N.A.
0.6%
11.6%
7.4%
4.5%
15.0%
N.A.
5.9%
FY2006
N.A.
N.A.
N.A.
N.A.
-5.7%
N.A.
11.7%
5.5%
10.8%
-7.4%
10.0%
-3.2%
5.5%

FY2007
FY2008
71.3%
48.8%
19.3%
11.5%
171.2%
142.9%
N.A.
4.4%
2.5%
13.0%
N.A.
N.A.
17.2%
34.9%
22.9%
26.0%
9.3%
19.6%
7.1%
12.4%
16.0%
29.0%
-3.4%
-2.1%
16.6%
19.6%
FY2009
36.3%
23.5%
67.8%
17.1%
5.5%
N.A.
-19.7%
27.4%
31.6%
37.2%
20.0%
16.6%
23.5%
FY2010
16.4%
4.5%
33.9%
11.1%
18.9%
20.0%
15.2%
28.1%
3.7%
-0.9%
-2.0%
11.1%
13.2%
FY2011
46.1%
-40.3%
-0.3%
-18.4%
-9.3%
-36.0%
-2.5%
11.8%
-13.4%
-39.6%
-15.0%
-17.8%
-14.2%
FY2012
1.8%
-2.3%
-10.7%
-28.1%
-4.5%
10.5%
-3.3%
-15.2%
-13.9%
-10.5%
4.0%
-2.5%
-3.9%
FY2013
-8.3%
-20.5%
-37.0%
-22.2%
-2.4%
0.6%
-1.2%
-15.0%
-48.4%
-17.1%
-5.0%
-6.2%
-11.7%
'03-12
CAGR
N.A.
N.A.
N.A.
N.A.
7.5%
N.A.
5.2%
18.7%
7.1%
0.4%
11.6%
N.A.
7.3%
'07-12
CAGR
28.5%
-3.5%
37.2%
N.A.
4.2%
N.A.
N.A.
N.A.
4.0%
-3.8%
8.7%
0.3%
4.2%
Avg. YTD
FY2012
FY2013
9.3%
-7.7%
2.0%
-19.5%
-6.5%
-45.2%
-32.9%
-26.1%
-4.5%
-2.4%
-5.5%
10.5%
-3.3%
-1.2%
-15.2%
-15.0%
-13.7%
1.6%
-0.2%
-23.2%
10.5%
-15.5%
-2.1%
-13.8%
-3.9%
-14.4%
Note: Data for American Public Education represents change in new student net course registrations (company does not disclose new students).
Some historical comparisons may be misleading owing to restatements. YTD change measures average of annual change for quarters reported in
current fiscal year over same period in prior fiscal year. N.A. Not Available.
A listing of key enrollment metrics can be found in Exhibit 155.
Exhibit 155. Key Enrollment Metrics to Watch

Term
Definition
Postsecondary Norms
For-Profit Norms
Annual new student

enrollment
(starts) growth
Measures the annual change in the

number of new students entering
the school. Perhaps the metric most
closely watched by the investment
community, as it is the best
indication of the school's demand
and near- to medium-term outlook
All Institutions (1): 2.8%

Public 2-Year Institutions (1): 4.2%
Public 4-Year Institutions (1): 2.5%
Private 2-Year Institutions (1): 4.2%
CAGR change for select forprofit providers (including

acquisitions) (3) 7.3%
Annual change in total students
All Institutions: 2.6% (2)
All institutions: 11.4% (4)
Public Institutions: 2.6% (2)
Degree-granting institutions:
13.6% (4)
Annual enrollment
growth
Private 4-Year Institutions (1): 1.8%
Private Institutions: 2.4% (2)

Non-degree-granting
institutions: 5.5% (4)
Sources: (1) US Department of Education NCES, Digest of Education Statistics, 2012 Table 232 (CAGR from 1955-1956 to 2011-2012 for firsttime freshmen at degree-granting institutions). (2) US Department of Education (CAGR from 1967-1968 to 2011-2012 for total enrollment at
degree-granting institutions) (3) CAGR for median of publicly held companies fall 2003 to fall 2012.(4) US Department of Education NCES, Digest
of Education Statistics various tables; data available from 1996-1997.
A member of BMO
Financial Group
140
September 2013
BMO Capital Markets
Postsecondary Schools Funding Sources and Tuition Rate Trends

We believe the economics of for-profit postsecondary schools are very favorable. On the whole,
these schools are cash flow positive as most students prepay their tuition prior to the start of
their coursework, or at least early on. In addition, as the bulk of financing for most of these
schools comes from federally funded financial aid (i.e., Title IV), the credit risks, for the most
part, are minimal.
Favorable cash
flow dynamics
An analysis of revenue trends for a select group of for-profit providers can be found in Exhibit
156.
Exhibit 156. Select For-Profit Postsecondary School Operators Revenues (FY2003FY2013 to Date)
REVENUES - FISCAL YEAR
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
Total
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
FY2003
$17.8
1,339.5
0.7
1,178.0
511.4
81.8
679.6
640.0
N.A.
522.9
187.5
N.A.
147.0
196.5
368.3
$5,871.0
FY2004
$23.1
1,800.0
1.2
1,472.5
775.2
117.7
784.9
853.0
25.6
617.8
248.5
N.A.
183.2
255.1
559.9
$7,717.9
FY2005
$28.2
2,251.1
8.0
1,832.0
929.0
149.2
780.7
1,019.3
51.8
688.0
287.4
36.3
220.5
310.8
721.6
$9,313.9
FY2006
$40.0
2,477.5
28.6
1,789.3
907.8
179.9
839.5
1,170.2
72.1
757.8
310.6
40.3
263.6
347.1
855.8
$10,080.2
FY2007
$69.1
2,721.8
85.7
1,668.3
919.2
226.2
933.5
1,363.7
99.3
869.5
327.8
44.4
318.0
353.4
933.3
$10,933.2
FY2008
$107.1
3,133.4
218.3
1,660.6
1,068.7
272.3
1,091.8
1,684.2
161.3
1,015.3
376.9
49.5
396.3
343.5
1,160.6
$12,739.8
FY2009
$149.0
3,953.6
454.3
1,834.3
1,185.3
334.6
1,461.5
2,011.5
261.9
1,319.2
552.5
62.6
512.0
366.6
1,539.6
$15,998.4
FY2010
$198.2
4,925.8
713.2
2,088.7
1,617.1
426.1
1,915.2
2,508.6
385.8
1,596.5
639.5
89.8
636.7
435.9
1,913.1
$20,090.3
FY2011
$260.4
4,733.0
933.3
1,883.0
1,750.7
430.0
2,182.4
2,887.6
426.7
1,499.9
508.8
104.8
627.4
451.9
1,399.6
$20,079.8
FY2012
$313.5
4,253.3
968.2
1,480.3
1,581.9
421.9
2,085.9
2,761.0
511.3
1,287.1
404.8
115.0
562.0
413.6
1,149.4
$18,309.0
FY2003
67%
33%
N.A.
114%
51%
65%
5%
28%
N.A.
15%
42%
N.A.
26%
36%
47%
39%
FY2004
30%
34%
70%
25%
52%
44%
15%
33%
N.A.
18%
33%
N.A.
25%
30%
52%
33%
FY2005
22%
25%
541%
24%
20%
27%
-1%
19%
102%
11%
16%
N.A.
20%
22%
29%
22%
FY2006
42%
10%
260%
-2%
-2%
21%
8%
15%
39%
10%
8%
11%
20%
12%
19%
12%
FY2007
73%
10%
199%
-7%
1%
26%
11%
17%
38%
15%
6%
10%
21%
2%
9%
11%
FY2008
55%
15%
155%
0%
16%
20%
17%
24%
62%
17%
15%
11%
25%
-3%
24%
17%
FY2009
39%
26%
108%
10%
11%
23%
34%
19%
62%
30%
47%
27%
29%
7%
33%
29%
FY2010
33%
25%
57%
14%
36%
27%
31%
25%
47%
21%
16%
43%
24%
19%
24%
25%
FY2011
31%
-4%
31%
-10%
8%
1%
14%
15%
11%
-6%
-20%
17%
-1%
4%
-27%
4%
FY2012
20%
-10%
4%
-21%
-10%
-2%
-4%
-4%
20%
-14%
-20%
10%
-10%
-8%
-18%
-8%
'03-12
CAGR
37.6%
13.7%
122.3%
2.6%
13.4%
20.0%
13.3%
17.6%
N.A.
10.5%
8.9%
N.A.
16.1%
8.6%
13.5%
13.5%
'07-12
CAGR
35.3%
9.3%
62.4%
-2.4%
11.5%
13.3%
17.4%
15.2%
38.8%
8.2%
4.3%
20.9%
12.1%
3.2%
4.3%
12.1%
YTD
FY2012
$150.4
3,256.8
506.7
795.6
1,581.9
215.6
2,085.9
2,761.0
236.4
671.6
198.2
115.0
295.8
312.3
599.2
$13,782.3
YTD
FY2013
$164.8
2,836.3
419.6
635.3
1,600.2
208.9
1,976.7
2,498.6
283.5
547.6
175.3
129.2
269.5
284.5
545.0
$12,574.9
YTD '12-13
% chg.
9.6%
-12.9%
-17.2%
-20.1%
1.2%
-3.1%
-5.2%
-9.5%
19.9%
-18.5%
-11.5%
12.4%
-8.9%
-8.9%
-9.1%
-8.9%
Y/Y CHANGE IN REVENUES

Fiscal years
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
Median
YTD
'12-'13
10%
-13%
-17%
-20%
1%
-3%
-5%
-10%
20%
-18%
-12%
12%
-9%
-9%
-9%
-9%
Note: Data includes acquisitions. Some historical comparisons may be misleading owing to restatements. N.A. Not Available. Source: BMO
Funding sources
for higher
education
Funding for all types of higher education comes from numerous sources, including, but not
limited to, the following:
Student tuition and fees (most of which comes from Title IV financial aid)
Federal government funds (beyond Title IV financial aid)
State and local government funds
Endowments funds, gifts, and grants
Auxiliary funds and other income (e.g., businesses run by schools, such as medical
imaging centers)
Tuition reimbursement programs (usually corporate sponsored)
We have summarized the funding sources for the publicly held providers in Exhibit 157 based
on both disclosed data and our estimates. A number of companies with high percentages of
private lending, specifically ITT Educational Services (ESI), have reduced their exposure to
this funding source since the funding crisis hit in the latter part of the prior decade.
A member of BMO
Financial Group
141
September 2013
BMO Capital Markets
Exhibit 157. Funding Sources for Publicly Held For-Profit Postsecondary School
Operators
Company
Ticker
Period covered
Title IV
Grants (mostly Pell)
Stafford Loans
FDL
PLUS Loans
Other Title IV
Private Loan Exposure
Other sources (incl. cash)
Cash
Internally/externally funded
Military tuition assistance
Employers
Scholarships/State grants
Natl.
Lincoln
Educ. American Strayer
Univ.
Educ.
Services
LINC
NAUH
STRA
FY2012
FY2013 FY2011
Kaplan
Bridge
Amer.
Higher
point
Career Corinthian Capella
Education Grand ITT Educ.
Public Apollo
DeVry
Mgmt.
Canyon Services Education
Educ. Group Educ. Education Colleges Educ.
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
WPO
FY2012 FY2012 FY2012 FY2012
FY2013 FY2012 FY2012 FY2013 FY2012 FY2012
FY2012
36.0%
84.8%
79.0%
19.3%
28.0%
3.0%
64.7%
84.0%
86.4%
91.0%
54.5%
52.3%
69.0%
76.0%
2.2%
64.0%
15.0%
13.6%
9.0%
80.3%
80.0%
14.1%
22.0%
22.0%
58.0%
57.0%
56.0%
58.0%
57.0%
56.0%
48.5%
81.0%
89.7%
76.0%
75.0%
17.0%
18.0%
7.7%
< 1%
1.0%
73.4%
14.5%
56.2%
80.0%
Univ.
Tech.
Inst.
UTI
FY2012
2.7%
N.A.
<1%
1.0%
N.A.
21.0%
29.0%
13.0%
< 2%
2.2%
< 1%
0.0%
1.0%
0.0%
24.4%
18.7%
20.0%
19.0%
19.0%
16.0%
4.0%
6.6%
16.0%
12%
< 2%
3.0%
10.3%
21.0%
25.0%
51.0%
9.0%
10-15%
20-25%
1%
1.8%
In the rest of this section, we discuss the various revenue and funding sources for the
postsecondary sector.
Annual tuition
Tuition and fees. For most of their history, for-profit schools have had significant pricing
increases handily
power, in our opinion, as they typically are protected by the umbrella of tuition rate trends at
not-for-profit schools. As shown in Exhibit 158, according to the College Board, the cost of
higher education has increased significantly since the 1976-1977 school year with tuition, room,
and board rising 7% annually at private institutions and 7.6% at public four-year schools and
6.9% at public two-year schools. This is much higher than the 3.9% annual increase in inflation
over that period. We note that in recent years, however, the annual increases have slowed.
outpace inflation,
though annual
increases have
slowed in recent
years
Exhibit 158. Index of Not-For-Profit Postsecondary Institution Tuition vs. Inflation (19761977 to 2012-2013 School Years)
Index: 1976-77 = 100
1,500
1,300
1,100
900
700
500
300
Private 4-Year
Public 4-Year
Public 2-Year
2012-2013
2008-2009
2004-2005
2000-2001
1996-1997
1992-1993
1988-1989
1984-1985
1980-1981
1976-1977
100
Inflation

Source: BMO Capital Markets analysis based on data from College Boards Trends in College Pricing and Bureau of Labor Statistics.
A member of BMO
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September 2013
For-profit tuition;
increased at
relatively slower
rates, but among
most expensive,
especially for
shorter duration
programs
BMO Capital Markets
While comparable historical data was not available for for-profit schools, we believe the trends
have been fairly similar. Since the 1995-1996 school year (and using a different data source
[ED]), average tuition at for-profit institutions has increased roughly 4.5% (two-year schools)
and 4.4% (four-year schools) annually below the annual increases in the private not-for-profit
sector and at most public institutions (see Exhibit 159). Tuition and fees at for-profit schools
tend to be much more expensive than at not-for-profit schools for shorter-duration programs
(i.e., non-degreed programs at less than two-year schools, associate degrees). However, for the
longer programs (i.e., four-year schools offering bachelors and graduate programs), for-profit
tuition tends to be less expensive than at private not-for-profit institutions, although more
expensive than at most public not-for-profit schools. That trend appears to have been fairly
consistent over this time period.
Exhibit 159. Average Annual Tuition and Fees by School Type (1995-1996 to 2012-2013
School Years)
1995-1996 School Year
Less than
2-year
Public:
In-district
In-state
Out-of-state
Private for-profit
As % of Private for-profit
Public:
In-district
In-state
Out-of-state
$2,411
2,492
2,868
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
2-year
$1,265
1,525
3,517
4,470
$6,727
19%
23%
52%
66%
Less than
4-year
2-year
$2,801
2,802
7,185
9,528
$7,412
38%
38%
97%
129%
$6,786
6,787
7,303
11,411
$13,924
49%
49%
52%
82%
2-year
$3,030
3,521
7,106
13,307
$14,331
21%
25%
50%
93%
4-year
$7,519
7,526
17,040
24,256
$15,386
CAGR: 1995-1996 to 2012-2013

Less than
2-year
2-year
4-year
6.3%
6.1%
5.7%
N.A.
N.A.
5.3%
5.0%
4.2%
6.6%
4.5%
6.0%
6.0%
5.2%
5.7%
4.4%
49%
49%
111%
158%
N.A. Not Available. Source: BMO Capital Markets and US Department of Education National Center for Education Statistics.
Since 2007, the College Board has included data for for-profit schools in its annual Trends in
College Pricing reports. As shown in Exhibit 160, the data differ a bit from that published by
NCES (e.g., it is enrollment weighted, different categories are used). Nevertheless, the trends are
similar, i.e., tuition and fees at for-profit schools are more expensive than those at most public
not-for-profit schools, but less expensive than those at private not-for-profit schools. Average
annual tuition increases at for-profits have also been slightly below that of most of their not-forprofit peers.
A member of BMO
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BMO Capital Markets
Exhibit 160. Average Published Charges (Tuition and Fees) by School Type (2006-2007
to 2011-2012 School Years)
Average published charges:
Public not for-profit:
Two-year
Four-year in-state
Four-year out-of-state
Four-year
Private for-profit
School Year
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
$2,266
5,804
15,778
$2,294
6,191
16,586
$2,372
6,591
17,460
$2,558
7,050
18,484
$2,727
7,613
19,648
$2,959
8,256
20,823
$3,131
8,655
21,706
22,308
$11,386
23,745
$12,489
25,177
$13,315
26,129
$13,256
27,265
$14,040
27,883
$14,737
29,056
$15,172
% annual change:
Two-year
Four-year in-state
Four-year
Private for-profit
CAGR
As % of private for-profit:
Two-year
Four-year in-state
Four-year
1.2%
6.7%
5.1%
3.4%
6.5%
5.3%
7.8%
7.0%
5.9%
6.6%
8.0%
6.3%
8.5%
8.4%
6.0%
5.8%
4.8%
4.2%
5.5%
6.9%
5.5%
6.4%
9.7%
6.0%
6.6%
3.8%
-0.4%
4.3%
5.9%
2.3%
5.0%
4.2%
3.0%
4.5%
4.9%
20%
51%
139%
18%
50%
133%
18%
50%
131%
19%
53%
139%
19%
54%
140%
20%
56%
141%
21%
57%
143%
Average
19%
53%
138%
196%
190%
189%
197%
194%
189%
192%
192%
N.A. Not Available. Note: Initial data in report is restated the following year. We have used the restated data where available. Source: BMO
Capital Markets and College Boards annual Trends in College Pricing reports.
Most and least

expensive
schools (tuition)
A member of BMO
The ED has recently started to publish the most expensive (top 5%) and least expensive (bottom
10%) schools in its College Affordability and Transparency Center. We have listed the data for
the 2011-2012 academic year by school type in Exhibits 161 and 162. Not surprisingly, private
not-for-profit and private for-profit providers dominate the list of most expensive schools, while
public not-for-profit providers dominate the list of the least expensive schools as they are
typically subsidized by state and local tax revenues.
Financial Group
144
September 2013
BMO Capital Markets
Exhibit 161. Highest Annual Tuition (2011-2012 School Year)

Institution
Four-year institutions:
1 Columbia University in the City of New York
2 Sarah Lawrence College
3 Vassar College
4 George Washington University
5 Trinity College
6 Carnegie Mellon University
7 Connecticut College
8 Wesleyan University
8 Bucknell University
10 Bard College at Simon's Rock
Two-year institutions:
1 Aviator College of Aeronautical Science and Technology
2 Landmark College
3 Virginia College-Richmond
4 West Coast Ultrasound Institute
5 Northwest Aviation College
6 Bryan College-Topeka
7 American Academy of Dramatic Arts-Los Angeles
7 American Academy of Dramatic Arts-New York
8 The Collective School Of Music
10 Lawrence Memorial Hospital School of Nursing
Less than two-year institutions:
1 Aerosim Flight Academy
2 Northeast Technical Institute
3 Marian Health Careers Center-Van Nuys Campus
4 Northwestern Institute of Health and Technology
5 Porter and Chester Institute of Branford
6 Porter and Chester Institute of Stratford
7 Michigan Career and Technical Institute
8 J Everett Light Career Center
State Institution Type
Tuition
NY
NY
NY
DC
CT
PA
CT
CT
PA
MA
Private, not-for-profit
$45,290
$45,212
$44,705
$44,148
$44,070
$44,010
$43,990
$43,974
$43,866
$43,840
FL
VT
VA
CA
WA
KS
CA
NY
NY
MA
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
$59,850
$48,710
$35,140
$33,350
$32,540
$31,014
$30,500
$30,500
$30,250
$29,300
FL
ME
CA
IL
CT
CT
MI
IN
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Public, not-for-profit
$70,024
$28,200
$24,000
$21,825
$18,910
$18,910
$16,200
$14,600
Source: BMO Capital Markets and US Department of Education College Affordability and Transparency Center.
A member of BMO
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145
September 2013
BMO Capital Markets
Exhibit 162. Lowest Annual Tuition (2011-2012 School Year)

Institution
1 Haskell Indian Nations University
2 Dine College
3 Berea College
4 Colorado Mountain College
5 Brazosport College
6 Navajo Technical College
7 Turtle Mountain Community College
8 West Virginia University at Parkersburg
9 Curtis Institute of Music
10 Palm Beach State College
1 Southwestern Indian Polytechnic Institute
2 Cuesta College
3 Saddleback College
4 Antelope Valley College
5 Cabrillo College
6 San Bernardino Valley College
7 College of the Sequoias
8 Eastern New Mexico University-Ruidoso Campus
9 Moorpark College
9 Oxnard College
9 Ventura College
1 Crowleys Ridge Technical Institute
2 Northwest Technical Institute
3 Monongalia County Technical Education Center
4 EDP School of Computer Programming
5 Trinity College of Puerto Rico
6 South Texas Training Center
7 New Age Training
8 United Beauty College
9 Future-Tech Institute
10 American Educational College
State Type
KS
AZ
KY
CO
TX
NM
ND
WV
PA
FL
NM
CA
CA
CA
CA
CA
CA
NM
CA
CA
CA
AR
AR
WV
NY
PR
TX
NY
CO
FL
PR
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Tuition
$182
$805
$910
$1,770
$1,977
$2,120
$2,250
$2,268
$2,300
$2,324
$675
$742
$762
$780
$790
$795
$798
$812
$818
$818
$818
$1,350
$2,321
$2,370
$4,250
$6,147
$5,080
$5,575
$5,700
$6,200
$6,274
Source: BMO Capital Markets and US Department of Education College Affordability and Transparency Center.
When including
all costs, forprofits are fairly
expensive, though
rates have
increased at
slower rates than
The analyses above excludes other costs beyond tuition, such as books and supplies, room, and
board, and transportation, which in many cases equal roughly the cost of tuition, especially for
those students not living with family. As shown in Exhibit 163, when including other costs, the
average annual price of attendance at for-profit schools ranks high for virtually all types of
programs and living arrangements. Annual rates of increases at the for-profit schools have been
slightly below most of their not-for-profit counterparts since the 2001-2002 school year (earliest
data available).
at most not-forprofits
A member of BMO
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BMO Capital Markets
Exhibit 163. Average Annual Price of Attendance by School Type (2001-2002 to 20122013 School Years)
Less than
2-Year
Public not-for-profit:
On campus:
In-district
In-state
Out-of-state
Off campus (not with family):
In-district
In-state
Out-of-state
Off campus (with family):
In-district
In-state
Out-of-state
Private not-for-profit:
On campus
Off campus (not with family)
Off campus (with family)
Private for-profit:
On campus
Off campus (not with family)
Off campus (with family)
N.A.
N.A.
N.A.
2-Year
Less than
4-Year
2-Year
2-Year
4-Year
CAGR: 2001-2002 to 2012-2013

Less than
2-Year
2-Year
4-Year
$7,877
8,003
10,077
$11,704
11,700
17,576
$12,263
12,264
12,780
$13,237
13,728
17,313
$20,702
20,516
30,030
N.A.
N.A.
N.A.
4.8%
5.0%
5.0%
5.3%
5.2%
5.0%
$11,661
11,747
12,081
10,150
10,486
13,081
12,746
12,744
18,470
17,052
17,053
17,569
15,953
16,444
20,029
21,488
21,495
31,009
3.5%
3.4%
3.5%
4.2%
4.2%
3.9%
4.9%
4.9%
4.8%
7,229
7,315
7,649
5,118
5,454
8,049
7,224
7,222
12,948
11,041
11,042
11,558
8,316
8,807
12,392
12,713
12,720
22,234
3.9%
3.8%
3.8%
4.5%
4.5%
4.0%
5.3%
5.3%
5.0%
N.A.
17,692
12,050
15,487
17,141
10,839
22,606
22,814
17,262
19,580
25,036
16,328
25,278
28,422
19,191
37,120
37,639
28,971
N.A.
3.2%
2.8%
4.6%
4.7%
5.3%
4.6%
4.7%
4.8%
N.A.
17,423
12,179
18,952
19,038
13,982
23,192
20,860
15,504
14,847
28,523
18,450
27,329
27,886
19,913
30,541
29,394
22,413
N.A.
4.6%
3.8%
3.4%
3.5%
3.3%
2.5%
3.2%
3.4%
N.A. Not Available. Source: BMO Capital Markets and US Department of Education National Center for Education Statistics.
Most students pay less than the sticker price, owing to grant and scholarship aid. As shown in
Exhibit 164, in the 2010-2011 school year (latest data available), students at public-not-forprofit schools typically pay 58%-66% of the total price of attendance, those at their private notfor-profit peers pay 58%-78%, while those attending for-profit institutions pay 79%-83%. A
number of for-profit providers have begun providing scholarships, an issue we discuss later in
this report.
For-profits
provide relatively
less in grants and
scholarships,
though that is
changing
Exhibit 164. Net Price as Percentage of Total Price of Attendance (2010-2011 School
Year)
Sticker Price
Less than
2-Year
Students receving any grant aid
Students receving Title IV aid
Private for-profit:
2-Year
Net Price
Less than
4-Year
2-Year
2-Year
Net as % of Sticker Price

Less than
4-Year
2-Year
2-Year
4-Year
$12,741
12,778
$11,396
11,430
$17,563
17,574
7,723
8,043
6,763
6,676
10,971
11,646
61%
63%
59%
58%
62%
66%
19,861
19,665
23,141
23,151
33,969
33,988
14,218
14,127
17,259
17,944
19,770
19,806
72%
72%
75%
78%
58%
58%
23,117
23,041
24,485
24,391
27,854
27,809
18,400
18,797
19,339
19,884
22,537
23,187
80%
82%
79%
82%
81%
83%
N.A. Not Available. Source: BMO Capital Markets and US Department of Education National Center for Education Statistics (NCES 2012156).
A member of BMO
Financial Group
147
September 2013
Most and least

expensive
schools (net
price)
BMO Capital Markets
Using the aforementioned analysis by the College Affordability and Transparency Center, we
have listed the most expensive (top 5%) and least expensive (bottom 10%) for the 2011-2012
academic year in terms of net price (total cost of attendance less scholarships and grants) by
school type in Exhibits 165 and 166. Not surprisingly, the list of most expensive schools are
dominated by private not-for-profit and private for-profit providers, while the least expensive
schools are dominated by public not-for-profit providers, as they are typically subsidized by
state and local tax revenues. The net price may actually be negative for those schools where
students get substantial amounts of scholarships and grants.
Exhibit 165. Highest Annual Net Price (2011-2012 School Year)

Institution
1 American University of Health Sciences
2 Pacific College of Oriental Medicine-New York
3 School of the Art Institute of Chicago
4 Southwest University of Visual Arts-Albuquerque
5 Southwest University of Visual Arts-Tucson
6 Ringling College of Art and Design
7 The Boston Conservatory
8 Berklee College of Music
8 California Institute of the Arts
10 School of Visual Arts
1 Aviator College of Aeronautical Science and Technology
2 New York Conservatory for Dramatic Arts
3 New York Methodist Hospital Center for Allied Health Education
4 Landmark College
5 New England School of Photography
6 Tri-State Institute
7 Florida Career College-Clearwater
8 St Paul's School of Nursing-Queens
9 Daymar College-Madisonville
10 Institute of Production and Recording
1 Dover Business College
2 Marian Health Careers Center-Van Nuys Campus
3 Porter and Chester Institute of Stratford
4 Ross Medical Education Center-Canton
5 Bridgeport Hospital School of Nursing
6 Four Rivers Career Center
7 J Everett Light Career Center
State
Percent
Receiving
Grant Aid
Tuition Institution Type
CA
NY
IL
NM
AZ
FL
MA
MA
CA
NY
100%
67%
100%
67%
74%
77%
65%
63%
77%
48%
$64,465 Private, for-profit

$42,882 Private, not-for-profit
FL
NY
NY
VT
MA
AL
FL
NY
KY
MN
8%
84%
13%
71%
55%
86%
84%
52%
92%
49%

NJ
CA
CT
MI
CT
MO
IN
87%
73%
66%
82%
56%
94%
50%

$16,828 Public, not-for-profit
Note: Average net price is generated by subtracting the average amount of federal, state/local government, or institutional grant or scholarship
aid from the total cost of attendance. Total cost of attendance is the sum of published tuition and required fees (lower of in-district or in-state,
where applicable), books and supplies, and the weighted average for room and board and other expenses. Source: BMO Capital Markets and
US Department of Education College Affordability and Transparency Center.
A member of BMO
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148
September 2013
BMO Capital Markets
Exhibit 166. Lowest Annual Net Price (2011-2012 School Year)

Institution
1 Berea College
2 Family of Faith College
3 The University of Texas-Pan American
4 South Texas College
5 University of Puerto Rico-Bayamon
6 University of Puerto Rico-Aguadilla
7 Elizabeth City State University
8 Indian River State College
9 Sitting Bull College
10 Caribbean University-Bayamon
1 Instituto Tecnologico de Puerto Rico-Recinto de San Juan
2 Cleveland Community College
3 Chattahoochee Valley Community College
4 Escuela De Troqueleria Y Herramentaje
5 Roxbury Community College
6 American Samoa Community College
7 Victory Trade School
8 Middle Georgia Technical College
9 Chief Dull Knife College
10 Coahoma Community College
1 Rosslyn Training Academy of Cosmetology
2 Columbiana County Career and Technical Center
3 Lake Career and Technical Center
4 New Age Training
5 Seattle Vocational Institute
6 South Texas Training Center
7 Industrial Technical College
8 Trinity College of Puerto Rico
9 Bayamon Community College
10 Liceo de Arte-Dise-O y Comercio
State
Percent
Receiving
Grant Aid
Tuition Institution Type
KY
OK
TX
TX
PR
PR
NC
FL
ND
PR
100% ($20,746) Private, not-for-profit

67% ($5,585) Private, not-for-profit
($95) Public, not-for-profit
87%
($85) Public, not-for-profit
87%
$220 Public, not-for-profit
79%
89%
94%
72%
91%
98%
PR
NC
AL
PR
MA
AS
MO
GA
MT
MS
98%
81%
90%
67%
81%
71%
100%
55%
92%
94%
($1,155)
($517)
($335)
($122)
($85)
($61)
$0
$142
$432
$661
PR
OH
MO
NY
WA
TX
PR
PR
PR
PR
100%
75%
73%
100%
85%
100%
100%
95%
90%
100%
($158)
$150
$369
$1,781
$2,224
$2,953
$3,038
$3,255
$3,404
$3,582
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Private, for-profit
Note: Average net price is generated by subtracting the average amount of federal, state/local government, or institutional grant or scholarship
aid from the total cost of attendance. Total cost of attendance is the sum of published tuition and required fees (lower of in-district or in-state,
where applicable), books and supplies, and the weighted average for room and board and other expenses. Source: BMO Capital Markets and
US Department of Education College Affordability and Transparency Center.
In its annual Trends in College Pricing, the College Board breaks down the annual cost of
attendance for undergraduate students (two-year and four-year not-for-profit schools) by their
components (similar data was not available for for-profit schools). While tuition is the largest
component at both private four-year schools and public four-year schools for out-of-town
students, room and board are actually the larger costs for students at two-year schools and instate students at four-year schools (see Exhibit 167). For the most part, tuition and fees have
been the fastest-growing component in the total cost of attendance for undergraduates since the
2008-2009 school year.
A member of BMO
Financial Group
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September 2013
BMO Capital Markets
Exhibit 167. Average Undergraduate Budgets (2012-2013 School

Year)
Public Two- Public FourYear Year In-State
Commuter On-Campus
Average cost:
Tuition and fees
Room and board
Books and supplies
Transportation
Other expenses
Total
$3,131
7,419
1,229
1,648
2,157
$15,584
CAGR since 2008:

Tuition and fees
Room and board
Books and supplies
Transportation
Other expenses
Total
6.9%
0.3%
4.4%
4.5%
3.3%
2.6%
$8,655
9,205
1,200
1,110
2,091
$22,261
7.1%
4.4%
2.7%
2.4%
2.3%
5.0%
Private
Public FourNonprofit
Year Out-ofState On- Four-Year OnCampus
Campus
$21,706
9,205
1,200
1,110
2,091
$35,312
$29,056
10,462
1,244
957
1,570
$43,289
5.6%
4.4%
2.7%
2.4%
2.3%
4.9%
3.7%
3.9%
4.2%
4.4%
3.0%
3.7%
Source: College Boards Trends in College Pricing 2012.
We have provided revenue per student data for a select group of for-profit providers in Exhibit
168. While there are many ways to calculate this, we use trailing-12-month (TTM) revenues
divided by the average enrollments over that period, using five enrollment data points
(beginning enrollments for each quarter plus ending enrollments for the last quarter).
Unfortunately, there was limited data available. Nevertheless, the 2.9% CAGR for increases in
average revenue per student for this group from FY2003 to FY2012 is below the roughly 4%5% average annual increase for for-profit institutions as measured by the ED. Revenues per
student vary widely, with American Public Education as the lowest (military focus, more parttime students) and Universal Technical Institutes as the highest (auto technician programs are
heavily capital intensive and therefore more expensive). In addition, schools that focus on
working adults, such as those owned by Apollo Group (APOL), Bridgepoint Education (BPI),
Grand Canyon Education (LOPE), and Strayer Education, tend to have lower annual revenue
per student given that many students attend part time. In addition, changes in mix shift (i.e.,
degree type, program type) can have an impact on this calculation.
A member of BMO
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150
September 2013
BMO Capital Markets
Exhibit 168. Select For-Profit Postsecondary School Operators Revenue per Student
(FY2003-FY2013 to Date)
TTM Revenues/Student (5 qtr. avg.)
Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
DeVry
DV
EDMC
LOPE
ESI
LINC
National Amer. Univ. Holdings NAUH
Strayer Education
STRA
UTI
Washington Post
WPO
MEDIAN
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
Fiscal Year
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
N.A.
N.A.
N.A.
N.A.
$3,087
$3,062
$2,984
$3,122
$3,152
$3,148
$7,554
$7,929
$8,658
9,035
9,096
9,369
9,843
10,687
11,305
11,918
N.A.
N.A.
N.A.
N.A.
9,453
9,341
9,978
10,419
10,905
10,823
N.A.
N.A.
N.A.
N.A.
18,753
18,533
19,296
18,729
17,540
17,302
12,765
13,806
14,237
14,597
14,910
15,881
17,076
17,857
17,817
17,413
10,824
11,115
11,249
11,127
11,351
11,299
11,227
11,337
11,263
11,533
11,855
14,291
14,369
15,183
15,326
14,261
14,780
15,986
16,308
15,322
15,858
15,916
16,480
17,221
17,605
18,367
18,509
18,819
19,435
19,918
N.A.
N.A.
N.A.
7,750
8,196
8,459
8,583
9,811
10,069
10,688
15,179
15,703
16,291
16,770
17,268
17,778
18,491
18,897
18,974
19,309
N.A.
N.A.
16,257
18,095
18,797
18,982
20,596
20,891
21,223
22,372
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
12,116
11,248
10,950
8,401
8,709
8,947
9,260
9,598
9,932
10,505
11,305
11,792
11,459
N.A.
19,654
20,337
21,239
22,055
22,628
22,887
23,338
24,192
24,734
N.A.
N.A.
N.A.
14,205
15,538
16,430
17,543
16,694
16,104
N.A.
$11,855 $14,048 $14,369 $14,890 $14,558 $14,899 $15,605 $15,986 $16,308 $15,322
y/y change
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
MEDIAN
'03-12
CAGR
N.A.
5.2%
N.A.
N.A.
3.5%
0.7%
2.9%
2.6%
N.A.
2.7%
N.A.
N.A.
3.5%
N.A.
N.A.
2.9%
'07-12
CAGR
0.4%
5.6%
2.7%
-1.6%
3.2%
0.3%
0.0%
2.5%
5.5%
2.3%
3.5%
N.A.
3.6%
2.3%
2.5%
2.5%
Avg. YTD
FY2012 FY2013
3,163
3,176
11,673
12,083
10,765
10,637
17,333
17,608
17,350
17,769
11,432
11,516
15,458
14,705
19,543
19,807
10,341
10,888
18,933
18,773
21,481
22,781
11,047
11,287
11,765
11,564
25,042
25,587
16,673
16,115
$15,458 $14,705
Fiscal Year
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
2003
N.A.
4.6%
N.A.
N.A.
12.6%
N.A.
3.4%
3.3%
N.A.
6.8%
N.A.
N.A.
4.6%
N.A.
N.A.
4.6%
2004
N.A.
5.0%
N.A.
N.A.
8.2%
2.7%
20.5%
0.4%
N.A.
3.5%
N.A.
N.A.
3.7%
N.A.
N.A.
3.7%
2005
N.A.
9.2%
N.A.
N.A.
3.1%
1.2%
0.5%
3.5%
N.A.
3.7%
N.A.
N.A.
2.7%
3.5%
N.A.
3.3%
2006
N.A.
4.4%
N.A.
N.A.
2.5%
-1.1%
5.7%
4.5%
N.A.
2.9%
11.3%
N.A.
3.5%
4.4%
N.A.
4.4%
2007
N.A.
0.7%
N.A.
N.A.
2.1%
2.0%
0.9%
2.2%
5.8%
3.0%
3.9%
N.A.
3.7%
3.8%
N.A.
2.6%
2008
-0.8%
3.0%
-1.2%
-1.2%
6.5%
-0.5%
-7.0%
4.3%
3.2%
3.0%
1.0%
N.A.
3.5%
2.6%
9.4%
2.8%
2009
-2.6%
5.1%
6.8%
4.1%
7.5%
-0.6%
3.6%
0.8%
1.5%
4.0%
8.5%
N.A.
5.8%
1.1%
5.7%
4.1%
2010
4.6%
8.6%
4.4%
-2.9%
4.6%
1.0%
N.A.
1.7%
14.3%
2.2%
1.4%
N.A.
7.6%
2.0%
6.8%
4.4%
2011
1.0%
5.8%
4.7%
-6.3%
-0.2%
-0.7%
2.0%
3.3%
2.6%
0.4%
1.6%
-7.2%
4.3%
3.7%
-4.8%
1.8%
2012
-0.1%
5.4%
-0.8%
-1.4%
-2.3%
2.4%
-6.0%
2.5%
6.2%
1.8%
5.4%
-2.6%
-2.8%
2.2%
-3.5%
0.8%
YTD
'12-'13
0.4%
3.5%
-1.2%
1.6%
2.4%
0.7%
-4.9%
1.3%
5.3%
-0.8%
6.0%
2.2%
-1.7%
2.2%
-3.3%
1.0%
N.A. Not Available. Note: Revenue per student calculated using TTM revenues divided by enrollments over that period (five data points). Some
historical comparisons may be misleading owing to restatements.. Source: BMO Capital Markets and company reports.
It is difficult to compare program costs across the for-profit providers, even when measured on a
standard credit hour basis, as they tend to vary geographically, by program type (i.e., bachelor's
programs are typically more expensive on a per credit hour basis when compared with associates
programs) as well as by delivery method (i.e., campus-based versus online). Nevertheless, we
have attempted to compile average program tuition costs for the publicly held for-profit providers
(see Exhibit 169).
A member of BMO
Financial Group
151
September 2013
BMO Capital Markets
Exhibit 169. Average Program Costs for Select For-Profit Postsecondary Companies
Company/Ticker
Apollo Group (APOL; Univ. of Phoenix)
DeVry (DV; DeVry University)
ITT Educational Services (ESI; ITT Technical Institutes)
National American University (NAUH)
Universal Technical Institutes (UTI)
Washington Post Company (WPO; Kaplan)
MEDIAN
Full Program Cost

Certificate/
Diploma Associates Bachelors
N.A.
$16,050
$32,100
N.A.
25,000
53,000
N.A.
27,000
48,240
N.A.
N.A.
56,000
$21,000
33,000
64,000
21,000
37,000
N.A.
N.A.
36,000
54,000
15,000
39,000
71,000
N.A.
N.A.
54,000
N.A.
48,000
93,000
20,000
28,000
N.A.
20,000
31,000
62,000
N.A.
33,000
66,000
31,000
33,000
N.A.
7,056
33,390
66,780
$20,000
$33,000
$59,000
Masters
$14,200
23,000
20,475
24,000
26,000
N.A.
25,000
28,000
22,000
N.A.
N.A.
N.A.
45,000
N.A.
33,516
$24,500
Doctoral
N.A.
$54,750
N.A.
58,000
57,000
N.A.
N.A.
60,000
13,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
$57,000
N.A. Not Available. Source: BMO Capital Markets and company reports.
For-profits:
Tuition and fees
and key revenue
source
A member of BMO
As most for-profit postsecondary schools are eligible for only limited direct federal and state/local
funding (outside of Title IV funding for their students), they tend to rely mostly on student tuition
and fees to fund current operations and growth. As shown in Exhibit 170, for-profit schools
received over 89% of their revenues in the 2010-2011 school year (latest available) from tuition
and fees. By contrast, the public not-for-profit schools and private not-for-profit schools
generated roughly 26% and 29% of their revenues, respectively, from that source.
Financial Group
152
September 2013
BMO Capital Markets
Exhibit 170. Funding Sources for by Institution Type (2010-2011 School Year)
Tuition and fees

Federal funding
State/local funding
Endowments, investment income, gifts and grants
Auxiliary and other income
Total
2-Year Schools
Revenues % of Total
$9,222.3
17.7%
14,775.9
28.4%
26,844.2
51.6%
1,155.7
2.2%
5,878.1
11.3%
$57,876.3
100.0%
Tuition and fees

Federal funding
State/local funding
Total
2-Year Schools
Revenues % of Total
$464.6
70.5%
60.6
9.2%
15.5
2.4%
55.9
8.5%
62.6
9.5%
$659.2
100.0%
4-Year Schools
Revenues
% of Total
$59,582.5
28.8%
24,274.1
11.8%
2,150.5
1.0%
75,616.6
36.6%
44,953.5
21.8%
$206,577.1
100.0%
Tuition and fees

Federal funding
State/local funding
Total
2-Year Schools
Revenues % of Total
$5,675.5
86.9%
470.0
7.2%
39.2
0.6%
6.0
0.1%
340.9
5.2%
$6,531.6
100.0%
4-Year Schools
Revenues
% of Total
$19,480.3
89.8%
1,113.2
5.1%
118.0
0.5%
58.1
0.3%
920.2
4.2%
$21,689.8
100.0%
($ in millions)
4-Year Schools
Revenues
% of Total
$51,018.4
27.8%
41,346.0
22.6%
66,910.6
36.5%
24,026.0
13.1%
82,640.7
45.1%
$265,941.6
100.0%
All Schools
Revenues % of Total
$60,240.7
25.6%
56,121.9
23.9%
93,754.8
39.8%
25,181.7
10.7%
88,518.8
37.6%
$323,817.8
100.0%
Private Not-for-Profit
All Schools
Revenues % of Total
$60,047.0
29.0%
24,334.7
11.7%
2,166.0
1.0%
75,672.5
36.5%
45,016.1
21.7%
$207,236.3
100.0%
For-Profit
All Schools
Revenues % of Total
$25,155.8
89.1%
1,583.1
5.6%
157.3
0.6%
64.1
0.2%
1,261.1
4.5%
$28,221.4
100.0%
For-profits
generate less per
FTE student
relative to their
not-for-profit
Private for-profit institutions generate relatively less revenue per FTE student when compared
with their not-for-profit counterparts. As shown in Exhibit 171, in the 2010-2011 school year
(latest data available) private for-profit institutions generated $17,632 per FTE student much
lower than the $31,627 and $64,924 generated at public not-for-profit and private not-for-profit
institutions, respectively.
counterparts
A member of BMO
Financial Group
153
September 2013
BMO Capital Markets
Exhibit 171. Funding Sources per FTE Student (2010-2011 School Year)
Tuition and fees

Federal funding
State/local funding
Total
As % of total:
Tuition and fees
Federal funding
State/local funding
Total
Public-Not-For-Profit
Two-year Four-year
Schools
Schools
All Schools
$2,253
$8,302
$5,884
3,610
6,728
5,481
6,559
10,889
9,158
282
3,910
2,459
13,447
8,646
1,436
$14,140
$43,275
$31,627
15.9%
25.5%
46.4%
2.0%
10.2%
100.0%
19.2%
15.5%
25.2%
9.0%
31.1%
100.0%
18.6%
17.3%
29.0%
7.8%
27.3%
100.0%
Private-Not-For-Profit
Two-year
Four-year
All
Schools
Schools
Schools
$13,718
$18,867
$18,812
1,790
7,686
7,624
459
681
679
1,652
23,944
23,707
1,848
14,234
14,103
$19,468
$65,412
$64,924
70.5%
9.2%
2.4%
8.5%
9.5%
100.0%
28.8%
11.8%
1.0%
36.6%
21.8%
100.0%
29.0%
11.7%
1.0%
36.5%
21.7%
100.0%
Private-For-Profit
Two-year Four-year
All
Schools
Schools
Schools
$14,854
$15,987
$15,716
1,230
914
989
103
97
98
16
48
41
893
756
787
$17,094
$17,800
$17,632
86.9%
7.2%
0.6%
0.1%
5.2%
100.0%
89.8%
5.1%
0.5%
0.3%
4.2%
100.0%
89.1%
5.6%
0.6%
0.2%
4.5%
100.0%
Financial aid biggest variable in

driving enrollment
growth
More families
using Title IV,
current income
and grants to pay
for college in
recent years
A member of BMO
Very few students at for-profit institutions pay the entire amount of tuition and fees themselves,
owing to a combination of the myriad financial aid sources and rising tuition costs. A 2001
study by Professor David Morgan at the University of Oklahoma concluded that the variable
with the biggest impact on enrollment is the amount of financial aid available to students. As
such, we believe it is in a schools best interest to maximize the amount of potential financial aid
its students can access.
In recent years, Sallie Mae has produced an annual study entitled How America Pays for
College, which included a Gallup survey of college-going students and their parents to
determine as to how they funded their college education. As shown in Exhibit 172 the bulk of
funding comes from borrowed sources including both federal (i.e., Title IV) and private loans,
although a sizable portion comes from savings as well. Interestingly, over the past four years,
there has been a substantial increase in the amount and percentage of student using Title IV
loans, along with non-borrowed sources (e.g., current income), and grants.
Financial Group
154
September 2013
BMO Capital Markets
Exhibit 172. How America Pays for College (2008-2009 versus 2012-2013 School Years)
Source
Borrowed Sources:
Parent borrowing:
Federal PLUS loan (Title IV)
Private education loan
Home equity/line of credit
Parent credit cards
Retirement account loan
Parent/Other loans
2008-2009 School Year 2012-2013 School Year

% of Total
Average % of Total
Average
Families
Amount
Families
Amount
Dif.
% of Total
Families
CAGR
Average
Amount
15%
8%
5%
3%
5%
1%
3%
$7,664
8,401
8,028
3,886
5,471
5,762
12%
7%
2%
1%
3%
1%
5%
$9,887
7,316
4,602
4,681
3,952
11,817
-3%
-1%
-3%
-2%
-2%
0%
2%
6.6%
-3.4%
-13.0%
4.8%
-7.8%
19.7%
29%
25%
12%
5%
2%
5,327
7,516
2,812
5,819
32%
29%
9%
3%
5%
8,815
9,324
3,156
6,927
3%
4%
-3%
-2%
3%
13.4%
5.5%
2.9%
4.5%
Non-borrowed Sources:
Parent income and savings:
Current income
College savings plans
Retirement savings withdrawal
Other savings/investments
59%
55%
11%
3%
14%
$7,175
7,312
5,318
7,776
60%
52%
17%
5%
11%
$6,896
7,959
2,710
4,249
1%
-3%
6%
2%
-3%
-1.0%
2.1%
-15.5%
-14.0%
Student income and savings:

Current income
Savings
Federal work-study
Other savings/investments
42%
26%
25%
5%
2%
$2,639
3,791
1,893
5,749
51%
34%
27%
5%
8%
$3,130
2,764
1,605
2,618
9%
8%
2%
0%
6%
4.4%
-7.6%
-4.0%
-17.9%
Scholarships and grants:

Scholarships
Grants
51%
40%
30%
6,907
5,109
65%
39%
45%
8,349
6,538
14%
-1%
15%
4.9%
6.4%
17%
5,496
18%
5,244
1%
-1.2%
Student borrowing:
Federal loans (Title IV)
Private education loan
Student credit cards
Student other loans
Relatives and friends
Note: Total and subtotals do not add up to 100% as respondents could answer more than one category.
Source: BMO Capital Markets and Sallie Mae.
Students at forprofit institutions

have highest
percentage of
those receiving
financial aid
A member of BMO
While the Sallie Mae survey did not distinguish between students attending for-profit and notfor-profit institutions, students attending for-profit schools are likely heavier borrowers, owing
to the relatively higher cost of attendance and their relatively lower-income levels. This is
supported by data at the undergraduate level and is likely to be true at the graduate level as well,
albeit to a lesser extent. As shown in Exhibit 173, in the 2011-2012 school year (latest data
available), across all school types, undergraduates attending for-profit institutions had the
highest percentage receiving financial aid (though we note those attending private not-for-profit
schools have narrowed this gap in recent years). Specifically, for the most part, a relatively
larger portion of students at these schools received federal grants (most likely Pell Grants),
Veterans benefits and student loans. This data are for first year, full-time undergraduates a
typically disproportionately smaller population at for-profit institutions.
Financial Group
155
September 2013
BMO Capital Markets
Exhibit 173. Percentage of Undergraduates Using Financial Aid

(2011-2012 School Year)
Institution Type
All undergraduates
Public:
Less than 2-year
2 year
4 year (non-doctorate)
4 year (doctorate)
2 year
4 year (doctorate)
Private for-profit:
Less than 2-year
2 year
4 year
More than one institution
Any aid Any grant

70.7%
59.1%
Any
student
loan
41.8%
Work- Veterans
study benefits
5.9%
3.7%
Direct
PLUS
loan
(parent)
4.5%
69.9%
57.0%
68.5%
76.8%
64.6%
50.5%
55.3%
59.9%
21.7%
17.6%
39.4%
55.5%
0.9%
1.9%
5.3%
6.2%
1.1%
2.9%
3.2%
2.8%
N.A.
0.1%
4.1%
8.5%
80.2%
87.4%
84.9%
71.4%
78.1%
74.7%
49.9%
64.0%
60.7%
N.A.
24.4%
24.8%
3.6%
3.7%
2.7%
7.0%
11.8%
12.0%
88.5%
82.2%
90.4%
77.5%
64.7%
70.7%
76.0%
64.3%
75.3%
0.3%
2.6%
1.1%
1.7%
6.2%
10.1%
4.6%
7.4%
3.5%
73.5%
58.8%
48.7%
5.7%
4.9%
5.9%
Note: Data for full-time, first-time undergraduates. N.A. Not Available. Source: BMO Capital Markets and US
Department of Education National Center for Education Statistics.
Students at forprofit institutions

also take on more
loans at least
In addition, these students tend to receive greater amounts of financial aid at least relative to
those attending public not-for-profit institutions though it skews more toward loans and
Veterans benefits (see Exhibit 174). This makes sense, in our view, given the relatively higher
price points at for-profit institutions.
when compared
to those at public
institutions
Exhibit 174. Average Amount of Undergraduate Financial Aid

Institution Type
All undergraduates
Public:
Less than 2-year
2 year
4 year (doctorate)
2 year
4 year (doctorate)
Private for-profit:
Less than 2-year
2 year
4 year
Any aid Any grant

$10,800
$6,200
Any
student
loan
$7,100
Work- Veterans
study benefits
$2,300
$7,500
N.A.
5,600
5,600
7,500
Direct
PLUS
loan
(parent)
$12,100
5,400
4,700
8,800
12,400
3,800
3,200
4,900
6,800
5,100
4,700
6,600
7,300
N.A.
2,700
2,000
2,400
N.A.
5,700
9,600
11,500
11,500
21,100
23,800
5,300
13,500
16,100
7,300
8,400
8,600
2,700
1,900
2,300
15,700
9,800
9,500
12,200
13,300
16,200
10,000
10,600
11,600
4,100
3,800
4,000
6,700
7,200
8,300
N.A.
3,600
3,100
11,600
11,900
8,500
6,300
8,900
12,500
11,100
5,900
7,100
2,100
7,500
11,200
Note: Data for first full-time undergraduates. N.A. Not Available. Source: BMO Capital Markets and US
Department of Education National Center for Education Statistics.
A member of BMO
Financial Group
156
September 2013
Percentage of
students with
loans has
increased
particularly for
for-profit schools
BMO Capital Markets
The amount of student loans, specifically, has been increasing in recent years especially
among students attending for-profit institutions. A July 2009 report by Education Sector
highlights this trend. From the 1992-1993 school year to the 2007-2008 school year (latest data
available), the percentage of full-time, full-year undergraduate students who received any
student loans (both private and Title IV) increased from 32.4% to 52.9%. For those attending
for-profit institutions, that percentage increased from 52.5% to 91.6%, which was the highest
across the survey period across all school types (see Exhibit 175).
Exhibit 175. Percentage of Full-Time Full-Year Undergraduates

with Student Loans (1992-1993 to 2007-2008 School Years)
1992-1993
100%
1995-1996
1999-2000
2003-2004
2007-2008
91.6%
% Receiving Student Loans
90%
80%
65.0%
70%
60%
52.7%
52.5%
45.8%
50%
40%
31.5%
30%
22.5%
20%
11.7%
10%
0%
Public 2-year
Public 4-year
Private not-for-profit 4year
Private for-profit
Source: BMO Capital Markets and Education Sector
Amount of
average loans has
increased as well;
3% CAGR since
1992-1993 in
In addition, the amount of annual loans has increased. When measured in constant dollars (2007),
from the 1992-1993 school year to the 2007-2008 school year (latest data available), average
amount of loans (both private and Title IV) received by full-time, full-year undergraduate
students increased from $5,161 to $7,987 (3% CAGR). For those attending for-profit institutions,
that amount increased from $6,138 to $9,611 also 3% CAGR (see Exhibit 176).
constant dollars
Average Annual Loan
Exhibit 176. Annual Average Undergraduate Student Loans in

Constant 2007 Dollars (1992-1993 to 2007-2008 School Years)
$10,000
1992-93
1995-96
9,000
2003-04
2007-08
8,000
1999-2000
$9,766
$7,053
7,000
$5,751
6,000
$4,873
5,000
4,000
$9,611
$6,138
$4,732
$3,449
3,000
2,000
1,000
0
Public 2-year
Public 4-year
Private for-profit
Source: BMO Capital Markets and Education Sector
A member of BMO
Financial Group
157
September 2013
Student loan debt

at roughly $1.2
trillion
Students
attending forprofit institutions
typically have
BMO Capital Markets
Much media attention has been paid to the escalating rates of outstanding student loans. In July
2013, the Consumer Finance Protection Bureau noted that cumulative student loan debt (from
both federal and private sources) was roughly $1.2 trillion, including over $1 trillion on federal
loans. This would make it the second largest component of consumer debt in the US, behind
home mortgages.
Students from for-profit schools tend to have proportionately more debt when graduating.
According to an August 2009 report by Mark Kantrowitz (when he was at www.finaid.org),
students from for-profit institutions have the highest debt levels when compared with their peers
when finishing their respective programs (see Exhibit 177).
more debt when

graduating
Exhibit 177. Cumulative Education Debt By Degree Type (20032004 and 2007-2008 School Years)
Bachelor's Degree
Public Not-For-Profit
Private For-Profit
Associate Degree
Private For-Profit
Certificate
For-Profit

Cumulative
%
Debt at
Graduating
Graduation
With Debt
64.5%
$18,630
61.0%
16,874
70.8%
21,281
83.8%
26,849

Cumulative
%
Debt at
Graduating
Graduation
With Debt
65.6%
$23,186
61.7%
20,092
70.5%
27,542
96.1%
32,906
% CAGR
5.6%
4.5%
6.7%
5.2%
33.5%
30.2%
61.9%
91.2%
9,404
8,662
11,459
13,799
43.4%
38.2%
67.8%
98.2%
12,206
10,329
15,035
20,188
6.7%
4.5%
7.0%
10.0%
N.A.
N.A.
N.A.
7,503
4,531
7,503
N.A.
N.A.
N.A.
9,000
6,534
9,744
4.7%
9.6%
6.8%
N.A. Not Available. Source: BMO Capital Markets, www.finaid.org and The College Board (certificate data).
Students at forprofit schools

have
disproportionate
unmet needs,
somewhat owing
to low expected"
family
contribution
A member of BMO
Despite this, a separate study shows that students at for-profit institutions tend to still have the
largest amount of unmet need. Dr. Tom Mortenson, a postsecondary researcher, calculated the
average unmet need by institutional type for full-time, dependent, single institution
undergraduate students in the 2007-2008 school year (latest data available). As shown in Exhibit
178, the average unmet need percentage for students at for-profit schools was $5,632, or roughly
20.4% of the average cost of attendance in that school year. This was the highest across all
school types. This analysis may be a bit misleading given the largest driver of this variance is
the students expected family contribution (EFC), calculated based largely on available income,
given that students at for-profit institutions tend to skew more toward lower income.
Financial Group
158
September 2013
BMO Capital Markets
Exhibit 178. Funding Gap Analysis by School Type (2007-2008

School Year)
Average cost of attendance
Public 4-Year
Schools
$18,931
Expected family contribution

Financial aid:
Grants
Loans
Work-Study
Other financial aid
Total financial aid
Total available funding
Average unmet need/(surplus)
As % of average cost of attendance:
Average cost of attendance
Expected family contribution
Financial aid:
Grants
Loans
Work-Study
Other financial aid
Total financial aid
Total available funding
Average unmet need/(surplus)
Public 2-Year Private 4-Year

Schools
Schools
$11,961
$36,646
Private Less
Than 4-Year
Schools
$21,378
For-Profit
Schools
$27,564
15,700
10,150
18,529
8,666
7,447
3,611
3,431
253
1,031
8,326
24,026
($5,095)
1,765
855
188
72
2,880
13,030
($1,069)
10,531
6,090
713
2,113
19,447
37,976
($1,330)
3,564
4,254
140
2,165
10,123
18,789
$2,589
2,615
9,070
115
2,685
14,485
21,932
$5,632
100.0%
100.0%
100.0%
100.0%
100.0%
82.9%
84.9%
50.6%
40.5%
27.0%
19.1%
18.1%
1.3%
5.4%
44.0%
126.9%
-26.9%
14.8%
7.1%
1.6%
0.6%
24.1%
108.9%
-8.9%
28.7%
16.6%
1.9%
5.8%
53.1%
103.6%
-3.6%
16.7%
19.9%
0.7%
10.1%
47.4%
87.9%
12.1%
9.5%
32.9%
0.4%
9.7%
52.6%
79.6%
20.4%
Source: Postsecondary Education Opportunity Report 203 (June 2009).
A discussion of the various types of funding sources follows.

Federal financial
Federal funds. The most well known of the many types of financial aid available are federally
aid for higher
funded student loans and grants, the bulk of which are regulated by Title IV of the Higher
Education Act, overseen by the US Department of Education (ED). According to the College
Board, the federal government provided a record $154.6 billion in financial aid for higher
education in the 2011-2012 school year up 1% from the $153.1 billion available in the prior
year -- under the programs described in Exhibit 179 (this excludes any education-related tax
benefits). Of that, roughly $140.3 billion was through various programs regulated by Title IV
(e.g., excludes veterans and military funding) roughly flat with the prior year.
education has hit

record high
though funding
has stabilized
A member of BMO
Financial Group
159
September 2013
BMO Capital Markets
Exhibit 179. Types of Financial Aid Available for Postsecondary Students
Program
Name
Type of Aid Other Information
Annual Award Limits (20132014 School Year)
Disbursement
Federal Grants
Pell Grant
Grant; does
not have to
be repaid
Undergraduates
only
Up to $5,645
School acts as the agent for

the US Dept. of Education
Federal Supplemental
Educational Opportunity
Grant (FSEOG)
Grant; does
not have to
be repaid
Undergraduates
Up to $4,000
only; not all schools
can participate
Other Federal Grants (e.g., Grant; does

LEAP, ACG and SMART) not have to
be repaid
Various
Veterans
Various
loans and
grants
Military/Other
Federal Perkins Loans
Other
Loans/Grants
Direct Loan
Programs
Total Available (20112012 School Year)

($ bil.)
% of total
$34.5
15.2%
School disburses funds to

students
0.7
0.3%
Various
Various
0.0
0.0%
N.A.
Various
N.A.
12.2
5.4%
Various
loans and
grants
N.A.
Various
N.A.
1.9
0.8%
Loan; must
be repaid
Undergraduates and
graduates; not all
schools can
participate
Undergraduate: up to $5,500
annually and $27,500 lifetime. students
Graduate: up to $8,000 annually
and $60,000 lifetime (including
undergraduate loans).
1.0
0.4%
Subsidized Stafford Loans Loan; must

be repaid
Dept. of Education Undergraduate: $3,500-$5,500;

pays interest while depending on grade level
student is in school (lowest for first year
undergrads) with lifetime limit of
$23,000. Graduate:$8,500 with
lifetime limit of $65,500.

students, funds provided by
federal government (direct
loans)
40.0
17.6%
Unsubsidized Stafford
Loans
Loan; must
be repaid
Borrower is
responsible for
interest for life of
loan
Undergraduate: $2,000-$7,000;
depending on grade level
(lowest for first year
undergrads) with lifetime limit of
$57,500. Graduate:$12,00 with
lifetime limit of $138,500.

loans)
45.9
20.2%
PLUS Loans
Loan; must
be repaid
Borrower is
responsible for
interest for life of
loan
Cost of attendance minus any

other financial aid received

loans)
18.2
8.0%
Other Loans
Loan; must
be repaid
Money is
earned; does
not have to
be repaid
Various
Various
Various
0.2
0.1%
Undergraduates and No annual limit

graduates; not all
schools can
participate

students
1.0
0.4%
Work Study
Federal Work Study

(FWS)
Other Grants
State Programs
Grant; does
not have to
be repaid
Various
Various
Various
9.9
4.4%
Institutional (i.e., school)

Grants
Grant; does
not have to
be repaid
Various
Various
Various
42.1
18.6%
Private/Employer Grants
Grant; does
not have to
be repaid
Various
Various
Various
11.0
4.9%
State Sponsored
Loan; must
be repaid
Loan; must
be repaid
Various
Various
Various
1.7
0.8%
Various
Various
Various
6.4
2.8%
Total
$226.7
100.0%
Total Federal funding
$154.6
68.2%
Total Title IV
$140.3
61.9%
Non-Federal
Loans
Private Sector
Sources: US Department of Education Federal Student Aid Information Center and College Boards Trends in Student Aid 2012
A member of BMO
Financial Group
160
September 2013
Federal financial
aid for higher
education had
increased
dramatically
before falling in
FY2012
BMO Capital Markets
Title IV funding had increased significantly in recent years, as more students attended higher
education, the price of attendance had increased, and more students become eligible for grants
targeted at lower income and other special programs. According to the ED (data differs from
that compiled by the College Board), Title IV funding increased at a 12% to $148.1 billion in
FY2011 from $60 billion in FY2003. However, funding fell 4.2% to $141.9 billion in FY2012.
(see Exhibit 180). The White Houses budget calls for a 1% and 8% increase in Title IV funding
in FY2013 and FY2014, respectively. Given the current fiscal state of the federal government,
we are pessimistic that the latter proposal will become reality.
Exhibit 180. Title IV Financial Aid (FY2003 FY2014E)

$160
Loans
Grants
Other
35%
y/y % change
30%
25%
120
20%
100
15%
80
10%
60
5%
40
0%
20
-5%
-10%
2003
2005
2006
2007
2008
2009
2010
2011
2012
2013E
2014E
Note: FY2004 data was not available. Estimates are based on White House proposals. Source: BMO Capital
Markets and US Department of Education.
For-profit
students rely
more on Title IV
federal financial
aid
A member of BMO
Usage of Title IV financial aid by school type was only available for undergraduate students.
However, as they represent the bulk of students attending institutions of higher education, we
believe this analysis applies to the entire sector. As shown in Exhibit 181, in the 2011-2012
school year (latest data available), a greater percentage of undergraduates attending for-profit
institutions received Title IV financial aid when compared with their counterparts at not-forprofit institutions.
Financial Group
161
September 2013
Annual % Change
Title IV Funding ($ in bil.)
140
BMO Capital Markets
Exhibit 181. Percentage of Undergraduates Using Title IV

Financial Aid (2011-2012 School Year)
Institution Type
All undergraduates
Public:
Less than 2-year
2 year
4 year (doctorate)
2 year
4 year (doctorate)
Private for-profit:
Less than 2 year
2 year
4 year
Federal Direct Loans

Federal
campusSubsiUnsubbased aid Any loan
dized
sidized
11.3%
40.1%
35.9%
33.5%
Any Title
IV aid
57.2%
Federal
Pell
Grants
41.3%
61.3%
43.5%
56.4%
62.5%
56.2%
37.7%
40.5%
36.7%
N.A.
4.9%
9.0%
11.6%
20.1%
16.7%
37.4%
53.4%
16.8%
14.6%
31.9%
45.8%
15.4%
11.3%
29.9%
44.5%
67.5%
69.6%
65.5%
53.0%
39.3%
32.7%
22.1%
29.0%
28.7%
48.6%
61.3%
57.8%
44.2%
54.1%
51.1%
40.9%
54.6%
51.4%
86.7%
75.5%
79.5%
75.5%
60.1%
63.0%
22.1%
21.2%
13.4%
74.5%
61.3%
73.1%
73.1%
58.9%
71.4%
68.1%
55.0%
68.8%
59.9%
39.4%
10.1%
47.0%
41.7%
39.0%
N.A. Not Available. Source: BMO Capital Markets and US Department of Education National Center for
For-profit
students receive
relatively more
Title IV funding
In addition, as shown in Exhibit 182, in the 2011-2012 school year (latest data available),
students attending for-profit schools received more Title IV financial relative to their peers at
public not-for-profit schools, while receiving relatively the same as students at private not-forprofit schools.
than students at
public not-forprofit schools
Exhibit 182. Average Amount of Undergraduate Title IV Financial

Aid (2011-2012 School Year)
Institution Type
All undergraduates
Public:
Less than 2-year
2 year
4 year (doctorate)
2 year
4 year (doctorate)
Private for-profit:
Less than 2 year
2 year
4 year
Any Title
IV aid
$8,200
Federal
Pell
Grants
$3,400
Federal Direct Loans

Federal
campusSubsiUnsubbased aid Any loan
dized
sidized
$1,700
$6,400
$3,500
$3,900
4,900
4,600
7,600
9,900
3,500
3,000
3,600
3,900
N.A.
1,300
1,700
2,000
5,200
4,700
6,200
6,600
2,800
2,800
3,600
3,900
3,800
3,300
3,900
3,900
8,800
11,300
12,100
3,600
3,700
3,700
700
1,900
2,700
6,400
6,900
6,900
3,100
3,800
4,000
3,900
3,900
3,800
8,800
8,900
10,200
3,600
3,400
3,400
200
700
1,000
6,100
6,400
7,400
2,800
3,000
3,300
3,700
3,900
4,500
8,800
3,600
1,700
6,400
3,500
4,000
N.A. Not Available. Source: BMO Capital Markets and US Department of Education National Center for
A member of BMO
Financial Group
162
September 2013
BMO Capital Markets
We believe there are a number of reasons for these differences, including the following:
For-profits are
more proactive in
making financial
aid available
The relatively poorer demographics of students attending for-profit schools as previously

discussed (e.g., lower income)
The relatively higher price of for-profit programs
In addition, the for-profit sector does a better job in educating its students about the availability
of such aid, in our view. In October 2009, Mark Kantrowitz (when he was at www.finaid.org)
published a study showing that not only do a relatively greater percentage of students at forprofit students file a Free Application for Federal Student Aid (FAFSA) form to apply for Title
IV funds, but those percentages have been increasing, relative to declining rates at most not-forprofit institutions (see Exhibit 183). The recent simplification of the FAFSA form (effective
with the 2010-2011 school year) should increase these percentages, specifically at not-for-profit
schools, in our view, although we believe they will still lag results at their for-profit peers.
Exhibit 183. Percentage of Students Filing FAFSA (2003-2004 vs.

2007-2008 School Years)
Institution
4-year institutions
2-year institutions
Less than 2-year institutions
4-year institutions
2-year institutions
Private, for-profit
4-year institutions
2-year institutions
2003-04
52.9%
64.2%
44.9%
38.2%
73.2%
72.9%
79.7%
81.8%
88.8%
86.2%
94.5%
87.0%
2007-08
52.1%
63.2%
43.9%
48.6%
71.7%
71.5%
77.7%
81.9%
95.4%
96.5%
98.9%
88.3%
Change
1.3%
-1.0%
-1.0%
10.4%
-1.3%
-1.4%
-2.0%
0.1%
1.3%
10.3%
4.4%
1.3%
Source: BMO Capital Markets and www.finaid.org.
As such, students
at these schools
rank among the
highest users of
Title IV funds
A member of BMO
Whatever the reasons, students at for-profit institutions rank among the largest users of Title IV
funds, as shown in Exhibit 184. Each year, the ED complies a list of Title IV financial aid used
by student attending proprietary (i.e., for-profit) institutions to determine their compliance with
the 90/10 regulation. This data were accumulated by OPE-ID number, not by school system; if
the entire school system were used, schools such as Corinthian Colleges (COCO) Everest
schools and Education Managements (EDMC) Art Institutes schools would have been listed
higher here. In addition, changes to OPE-ID numbers over this period (e.g., ITT Technical
Institutes [ESI] consolidating OPE-id numbers) may skew any comparisons.
Financial Group
163
September 2013
BMO Capital Markets
Exhibit 184. Proprietary Institutions Ranked by Title IV Funds (2008-2009 through 20102011 School Years)
2008-09 Title IV Funds
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
OPE-ID
02098800
01072700
00188100
00458600
00732900
00145900
02504200
02179900
03267300
00107400
01014800
02113600
02075400
01303900
02362100
04051300
03010600
02151900
00747000
00869400
00267800
00753100
02246000
00822100
01019800
02559300
02100500
00927000
03031400
02233300
00638500
00405700
3819300
02116000
03072700
02120700
02599700
00723600
01258400
00367400
02217100
01049000
0'0962100
03210300
00464600
01212800
02569300
00974800
01111200
02362000
School Name
University of Phoenix
DeVry University
Ashford University
Kaplan University
ITT Technical Institute
Strayer University
Walden University
Argosy University
Capella University
Grand Canyon University
Colorado Technical University
American InterContinental University
Keller Graduate School of Management
South University
Full Sail University
Art Institute of Phoenix (The)
Virginia College
Keiser University
Art Institute of Pittsburgh (The)
Rasmussen College
Bryant & Stratton College
Academy of Art University
Ross University, School of Medicine
ECPI College of Technology
United Education Institute
Art Institute of Atlanta (The)
Intl. Academy of Design and Technology
St. George's University, School of Medicine
Chamberlain College of Nursing
National American University
American Public University System
Sanford-Brown College
Westwood College - Los Angeles
San Joaquin Valley College
Vatterott College
Art Institute of California - Los Angeles (The)
Illinois Institute of Art (The)
Stevens Henager College
Pima Medical Institute
Regency Beauty Institute
Herzing University
Le Cordon Bleu College of Culinary Arts
Minnesota School of Business
Lincoln College of Technology
Le Cordon Bleu College of Culinary Arts
Carrington College California
Fashion Institute of Design & Merchandising
Top 50 OPE-IDs
All Other Proprietary OPE-IDs
All Proprietary OPE-IDs
Non-Proprietary OPE-IDs
Total
Ticker/Owner
APOL
DV
BPI
WPO
ESI
STRA
Private (Laureate Ed.)
EDMC
CPLA
LOPE
CECO
CECO
DV
EDMC
Private
EDMC
CECO
Private
EDMC
Private
Private
Private
DV
UTI
EDMC
Private
UTI
EDMC
CECO
Private
DV
NAUH
APEI
CECO
Private
Private
Private
EDMC
EDMC
Private
Private
Private
Private
CECO
Private
LINC
CECO
DV
Private
UTI
($ in mil.)
$4,713.6
867.7
482.4
753.7
94.8
591.9
531.6
386.4
379.2
362.0
328.0
358.4
249.8
189.3
128.3
21.4
204.1
192.0
173.2
33.8
144.0
149.3
165.3
125.1
117.3
65.9
114.2
97.1
96.7
125.4
48.9
57.2
38.0
93.0
61.3
60.8
76.5
81.5
70.0
47.0
74.9
43.3
33.8
27.1
70.5
57.1
41.6
69.7
75.4
53.1
13,422.6
9,262.7
22,685.3
80,760.7
$103,446.0
% of total
4.6%
0.8%
0.5%
0.7%
0.1%
0.6%
0.5%
0.4%
0.4%
0.3%
0.3%
0.3%
0.2%
0.2%
0.1%
0.0%
0.2%
0.2%
0.2%
0.0%
0.1%
0.1%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.1%
0.0%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.1%
0.0%
0.0%
0.0%
0.1%
0.1%
0.0%
0.1%
0.1%
0.1%
13.0%
9.0%
21.9%
78.1%
100.0%

($ in mil.)
$5,422.5
1,138.9
782.2
1,130.7
158.8
785.1
650.7
549.1
522.3
480.1
492.9
458.3
341.4
308.0
206.6
30.7
291.5
245.1
246.6
153.7
184.8
197.6
203.5
165.6
167.2
127.4
155.1
133.2
144.3
148.7
91.5
88.8
71.9
125.7
168.3
98.7
118.7
104.3
96.3
88.6
96.3
75.8
63.5
48.6
92.2
95.9
80.7
93.7
75.2
70.3
17,867.3
10,725.9
28,593.2
98,005.8
$126,599.0
% of total
4.3%
0.9%
0.6%
0.9%
0.1%
0.6%
0.5%
0.4%
0.4%
0.4%
0.4%
0.4%
0.3%
0.2%
0.2%
0.0%
0.2%
0.2%
0.2%
0.1%
0.1%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
14.1%
8.5%
22.6%
77.4%
100.0%

($ in mil.)
$5,036.8
1,274.4
1,145.1
1,108.3
918.6
847.1
744.9
658.6
609.9
564.2
535.9
440.7
390.9
378.8
337.7
300.1
286.9
257.6
251.6
240.8
229.7
218.4
196.5
190.1
164.4
164.3
160.3
159.2
158.6
152.5
137.5
137.5
136.8
130.9
128.4
125.0
120.8
114.1
109.4
109.0
103.6
101.6
101.4
92.4
91.8
90.4
86.2
85.7
82.4
81.4
20,289.5
11,723.2
32,012.6
108,367.4
$140,380.0
% of total
3.6%
0.9%
0.8%
0.8%
0.7%
0.6%
0.5%
0.5%
0.4%
0.4%
0.4%
0.3%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
14.5%
8.4%
22.8%
77.2%
100.0%
CAGR
3.4%
21.2%
54.1%
21.3%
211.3%
19.6%
18.4%
30.6%
26.8%
24.8%
27.8%
10.9%
25.1%
41.5%
62.3%
274.1%
18.6%
15.8%
20.5%
167.0%
26.3%
20.9%
9.0%
23.3%
18.4%
57.9%
18.5%
28.1%
28.1%
10.3%
67.7%
55.0%
89.8%
18.6%
44.7%
43.4%
25.7%
18.4%
25.0%
52.3%
17.6%
53.2%
73.2%
84.7%
14.1%
25.9%
44.0%
10.9%
4.6%
23.9%
22.9%
12.5%
18.8%
15.8%
16.5%
Note: Data provided by OPE-ID number and may not reflect the entire school system. Ranked by 2010-2011 school year. Source: Federal Student
Aid Data Center, College Board (total Title IV funds) and BMO Capital Markets.
Obama proposes
using Title IV
funding as a
carrot to
improve student
outcomes
A member of BMO
On August 22, 2013, President Obama unveiled his Plan to Make College More Affordable: A
Better Bargain for the Middle Class (see Exhibit 185). He proposes using Title IV funding as a
carrot to improve student outcomes. Among the components are tying financial aid to
outcome metrics, providing incentives to use technology more effectively and push the incomebased repayment plan; his would apply students at both not-for-profit and for-profit schools.
Given that many organizations representing the not-for-profit sector came out against many of
these proposals, with their strong ties to Congress (who would have to approve most proposals),
chances are limited this plan will not become law in its current format. Nevertheless, we believe
proposals like these will be included in the upcoming Higher Education Act renewal
discussions.
Financial Group
164
September 2013
BMO Capital Markets
Exhibit 185. President Obamas Plan to Make College More Affordable

Topic
Pay Colleges and
Students for
Performance
Item
Tie financial aid to
college value
Engage states with a

Race to the Top for
Higher Education that
has higher value and
lower costs
Reward colleges for

results with a Pell
bonus and higher
accountability:
Demand student
responsibility for
academic
performance
Promote Innovation
and Competition
Award credits based

on learning, not seat
time
Use technology to
redesign courses
Use technology for

student services
Details
The Department of Education (ED) will develop and publish a new college ratings system that would be
available for students and families before the 2015 college year. In the upcoming Higher Education Act
reauthorization, the President will seek legislation allocating financial aid based upon these college
ratings by 2018. Students can continue to choose whichever college they want, but taxpayer dollars will
be steered toward high-performing colleges that provide the best value.
The President requested $1 billion in Race to the Top funding to spur state higher education reforms
and reshape the federal-state partnership by ensuring that states maintain funding for public higher
education. The Race to the Top competition will have a special focus on promoting paying for value as
opposed to enrollment or just seat time. While most states typically fund colleges based on enrollment,
there are notable exceptions, like Tennessee, Indiana and Ohio, which fund colleges based on
performance. The Presidents plan would also encourage states to provide accelerated learning
opportunities, smooth the transition from high school to college and between two- and four-year
colleges, and strengthen collaboration between high schools and colleges
To encourage colleges to enroll and graduate low- and moderate-income students, the President will
propose legislation to give colleges a bonus based upon the number of Pell students they graduate. The
Administration will also prevent the waste of Pell dollars by requiring colleges with high dropout rates to
disburse student aid over the course of the semester as students face expenses, rather than in a lump
sum at the beginning of the semester, so students who drop out do not receive Pell Grants for time they
are not in school.
To ensure students are making progress toward their degrees, the President will also propose
legislation strengthening academic progress requirements of student aid programs, such as requiring
students to complete a certain percentage of their classes before receiving continued funding. These
changes would encourage students to complete their studies on time, thereby reducing their debt, and
will be designed to ensure that disadvantaged students have every opportunity to succeed.
Western Governors University is a competency-based online university serving more than 40,000
students with relatively low costs about $6,000 per year for most degrees with an average time to a
bachelors degree of only 30 months. Other institutions with competency-based programs include
Southern New Hampshire University and the University of Wisconsin system.
Redesigned courses that integrate online platforms (like MOOCs) or blend in-person and online
experiences can accelerate the pace of student learning. The National Center for Academic
Transformation has shown the effectiveness of the thoughtful use of technology can improve learning
outcomes for students while reducing costs by nearly 40% on average. Examples include: Carnegie
Mellon Universitys Open Learning Initiative; Arizona State Universitys interactive algebra lessons; The
University of Maryland's introductory psychology course; and New Yorks Open SUNY initiative.
Online learning communities and e-advising tools encourage persistence and alert instructors when
additional help is needed. Technology is enabling students from across campuses and across the world
to collaborate through online study groups and in-person meet-ups. Examples include: MOOC-provider
Coursera's online forums; and Austin Peay State University's Degree Compass system.
Recognize prior
Colleges can also award credit for prior learning experiences, similar to current Administration efforts to
learning and promote recognize the skills of returning veterans. Dual-enrollment opportunities let high school students earn
dual enrollment
credits before arriving at college, which can save money by accelerating their time to degree.
Empower students
New college ratings will help students compare the value offered by different colleges. The ED will enlist
with information
entrepreneurs and technology leaders with a Datapalooza to catalyze new private-sector tools,
services, and apps to help students evaluate and select colleges. The effort will be complemented by
earnings information by college that will be released for the first time on Administrations College
Scorecard in fall 2013.
Seed innovation and To demonstrate what works, President Obama has proposed a new $260 million First in the World fund
measure what works to test and evaluate innovative approaches to higher education that yield dramatically better outcomes,
and to develop new ways for colleges to demonstrate that they are helping their students learn. In
addition, the Department of Labor is planning to grant an additional $500 million to community colleges
and eligible four-year colleges and universities in FY2014. A portion of these resources will be used to
promote accelerated degree paths and credentials that would drive more high-quality and affordable
options for adult workers and students.
Reduce regulatory
barriers
The ED will use its authority to issue regulatory waivers for experimental sites that promote highquality, low-cost innovations in higher education, such as making it possible for students to get financial
aid based on how much they learn, rather than the amount of time they spend in class. Pilot
opportunities could include enabling colleges to offer Pell grants to high school students taking college
courses, allowing federal financial aid to be used to pay test fees when students seek academic credit
for prior learning, and combining traditional and competency-based courses into a single program of
study. The ED will also support efforts to remove state regulatory barriers to distance education.
Ensure Student Debt Make all borrowers
To make sure that students and families have an easy-to-understand insurance policy against
Is Affordable
eligible for Pay As
unmanageable debt now and in the future, the President has proposed allowing all student borrowers to
You Earn
cap their federal student loan payments at 10% of their monthly income. Currently, students who first
borrowed before 2008 or have not borrowed since 2011 are not eligible for the Presidents Pay As You
Earn plan. In addition, the Administration will work with Congress to ensure that the benefits are targeted
to the neediest borrowers.
Launching an
Beginning in fall 2013, the ED will contact borrowers who have fallen behind on their student loan
enrollment campaign payments, undergraduate borrowers with higher-than-average debts, and borrowers in deferment or
for Pay As You Earn forbearance because of financial hardship or unemployment to ensure they have the information they
need to choose the right repayment option for them. Starting in 2014, the ED and the Department of
Treasury will work to help borrowers learn about and enroll in Pay As You Earn and Income-Based
Repayment plans when they file their taxes. To assist guidance counselors and other advisers who
guide students through the process of selecting and financing their higher education, the Administration
will launch a one-stop shop that will include important resources for choosing among various incomedriven repayment options.
Source: The White House.
A member of BMO
Financial Group
165
September 2013
BMO Capital Markets
We have provided historical Title IV percentages for a select group for for-profit providers in
Exhibit 186. As shown, the median percentage has increased over the past decade from the mid60% range to the low-80% range. Where the data are available, we have included the impact on
this ratio of recent increases in annual Pell Grant and unsubsidized Stafford loan limits effective
July 1, 2008, as they are excluded from Title IV calculations for 90/10 measurement purposes
(with HEOA). This ratio is measured by institution (i.e., OPEID), not by the company as a
whole, so the company percentages may not necessarily reflect the risk of institutions breaking
the 90/10 threshold (more details later in this report).
Title IV exposure
for for-profits has
increased
Exhibit 186. Title IV Contribution for Select For-Profit Providers (FY2002-FY2012)

Company
Ticker
2002
2003
2004
2005
2006
2007

Apollo Group (Univ. of Phoenix)
Bridgepoint Education (Ashford Univ.)
Career Education
Corinthian Colleges
Capella Education
DeVry (undergraduate only)
Lincoln Educational Services (avg.)
Strayer Education
Washington Post
MEDIAN
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
N.A.
52%
N.A.
53%
82%
N.A.
65%
65%
N.A.
65%
74%
42%
55%
65%
N.A.
65%
N.A.
62%
N.A.
58%
82%
N.A.
64%
66%
N.A.
68%
79%
41%
63%
68%
80%
66%
N.A.
61%
N.A.
58%
81%
N.A.
63%
68%
N.A.
66%
81%
55%
67%
72%
81%
67%
N.A.
63%
N.A.
61%
79%
67%
70%
67%
N.A.
61%
80%
50%
72%
70%
83%
69%
1%
64%
N.A.
62%
75.3%
71%
75%
68%
72%
57%
80.1%
62%
72%
73%
81%
72%
14%
69%
83.9%
62.7%
75.2%
74%
70%
57%
74%
63%
80%
63%
72%
68%
80%
70%
2008
2009
2010
2011
2012
W/out
With
W/out
With
W/out
With
W/out
With
W/out
With
HEOA HEOA HEOA HEOA HEOA HEOA HEOA HEOA HEOA HEOA
19%
N.A.
N.A.
19%
N.A.
26%
N.A.
42%
N.A.
N.A.
82%
N.A.
86%
83%
88%
85%
86%
N.A.
84%
N.A.
86.8%
N.A. 82.5%
N.A.
85%
N.A. 86.8%
N.A. 86.4%
N.A.
69.2%
N.A. 80.1%
N.A.
82%
N.A.
83%
N.A.
80%
N.A.
81.0%
N.A. 88.9% 81.3% 89.8% 81.9% 88.5% 80.2% 85.9%
N.A.
75%
N.A.
78%
N.A.
78%
N.A.
79%
N.A.
79%
N.A.
75%
N.A.
77%
N.A.
77%
N.A.
81%
N.A.
75%
N.A.
65%
N.A.
N.A.
70%
N.A.
77%
N.A.
78%
N.A.
79%
78.6%
N.A. 82.5%
N.A. 84.9%
N.A. 80.2%
N.A. 80.3%
N.A.
72%
N.A.
70%
N.A.
75%
N.A.
75%
N.A.
80%
N.A.
79%
N.A.
81%
N.A.
83%
N.A.
84%
N.A.
83%
N.A.
68%
N.A.
72%
N.A.
76%
N.A.
79%
N.A.
85%
N.A.
N.A.
77%
N.A.
78%
N.A.
78%
N.A.
76%
N.A.
N.A.
72%
N.A.
73%
N.A.
73%
N.A.
75%
N.A.
75%
N.A.
71%
N.A. 87.5%
N.A. 91.7% 88.7% 82.4%
82%
80%
N.A.
74%
N.A.
81%
78%
83%
80%
82%
78%
80%
N.A.
Note: Data reflects school or fiscal years and measures percentage of cash receipts. We have provided two calculations where available: Without
HEOA excludes the benefit of removing the increase in Pell Grant and Stafford Loans under HEOA from the 90% portion of the calculation; With
HEOA includes that benefit. N.A. Not Available. Source: BMO Capital Markets and company reports.
We have provided additional information on the three largest types of Title IV funding Pell
Grants, Stafford loans, and PLUS Loans.
Pell Grants. In the 2011-2012 school year, roughly $49.3 billion in federal grants, i.e., aid that
does not have to be repaid, was provided by the federal government to students attending Title
IV eligible schools. The best known and largest is the Pell Grant, which provides grants to lowincome undergraduate and certain post-baccalaureate students based on financial need
(calculated using the Expected Family Contribution from the FAFSA application). During the
2011-2012 year (latest data available), roughly 92% of Pell Grant recipients had a family
adjusted gross income of under $50,000.
The amount of
Pell Grants has
risen significantly
in recent years
until recently
A member of BMO
The amount of Pell Grants provided annually had increased significantly before peaking in the
2004-2005 school year at $13.1 billion, up from $5.8 billion in the 1996-1997 school year
(10.8% CAGR). While it fell thereafter, it rose again in the 2007-2008 school year as the US
government responded to the credit crisis and shortage of private lenders. Pell Grant funding has
continued to rise since then owing to an increase in annual limits in the 2008-2009 school year
and an increase in usage as more students attended higher education and more met the lowincome qualifications owing to the Great Recession. The estimated $34.8 billion in Pell Grants
provided in the 2010-2011 school year represented 22.5% of total Title IV dollars spent that year
and was by far an all-time high. However, Pell Grants fell slightly to $34.5 billion in the 20112012 (22.2% of Title IV dollars) owing to changes in distribution limits, among other reasons
(see Exhibit 187).
Financial Group
166
September 2013
BMO Capital Markets
Exhibit 187. Pell Grant in Dollars and Percentage of Title IV Funds

(1996-1997 to 2011-2012 School Years)
Pell Grants (in $bil.)
25%
% of Title IV
30
20%
25
20
15%
15
10%
10
% of Title IV
Pell Grants ($ in bil.)
$35
5%
5
0
0%
1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 201197
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Note: Shaded area represents recessionary period. Source: BMO Capital Markets and College Boards
Trends in Student Aid.
Recent legislative
changes have
increased
maximum Pell
In theory, the maximum annual Pell Grant award per student can change each July 1 the
beginning of the new fiscal year for Title IV purposes. After being raised to $4,050 for the 20032004 school year, the maximum annual award remained flat for three years until the following
changes were made:
Grant limits
A member of BMO
It was raised to $4,310 for the 2007-2008 school year as part of the Revised Continuing
Appropriations Resolution, 2007, (P.L. 110-5), signed into law by President Bush on
February 15, 2007.
A combination of two laws -- the Consolidated Appropriations Act, 2008, (P.L. 110-161)
signed into law on December 26, 2007, which established the maximum award for the
2008-2009 school year at $4,241 and the College Cost Reduction and Access Act
(CCRAA) (P.L. 110-84), enacted on September 27, 2007 -- raised the limit for the 20082009 school year, by $490 for students enrolled full time. Another $119 from the FY2009
Omnibus Appropriations brought the maximum grant to $4,850 ($4,241 plus $490 plus
$119).
As part of the American Recovery and Reinvestment Act (ARRA) of 2009 (Recovery Act),
the annual maximum Pell Grant limit was raised by $500 to $5,350 for the 2009-2010
school year, with another $200 increase (to $5,550) effective for the 2010-2011 school year.
The Healthcare and Education Reconciliation Act of 2010 (H.R. 4872) most notable as
the Obama Healthcare Reform Act and signed into law on March 30, 2010 included a
provision that was modeled after The Student Aid and Fiscal Responsibility Act (SAFRA).
While somewhat tempered from prior versions of the legislation, the annual maximum Pell
Grant limit remained steady at $5,550 through the FY2012-2013 school year, increasing to
$5,645 for the FY2013-2014 school year on its way to $5,975 for the FY2019-2020 school
year (see Exhibit 188).
Financial Group
167
September 2013
BMO Capital Markets
Exhibit 188. Annual Maximum Pell Grant Limit (2010-2011 to 20192020 School Years)
School Year
FY2010-2011
FY2011-2012
FY2012-2013
FY2013-2014
FY2014-2015
FY2015-2016
FY2016-2017
FY2017-2018
FY2018-2019
FY2019-2020
Annual Maximum Limt

$5,550
$5,550
$5,550
$5,645
$5,680
$5,760
$5,860
$5,975
$5,975
$5,975
Source: BMO Capital Markets and Association of Community College Trustees.
Average Pell
Grants have been
increasing but
still below
maximum level
The limits cited above are for the maximum award for full-time students. The average actual
annual Pell Grant award has been trending well below this maximum, although it did increase to
$3,833 in the 2010-2011 school year as the annual maximum limit increased; the average fell to
$2,555 in the 2011-2012 school year, owing to changes in distribution limits. Since the 19731974 school year, the average annual Pell Grant awarded was roughly 60% of the maximum
annual limit, though the percentages have increased in recent years, reaching 69.3% in the 20092010 school year an all-time high; the rate fell to 64.1% in the 2011-2012 school year as the
average Pell Grant fell to $3,555 (see Exhibit 189).
Exhibit 189. Pell Grant Appropriated vs. Average (1973-1974 to

$6,000
Maximum Appropriated (left-axis)
80%
Average Pell Grant (left-axis)
Actual as % of Maximum (right-axis)

70%
5,000
Annual Pell Grant
4,000
50%
3,000
40%
30%
2,000
Actual as % of Maximum
60%
20%
1,000
10%
0
1973-74
0%
1977-78
1981-82
1985-86
1989-90
1993-94
1997-98
2001-02
2005-06
2009-10
Source: BMO Capital Markets and www.finaid.org.
A member of BMO
Financial Group
168
September 2013
Recent legislative
changes have
affected Pell
Grants even
BMO Capital Markets
In the past two tears, there have been two major changes to Pell Grants that have affected its
distribution:
FY2011 budget: On April 15, 2011 -- roughly halfway into the fiscal year -- the FY2011
(year ending September 30, 2011) federal budget was released, eliminating year-round
Pell Grants (though funding was still available for summer 2011 courses from the 20102011 funding year). These type of grants began in FY2009 and had allowed students in
accelerated programs to obtain two Pell Grants in a single year. Most of the publicly held
companies have stated this change had little impact on student enrollment, given year-round
Pell Grants represented a relatively small percentage of total funding and that they believe
other funding sources would fill the missing gap.
without changing
maximum limits
FY2012 budget: On December 23, 2011, after much consternation, President Obama
signed the Consolidated Appropriations Act of 2012 (Public Law 112-74), i.e., the FY2012
budget into law. While the maximum amount was maintained, the programs eligibility
criteria was not, making as many as 100,000 of its 9 million recipients ineligible, according
to media reports. The changes include the following:
1.
Reduction in length of stay: Effective July 1, 2012, Pell Grants were available for a
total of 12 semesters, down from the prior 18 semesters -- a change that will affect an
estimated 62,000 beneficiaries, according to reports cited by Inside Higher Ed and
The Chronicle of Higher Education. According to Mark Kantrowitz (when he was at
www.finaid.org), semesters are counted based on the portion of a full-time
equivalent, so that half-time enrollment is counted as half a semester toward the 12semester limit.
2.
Reduction in income limits: The maximum amount families could earn and
automatically contribute nothing toward an undergraduate education (students
meeting an auto-zero-EFC threshold) would decrease from $32,000 to $23,000. This
applies only to dependent students as well as independent students with a dependent
other than a spouse. Mr. Kantrowitz calculates this would reduce the average Pell
Grant for those students in this income threshold by $1,350 and affect 13.5% of all
Pell Grant recipients. Students studying at for-profit schools would be affected to a
lesser extent per Kantrowitz, as only 10.6% of those students meet this threshold and
their average Pell Grant would be reduced by $1,130. In essence, this reduces the
maximum Pell Grant for student at for-profit schools by roughly $123, or 2.2% of
the $5,550 maximum.
3.
Lower minimum Pell Grant: The minimum Pell Grant is now 5% of the overall
maximum Pell Grant. Previously, students who qualified for a Pell Grant that was
greater than or equal to 5% of the maximum but less than 10% had their Pell Grants
set at 10% of the maximum Pell Grant. This rounding up of the Pell Grant has been
repealed.
4.
Removal of ATB students: Students without a high school diploma or the
equivalent will no longer be eligible for Pell Grants. This would also exclude those
who pass "ability to benefit" (ATB) exams or complete six credit hours. The loss of
aid eligibility applies only to students who first enroll in a program of study on or
after July 1, 2012.
A member of BMO
Financial Group
169
September 2013
FY2014 budget
proposal for Pell
Grants
Students at forprofits get a

disproportionately
higher amount of
Pell Grants;
however, that
percentage
declined in the
BMO Capital Markets
Pell Grant funding was spared from the sequestration (automatic budget cuts effective in March
2013). The Presidents FY2014 budget (year ending September 30, 2014) calls for an increase
of the maximum Pell Grant to $5,725 in the 2014-2015 school year (up to $4,860 from the
discretionary award and an additional $925 from the mandatory add-on to help pay for
postsecondary education). The House and Senate were working through their budget proposals
at the time of this publication, though in March 2013, the House Budget Committee, led by Rep.
Paul Ryan (D-WI), proposed capping the Pell Grant at $5,645 for the next 10 years.
For-profit providers have been among the largest beneficiaries of Pell Grants given that they
cater relatively more toward lower-income students when compared with their not-for-profit
peers. While the bulk of Pell Grants still go to students attending public not-for-profit
institutions (over 66% in the 2011-2012 school year; latest data available), grants to students
attending for-profit school made up 21% of all Pell Grants provided that year (see Exhibit 190).
While down from its all-time high (25.2% in the 2009-2010 school year), this is
disproportionately higher than for-profits percentage of enrollments (10.9% of students at
degree-granting institutions in the 2011-2012 school year).
2011-2012 school
year
Exhibit 190. Pell Grant Distribution by School Type (1995-1996 to

70% 69%
65%
% of Pell Grant funding
60%
1995-96
1999-00
2003-04
2007-08
2011-12
50%
40%
1996-97
2000-01
2004-05
2008-09
1997-98
2001-02
2005-06
2009-10
1998-99
2002-03
2006-07
2010-11
30%
21%
19%
20%
13% 13%
10%
0%
For-Profit
Source: BMO Capital Markets and College Boards Trends in Student Aid.
The average grant

per for-profit
student is
relatively lower
We were able to obtain the percentage of undergraduates that used Pell Grants and their average
amount by institution type for the 2007-2008 school year (latest data available). As shown in
Exhibit 191, while a greater percentage of students at for-profit institutions use Pell Grants, their
average amounts are actually slightly below those at most other institution types.
than at other
institutions
A member of BMO
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September 2013
BMO Capital Markets
Exhibit 191. Pell Grant Percentage Usage and Average Amount by

School Type (2007-2008 School Year)
% Using
27.3%
All institutions
Less than 2-year
2-year
4-year
Non-doctorate granting
Doctorate granting
Less than 4-year
4-year
Doctorate granting
For-profit
Average $
amount
2,600
33.8%
21.0%
25.3%
29.6%
23.0%
2,500
2,300
2,800
2,800
2,900
48.0%
25.6%
29.7%
21.1%
62.7%
27.8%
2,600
2,900
2,800
2,900
2,500
2,600
Source: BMO Capital Markets and National Center of Education Statistics.
We have provided a list of the Pell Grant exposure (as percentage of revenues) for select forprofit providers in Exhibit 192. The companies that have a greater percentage of non-degreed
programs (e.g., medical assistant) that cater to lower-income students, such as Corinthian
Colleges (COCO) and Lincoln Educational Services (LINC) tend to have the greatest Pell Grant
exposure among this group, though the exposure has increased for virtually all providers as
more students have become Pell Grant eligible in the current environment.
The lower the

program, the
higher the Pell
Grant exposure
Exhibit 192. Pell Grant Exposure for Select For-Profit Providers (FY2002-FY2012)
Company
Apollo Group
Career Education (Title IV grants)
Corinthian Colleges
Capella Education
Strayer Education
MEDIAN
Ticker
APOL
CECO
COCO
CPLA
EDMC
LOPE
ESI
LINC
STRA
UTI
FYE
8
12
6
12
6
12
12
12
12
9
2002
N.A.
N.A.
24.8%
N.A.
7.0%
N.A.
12%
N.A.
<10%
N.A.
12%
2003
N.A.
N.A.
24.5%
N.A.
7.0%
N.A.
13%
N.A.
10%
N.A.
12%
2004
N.A.
9.2%
22.7%
1.0%
9.0%
N.A.
13%
<20%
9%
N.A.
9%
2005
N.A.
9.0%
20.7%
0.4%
8.0%
N.A.
11%
<20%
8%
25%
9%
2006
5.3%
9.6%
18.7%
0.4%
8.0%
N.A.
11%
16%
8%
21%
10%
2007
6.5%
11.5%
19.4%
0.3%
8.0%
N.A.
12%
17%
5%
22%
12%
2008
9%
13.8%
22.7%
0.5%
6.6%
N.A.
13%
19%
9%
18%
13%
2009
14%
18.8%
23.3%
1.0%
8.1%
N.A.
18%
22%
12%
25%
18%
2010
18%
N.A.
29.2%
2.3%
11.8%
11.8%
20%
26%
17%
18%
18%
2011
20%
N.A.
28.9%
2%
13.5%
10.3%
21%
24%
17%
21%
20%
2012
19%
N.A.
27.1%
3%
13.6%
14.1%
22%
22%
17%
18%
18%
Note: Reflects Pell Grant as a percentage of cash receipts or cash basis revenues except for APOL, ESI, and UTI where data is measured as a
percentage of reported revenues. All data reflects school or fiscal years. Companies not listed do not disclose their Pell Grant exposure. N.A.
Not Available. Source: BMO Capital Markets and company reports.
Stafford loans. In the 2011-2012 school year, an estimated $85.9 billion in Stafford loans were
provided by the federal government to students attending Title IV eligible schools. Nearly all
students that are US citizens and attending eligible schools are entitled to Stafford loans,
regardless of their credit history.
A member of BMO
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September 2013
BMO Capital Markets
unsubsidized
There are two types of Stafford loans subsidized and unsubsidized. To receive a subsidized
Stafford Loan, students must be able to demonstrate financial need. According to ww.finaid.org,
about two-thirds of subsidized Stafford loans are awarded to students with family AGI of under
$50,000, one-fourth to students with family AGI of $50,000 to $100,000, and a little less than
one-tenth to students with family AGI over $100,000. The primary difference is that students
obtaining subsidized loans do not pay any interest, while they are in school (or during any loan
deferment period).
Annual limits for
As with Pell Grants, recent regulatory changes have increased annual Stafford Loan limits.
Two types of
Stafford loans subsidized and
Stafford loans
have been
Effective July 1, 2007 (2007-2008 school year), as part of the Higher Education
Reconciliation Act (HERA) of 2005, first-year students became able to borrow $3,500 in
both subsidized and unsubsidized Stafford loans (up from $2,625), while second-year
students became able to borrow $4,500 (up from $3,500). In addition, the annual
unsubsidized loan limit for graduate students was increase to $12,000 from $10,000.
Effective July 1, 2008 (2008-2009 school year), as part of the Ensuring Continued Access
to Student Loans 2008 (HR 5715) that passed on May 7, 2008, the annual loan limit for
unsubsidized Stafford loans was increased by $2,000 for both dependent and independent
undergraduate students. Aggregate loan limits for undergraduates were increased as well.
increasing
The Stafford Loan limits effective in the 2013-2014 school year can be found in Exhibit 193.
Exhibit 193. Stafford Loans Limits (2013-2014 School Year)

Dependent Students
First Year
Second Year
Third Year and Beyond
Preparatory Coursework (undergraduate)
Preparatory Coursework (graduate/professional)
Teacher Certification Coursework
Annual Loan Limits

$5,500 (up to $3,500 may be subsidized)
Independent Students
First Year
Second Year
Third Year and Beyond
Preparatory Coursework (undergraduate)
Preparatory Coursework (graduate/professional)
Teacher Certification Coursework
Annual Loan Limits

Other Type of Students

Graduate or Professional School
Medical School
Annual Loan Limits

Lifetime Limits
Undergraduate Dependent
Undergraduate Independent
Graduate or Professional School
Medical School

Source: BMO Capital Markets and Student Loan Network.
A member of BMO
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September 2013
New interest rates

for Stafford loans
Stafford loans are

largest Title IV
funding source
BMO Capital Markets
While historically interest rates on both types of Stafford loans were the same (6.8% since July
1, 2006), subsidized Stafford loans for undergraduate students had lower interest rates for loans
first disbursed on or after July 1, 2008, through June 30, 2012 6% in 2008-2009, 5.6% in
2009-2010, 4.5% in 2010-2011, and 3.4% in 2011-2012; Congress kept the 3.4% rate for the
2012-2013 school year as part of the Surface Transportation Extension Act of 2012 (i.e.,
transportation bill) enacted on June 29, 2012. After a long battle that extended past the June 30,
2013 deadline, President Obama signed the Bipartisan Student Loan Certainty Act of 2013
(H.R. 1911) on August 9, 2013, which set Stafford loan rates as follows:
Each July, interest rates will be reset based on the previous May's auction of 10-year
Treasury bills (T-bill); in May 2013, the rate was 1.81%.
Undergraduate loans -- both subsidized and unsubsidized -- would be set at the T-bill rate
plus 2.05 percentage points, up to a maximum of 8.25%.
Loans for graduate students would be set at 3.6 points above the T-bill rate, up to a
maximum of 9.5%.
Loans for parents at 4.6 percentage points over the T-bill rate, up to a maximum of 10.5%.
Stafford loans have consistently been the largest component of Title IV funding, representing
over 55% of the total in the 2011-2012 school year, although down from prior years, owing to
aforementioned spike in Pell Grants (see Exhibit 194).
Exhibit 194. Stafford Loans in Dollars and Percentage of Title IV

Funds (1996-1997 to 2011-2012 School Years)
70%
Stafford Loans (in $bil.)
% of Title IV
75
65%
60
60%
45
30
% of Title IV
Stafford Loans ($ in bil.)
$90
55%
15
0
50%
1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 201197
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Students at forprofits get a

disproportionately
higher amount of
Stafford Loans
though this
percentage has
recently fell
A member of BMO
Students at for-profit schools have received more in Stafford Loan funding than their
proportionate shares of enrollment, as with Pell Grants. While the bulk of Stafford Loans still go
to students attending public and private not-for-profit institutions (49% and 29%, respectively,
in the 2011-2012 school year; latest data available), funding for students attending for-profit
schools has been increasing, reaching roughly 22% of all Stafford Loans provided in the 20112012 school year, well above the for-profits percentage of enrollments at 10.9% at degreegranting institutions, though this is down from the all-time high of 26.7% reached in the 20092010 school year (see Exhibit 195). As such, the recent increases in Stafford Loan limits have
also disproportionately benefited students attending for-profit schools, in our opinion.
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BMO Capital Markets
Exhibit 195. Stafford Loans Distribution by School Type (19951996 to 2011-2012 School Years)
60%
% of Stafford Loan funding
52%
49%
50%
1995-96
1998-99
2001-02
2004-05
2007-08
2010-11
1996-97
1999-00
2002-03
2005-06
2008-09
2011-12
1997-98
2000-01
2003-04
2006-07
2009-10
40%
40%
29%
30%
22%
20%
8%
10%
0%
For-Profit
The average
Stafford loan per
student is highest
at for-profit
We were able to obtain the percentage of undergraduates that used Stafford Loans and their
average amount by institution type for the 2007-2008 school year (latest data available). As
shown in Exhibit 196, a greater percentage of students at for-profit institutions use Stafford
Loans at higher average amounts relative to their not-for-profit peers.
institutions
A member of BMO
Financial Group
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September 2013
BMO Capital Markets
Exhibit 196. Stafford Loan Percentage Usage and Average

Amount by School Type (2007-2008 School Year)
% Using
Average $
amount
All institutions
34.5%
5,000
Less than 2-year

2-year
4-year
Doctorate granting
Less than 4-year
4-year
Doctorate granting
For-profit
14.6%
10.2%
41.3%
38.9%
42.5%
4,900
3,700
5,000
4,900
5,000
40.2%
53.8%
56.8%
50.4%
87.9%
40.3%
4,600
5,200
5,100
5,200
5,500
4,900
PLUS Loans
PLUS Loans. In the 2011-2012 school year, an estimated $18.2 billion in PLUS Loans were
provided by the federal government to students attending Title IV eligible schools. These
loans are not need-based but are geared toward parents of dependent undergraduate students
enrolled at least half time in an eligible program at an eligible school. Parents must have an
acceptable credit history. The interest rate on these loans (obtained through the Direct Loan
Program) is 7.9%.
While PLUS Loans were initially only available to parents of undergraduate students, they
became available to graduate students meeting certain criteria effective July 1, 2006. There are
no set annual or aggregate limits for PLUS Loans, as borrowings are up to the full cost of
attendance, minus any other financial aid received (including Direct Subsidized Loans, Direct
Unsubsidized Loans, scholarships, and certain fellowships). HR 5715 increased the time for
payment deferrals to six months from 60 days after the dependent borrower leaves school.
The amount of PLUS Loans provided has increased dramatically from $2.4 billion in the 19961997 school year, also increasing as a percentage of Title IV funds. We believe the spike in
the 2006-2007 school year, when it peaked at 12.5% of all Title IV funds, was driven by the
introduction of PLUS Loans for graduate students. While this percentage fell to 10.1% in the
2009-2010 school year, likely owing to the aforementioned increases in Stafford Loan and Pell
Grant limits, it increased to 11.7% in the 2011-2012 school year, as we believe more students
qualified as dependents (see Exhibit 197).
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September 2013
BMO Capital Markets
Exhibit 197. PLUS Loans in Dollars and Percentage of Title IV

Funds (1996-1997 to 2011-2012 School Years)
PLUS Loans (in $bil.)
14%
% of Title IV
12%
15
10%
8%
10
6%
4%
% of Title IV
PLUS Loans ($ in bil.)
$20
2%
0
0%
1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 201197
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
For-profits share
of PLUS Loans
more in line with
their enrollment
percentage
PLUS Loans may

decrease as the
Students at for-profit schools have historically received more in PLUS Loan funding than
their proportionate shares of enrollment, similar to other types of Title IV funding, though
not to as great an extent. While the bulk of PLUS Loans still go to students attending public
and private not-for-profit institutions (46% and 42%, respectively, in the 2009-2010 school
year, latest data available), students attending for-profit schools received 11.8% of all PLUS
Loans provided in the 2011-2012 school year, just above the for-profits percentage of
enrollments (at degree-granting institutions) at 10.9% (see Exhibit 198).
Exhibit 198. PLUS Loans Distribution by School Type (1996-1997

percentage of
60%
% of PLUS Loan funding
total
50%
46%
50%
42%
40%
39%
30%
1995-96
1997-98
1999-00
2001-02
2003-04
2005-06
2007-08
2009-10
2011-12
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
20%
12%
11%
10%
0%
For-Profit
For-profits share
of PLUS Loans
declined as the
ED modified
eligibility
A member of BMO
We believe the for-profit sectors share of PLUS Loans has declined since peaking at 17% in
the 2001-2002 school year, as the number of independent students had grown (i.e., parents only
became eligible for PLUS loans for at the graduate level effective July 1, 2006). However, this
percentage declined even further from 15.6% in the 2010-2011 school year, as in October 2011,
the ED modified eligibility for PLUS loans by counting an unpaid account or one in collections
for 90 days or more as an adverse credit history, making it difficult to be eligible for a PLUS
loan. A number of the publicly-held for-profit providers have cited this issue as one reason why
starts fell and bad debt expense increased, as the company found fewer parents were being
approved for such loans and the schools was forced to find other financing alternatives for their
dependents.
Financial Group
176
September 2013
PLUS loan usage

and amounts at
for-profit schools
are higher than at
BMO Capital Markets
We were able to obtain the percentage of undergraduates that used PLUS Loans and their
average amount by institution type for the 2007-2008 school year (latest data available). As
shown in Exhibit 199, PLUS loan usage and amounts at for-profit schools are higher than at
public not-for-profit schools but lower than at private not-for-profit schools.
public not-forprofit schools but

lower than at
Exhibit 199. PLUS Loan Percentage Usage and Average Amount

by School Type (2007-2008 School Year)
private not-forprofit schools
% Using
Average $
amount
All institutions
3.8%
10,800
Less than 2-year

2-year
4-year
Doctorate granting
Less than 4-year
4-year
Doctorate granting
For-profit
N.A.
0.2%
5.9%
3.9%
6.9%
N.A.
4,800
9,600
8,000
10,000
4.8%
8.6%
8.4%
8.7%
5.1%
5.0%
8,200
14,100
12,700
15,600
9,000
9,900
Stafford Loans and PLUS Loans had historically been provided via two programs:
The Federal Family Education Loan Program (FFELP), via private lenders, including such
companies as Nelnet (NNI) and SLM Corp (Sallie Mae SLM), as well as commercial
banks, such as Citigroup (C) and JP Morgan Chase (JPM).
The Federal Direct Student Loan Program (FDSLP or direct lending or DL), in which
private lenders are not used since funds are provided directly to the schools by the US
government.
We believe many lenders were attracted to these programs, owing to the sizable profits and
guarantees available. However, these lenders and servicers began facing pressure from two
issues, in our view.
A member of BMO
Cut in Title IV program profitability. In late 2006 and early 2007, there was much
negative publicity regarding allegations that certain lenders involved in FFELP may have
provided perks to financial aid officers (at mostly not-for-profit schools, although certain
for-profit schools were implicated as well) to be listed as preferred lenders by these
schools. The public profile was raised by New York Attorney General Andrew Cuomo
and others, which alleged a number of instances of abuse. This, among other issues,
eventually led Congress to pass the College Cost Reduction and Access Act (H.R. 2669
or CCRA), which became effective on October 1, 2007. This Act, in essence, made
participation in FFELP less profitable for these lenders by cutting interest rates on
Stafford and other federally backed loans (from 6.8% to 3.4% over the 2008-2013
period), lowering loan guaranty agency collection fees (from 23% to 16% of funds
collected from loan defaults), and reducing the percentage of student loans guaranteed by
Financial Group
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BMO Capital Markets
the federal student loan insurance program (from 98% to 95%), among other changes.
We believe these cuts caused a number of lenders to review their entire student loan
portfolio including their private loans and concentrate even harder on ensuring their
profitability.
Overall credit crunch. The subprime-driven credit crisis only made things worse for
these lenders, in our view, as the environment caused most lenders to be much more risk
averse than they have been in some time. This was exacerbated by greater selectivity in
the securitization market, especially via failures in the auction rate securities market
where it is estimated that roughly $80 billion of the $330 billion in total were backed by
student loans. This forced these lenders to be even more selective in terms of the types of
students to which they were lending.
FFELP phased out
As such, many lenders withdrew from FFELP and/or reduced their exposure. This withdrawal
was exacerbated by the federal governments push to promote the direct lending program in
place of FFELP, with the goal of using the subsidies, which had been paid to these lenders to
increase Title IV financial aid. While it took some time and a number of iterations, this
proposal became law with the March 30, 2010, signing of the Healthcare and Education
Reconciliation Act of 2010 (H.R. 4872), which included a provision, modeled after The
Student Aid and Fiscal Responsibility Act (SAFRA), and eliminated the FFELP effective July
1, 2010.
Default
In terms of this impact on the schools, the bulk of the changes were administrative, e.g.,
changing software to enable processing via direct lending as opposed to the FFELP lenders, with
the costs relatively minor. However, a number of companies cited that default rates on FFELP
loans put back to the ED through the Loan Purchase Commitment Program as part of the
Ensuring Continued Access to Student Loans Act (ECASLA or HR 5715, signed into law on
May 6, 2008) skyrocketed owing to these loans being shuffled among a number of different
service providers (see more discussion in the CDR section).
management
suffered
Income-based
repayment
Income-based repayment. As part of the College Cost Reduction and Access Act (CCRAA)
(P.L. 110-84), the Income-Based Repayment (IBR) plan was enacted, effective July 1, 2009.
This plan was intended as an alternative to existing income sensitive repayment (ISR) and
income contingent repayment (ICR) plans, and was designed to make it easier for students to
repay their Title IV debt should they take jobs with lower salaries (e.g., public service),
though the type of job is not necessarily a requirement to be eligible. IBR can be used for
most federal loans except for those in default, parent PLUS loans, or consolidation loans that
repaid a parent PLUS loan.
To qualify, one must have a partial financial hardship, i.e., if the monthly amount required
to pay on IBR-eligible federal student loans under a 10-year Standard Repayment Plan is
higher than the monthly amount required to repay under IBR. Most borrowers have a monthly
payment below 10% of their AGI. Borrowers, in essence, trade a lower monthly payment for
a longer loan term.
A member of BMO
Financial Group
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September 2013
BMO Capital Markets
In December 2012, changes were made to the IBR for new borrowers as of October 1, 2007,
and who received a disbursement of a Direct Loan on or after October 1, 2011. Under the Pay
As You Earn Act, monthly payments were lowered to 10% of a borrower's income (down
from 15%) and loan forgiveness may be conferred after 20 years (down from 25 years).
Despite the benefits of this plan, relatively few borrowers are using it. According to the
Consumer Financial Protection Bureau (CFPB) only 1.6 million (about 11%) of the 15 million
Title IV borrowers were in these types of programs as of June 2013. However, this is up from
about 4% estimated in 2010.
There have been a number of proposals to change the IBR, including making it a two-tiered
system (Simpson-Bowles April 2013 report); and enrolling all borrowers in the program and
collect loan payments through paycheck withholding (the Earnings Contingent Education
Loans (ExCEL) Act of 2012 [H.R. 6674]).
Student loan consolidation. Considering the myriad options within the Title IV programs, many
students finish school with a wide variety of loans. A once popular option was consolidating
these loans, whereby a single lender combines the prior loans. However, many prior FFELP
lenders no longer offer this option, given they have deemed these products to be less profitable.
However, students may still consolidate their loans via the EDs Direct Loan Program.
Students can only consolidate their education loans during the grace period or after the loans
enter repayment. Parents, however, can consolidate PLUS loans at any time.
Loan consolidation offers a number of benefits, according to www.finaid.org, including the
following:
Lower monthly payments, as the term of these loans are typically extended beyond the
10-year repayment plan that is standard with federal loans. However, this would increase
the total amount of interest paid over the lifetime of the loan.
Eases the administrative burden by having a single monthly payment.
Providing access to alternate repayment plans, such as extended repayment, graduated

repayment, income contingent repayment (direct loans only) and income sensitive
repayment (FFELP only).
Interest rates are set at the weighted average rate of the loans being consolidated rounded
up to the nearest one-eighth of a percent and capped at 8.25%. However, the so-called
PLUS loan interest rate loophole can reduce the interest rate on an 8.5% fixed rate
PLUS loans by 0.25% through consolidation.
The three-year clock on deferments and forbearances can be reset.
Deferrals and forbearances. Borrowers can defer (temporarily suspend) their loan payments
if they meet certain criteria, such as enrolling at least half time in school or experiencing
economic hardship or unemployment. Borrowers do not have to make payments on the loan
principal until the deferment ends. During this period, interest payments on subsidized
Stafford loans can be deferred, while those on unsubsidized Stafford loans can be paid
monthly or deferred, but are typically added to the principal balance at the end of the
deferment period.
A member of BMO
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September 2013
BMO Capital Markets
Lenders may grant a forbearance that temporarily suspends a borrowers payments. These are
typically granted in three- or six-month increments up to a limit of five years. A forbearance
is generally a more expensive option than deferment because interest continues to accrue,
even on subsidized loans. Borrowers do not make principal payments during this period,
although they can make interest-only payments or have the interest capitalized and added to
the principal when the forbearance expires.
For-profits have
fewer students in
deferral/
forbearance,
though more
delinquent or in
In a March 2011 study by the Institute for Higher Education Policy entitled Delinquency: The
Untold Story of Student Loan Borrowing, the authors analyzed borrowers that had entered
repayment over a recent five-year period (between October 1, 2004, and September 30, 2009),
as shown in Exhibit 200, those whose last institution was a for-profit schools were less likely
to have put their loans on deferral and/or forbearance. Unfortunately, they were more likely to
be delinquent or to have defaulted on their loans.
default
Exhibit 200. Percentage Distribution of Borrowers Loan Status by

Last Institution Attended (in repayment from 10/1/2004-9/30/2009)
Timely
Repayment
Deferment/
forebearance
Delinquent
Default
24%
45%
53%
32%
35%
16%
21%
20%
5%
12%
36%
24%
20%
27%
29%
24%
10%
8%
36%
24%
Institution type:
Public two-year
Public four-year
Private not-for-profit four-year
For-profit two-year
For-profit four-year
Source: Institution for Higher Education Policy.
Rates of tuition
Private loans. In recent years, the amount of available financial aid (excluding private loans
increases have
and educational tax benefits) has grown at a slower rate than tuition levels. When measured in
constant dollars (2011), the amount of available financial aid increased 3.9% annually from
the 1998-1999 to 2011-2012 school years per FTE student, versus average annual increases of
6.9% and 6.2% for public and private tuition, respectively (see Exhibit 201). We note this gap
had been widening in recent years.
outpaced available
financial aid
Exhibit 201. Annual Growth in Financial Aid and Tuition in

Constant Dollars (1998-1999 to 2011-2012 School Years)
Index (1998-99=100)
240
Public Tuition
Private Tuition
Financial Aid
220
200
"Funding Gap"
180
160
140
120
100
199899
199900
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
Note: Financial aid excludes private loans and educational tax benefits. Source: BMO Capital Markets
analysis based on data from College Boards Trends in Student Aid, Trends in College Pricing and Bureau of
Labor Statistics.
A member of BMO
Financial Group
180
September 2013
Private loans had

been one of the
fastest-growing
sources of
financial aid
but declined
after peaking in
the 2007-2008
school year
BMO Capital Markets
Private loans have historically been used most often by students at for-profits institutions to
help mitigate this funding gap. Also known as alternative loans or nonfederal loans, these
loans became more popular in the 1980s as annual tuition rate increases accelerated and the
amount of federally funded financial aid was unable to make up much of the difference (some
of that gap was diminished in the 1990s). The growing use of private financing occurred
despite the tendency for the loans to be more expensive than those provided by the federal
government.
However, owing to the credit crunch and other factors, the amount of private loans used for
postsecondary education has been shrinking. According to the College Board, after rising
roughly 23.2% CAGR to nearly $22.3 billion (12.5% of total) in the 2007-2008 school year
from $3.4 billion (3.6% of total) in the 1998-1999 school year, private loans have shrunk to
by more than 71% to roughly $6 billion (2.6% of total) in both the 2010-2011 and 2011-2012
school years (latest data available; see Exhibit 202). That was despite (or potentially the cause
of) an overall 54% increase in other types of financial aid over the same period.
Exhibit 202. Private Loans in Dollars and Percentage of Financial

Aid (1998-1999 to 2011-2012 School Years)
$25
Private sector loans
14%
As % of all aid
($ Bilions)
10%
15
8%
10
6%
4%
As % of total
12%
20
2%
0%
199899
19992000
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
For-profit sector
more active users
of private loans
In an April 2010 report entitled Who Borrows Most?, the College Board provided data on
non-federal loans (i.e., private and institutional loans) by school type for the 2007-2008
school year (latest data available). While we were unable to differentiate between private and
institutional loans, a greater proportion of students at for-profit schools used the non-federal
loans and tended to borrow more than all their peers except those at private not-for-profit
four-year institutions (see Exhibit 203). We believe this makes sense, as for-profit education
tends to be more expensive than schooling at public not-for-profit institutions.
Exhibit 203. Undergraduate Students: Nonfederal Loan Usage and

Average Amount by School Type (2007-2008 School Year)
Institution Type
All institutions
Private for-profit
% using nonfederal loans

Associate's Bachelor's
Degree
Degree
Certificate
34%
22%
33%
12%
15%
28%
N.A.
N.A.
42%
51%
60%
65%
Average per borrower

Certificate
Degree
Degree
$5,900
$7,000
$12,800
4,500
5,800
9,800
N.A.
N.A.
16,900
6,000
8,400
11,300
N.A. Not Available Source: BMO Capital Markets and The College Board.
A member of BMO
Financial Group
181
September 2013
Percentage
exposure had
been increasing
BMO Capital Markets
Private loan exposure has increased across all school types, but most significantly for students
at for-profit schools. According to a July 2009 report by Education Sector, the percentage of
students at for-profit schools using private loans increased to 43.1% in the 2007-2008 school
year from only 1.5% in the 1992-1993 school year (see Exhibit 204). The percentage data
differs from that provided from the College Board in the prior exhibit.
Exhibit 204. Percentage of Students With Private Student Loans

(1992-1993 to 2007-2008 School Years)
1992-93
% Receiving Private Student Loans
50%
1995-96
1999-00
2003-04
2007-08
43.1%
45%
40%
35%
27.8%
30%
25%
20%
15.2%
15%
10%
5%
6.5%
0.9%
1.1%
0.3%
1.5%
0%
Public 4-year
Public 2-year
Private for-profit
Source: BMO Capital Markets and Education Sector.
Private lenders
reducing their
student loan
exposure
However, that trend has reversed. Owing to a combination of pressures from the credit
crunch and the reduction in profitability and increase in risk in Title IV programs following
the passage of the College Cost Reduction and Access Act (H.R. 2669), which became
effective on October 1, 2007, a number of private lenders have reduced their student loan
exposure. According to finaid.org, through April 2010, over 50 lenders had suspended private
student loans, including such large providers as Sallie Mae (recourse loans only) and Bank of
America (BAC). There are roughly 30 lenders providing private student loans, down from
about 60 before the market crash of 2008, according to www.finaid.org, although we believe
this list had expanded somewhat recently.
We believe the impact of this reduction has been felt more by students at for-profit
institutions, as they tended to have a greater portion of students considered subprime
lenders, typically those with lower FICO scores. The ceiling to be considered subprime
had moved up in recent years, with anecdotal evidence showing a requirement of a score of
nearly 700 (sometimes higher) to qualify for a private student loan.
Companies with
more lowerincome students
and relatively
expensive
programs have
had more private
lending exposure
A member of BMO
Although most companies disclose the percentage of their annual revenues obtained from
Title IV funding, few have historically disclosed the percentage of funds from private thirdparty lenders or direct loans by the institutions themselves, although, we believe these loans
are somewhat common throughout the industry. Companies with historically relatively high
private lending exposure (e.g., CECO, EDMC) tend to skew toward relatively lower-income
students and fairly expensive programs, which necessitated private lending to fill this funding
gap. Similar to the rest of the industry, private lending exposure has been narrowing (see
Exhibit 205).
Financial Group
182
September 2013
BMO Capital Markets
Exhibit 205. Private Lending Exposure for Select For-Profit Providers (FY2002-FY2012)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
MEDIAN
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
2002
N.A.
N.A.
N.A.
25.0%
N.A.
N.A.
N.A.
8%
N.A.
14%
N.A.
N.A.
N.A.
N.A.
N.A.
14%
2003
N.A.
N.A.
N.A.
24.0%
N.A.
N.A.
N.A.
9%
N.A.
20%
N.A.
N.A.
N.A.
N.A.
N.A.
20%
2004
N.A.
N.A.
N.A.
24.3%
N.A.
N.A.
N.A.
11%
N.A.
25%
N.A.
N.A.
N.A.
N.A.
N.A.
24%
2005
N.A.
N.A.
N.A.
23.2%
N.A.
N.A.
N.A.
15%
N.A.
30%
N.A.
N.A.
N.A.
N.A.
N.A.
23%
2006
N.A.
N.A.
N.A.
21.8%
N.A.
N.A.
N.A.
19%
N.A.
34%
N.A.
N.A.
N.A.
N.A.
N.A.
22%
2008
2007
1%
1%
5%
3%
1.9%
1.2%
17.6% 10.0%
13%
11%
N.A.
<1%
5%
6%
23% 18.9%
5.1%
2.9%
29%
8%
7%
4%
N.A.
N.A.
3%
3%
10.5% 11-12%
9%
5%
7%
5%
2009
N.A.
N.A.
N.A.
2.1%
N.A.
N.A.
5%
10.9%
0.9%
5%
3%
N.A.
3%
N.A.
1%
3%
2010
N.A.
N.A.
N.A.
N.A.
N.A.
<1%
1%
3.7%
<1%
12%
1%
N.A.
N.A.
N.A.
1%
1%
2011
N.A.
N.A.
N.A.
N.A.
N.A.
1%
1%
2.6%
<1%
7%
1%
N.A.
N.A.
N.A.
N.A.
1%
2012
N.A.
N.A.
N.A.
N.A.
11.7%
1%
N.A.
2.3%
1%
1%
N.A.
N.A.
N.A.
N.A.
1%
1%
Note: Reflects private loans as a percentage of total revenues. All data reflects school years. N.A. Not Available.
As more private lending restrictions were added, many of these for-profit providers have been
forced to replace those loans with their own institutional loans, i.e., using their own balance
sheet to provide loans. While disclosures around these programs are not always consistent,
and companies tend to start and stop programs frequently, we have attempted to provide as
much recent data as possible (see Exhibit 206).
Examples of
internal lending
programs
Exhibit 206. Internal Lending Programs of Select For-Profit Providers

Company
Career Education
Ticker
CECO
Internal Loan/Payment Plan

Extended payment program. Discontinued in 2011.
Current Status/Amounts Outstanding

$6m non-current related receivables as of 2Q13.
Corinthian Colleges
COCO
ASFG agrees to purchase up to $775m in student loans

through June 2015.
$192.7m loans funded in FY2013.
EDMC
Not significant in 2013, expect to increase in 2014.
ESI
LINC
In 1Q13, began new program to purchase loans from

private lender.
Prior program (PEAKS) ended July 2011 and company
could not find a new lender.
Loans directly to students
UTI
New loan program began June 29, 2013 (prior one

expired). Tuition revenue only recognized when loans
are repaid.
Issued senior debt of $300m for student loans.

$33.4m as of June 30, 2013 ($24.2m excluding
interest).
$42m loans outstanding as of June 30, 2013 (net
of $4.3m collected and $18.8m written off)
A shift from third-party lenders to an internal lending program would likely lead to an increase
in bad debt expense (in dollars and as a percentage of revenues). Some companies such as
DeVry (DV) had already been providing some internal lending prior to the credit crunch and
have, therefore, historically had relatively higher bad debt expense. Many of these companies
that had relied on third-party lenders had some recourse on loans to subprime students. These
discount rates were typically in the 25% range and this recourse was usually recorded as bad
debt expense.
Bad debt expense
increased along
with internal
lending levels
A member of BMO
Most of the companies with internal lending programs have used higher discount rates some
such as COCO at well over 50%. As such, even if the US economy had not entered the Great
Recession, we believe bad debt levels would have increased (we note that COCO records this
expense as net revenues, while most other companies record it as an expense either in the
Instructional Costs and Services or SG&A line).
Financial Group
183
September 2013
BMO Capital Markets
Borrowing in excess of institutional charges. Under current ED guidance, students are

allowed to borrow for living costs, not just tuition and fees, making financial aid administrators
at all types of schools unable to prevent students from graduating with excessive debt. This is a
particular program at for-profit schools where onerous regulations such as 90/10 for the most
part only apply to programs at their schools and penalize these institutions for such excessive
borrowing.
Disproportionate
number of
students at forprofit schools
have excess
debt
In April 2011, noted industry researcher Mark Kantrowitz (when he was at www.finaid.org)
published an analysis that measured what he termed excess debt by institution type. As
shown, for-profit institutions tend to have a larger proportion of students with excess debt
relative to their not-for-profit counterparts across all types of schools (see Exhibit 207). While
the specific reasons were not stated, Kantrowitz shows some correlation between excess debt
and a student dependence on Pell Grants and private loans two areas where students at forprofit schools have disproportionate amounts relative to their percentage of enrollments, as
previously shown.
Exhibit 207. Percentage of Students with Excess Debt by

School Type (2007-2008 School Year)
Type of degree
4-year
2-year
Less than 2-year
4-year
2-year
Less than 2-year
Private for-profit
4-year
2-year
Less than 2-year
Loans > Tuition

& Fees + $2,500
16.5%
26.9%
8.8%
7.8%
16.5%
16.5%
21.3%
11.9%
34.8%
43.5%
31.6%
19.5%
Loans > Tuition

& Fees - Grants
+ $2,500
20.4%
35.5%
9.6%
11.5%
34.8%
35.2%
28.2%
16.0%
47.4%
56.2%
46.0%
29.1%
Source: www.finaid.org.
Shift to borrowerbased academic

year has limited
excess debt but
had some adverse
consequences
Recently a number of for-profit providers have shifted from a term-based to a borrower-basedacademic year (BBAY), such as Grand Canyon Educations (LOPE) Grand Canyon University.
The company noted that while, in some circumstances, this move had significantly reduced the
amount of living expenses a student is eligible to receive, it also caused some students and some
potential students to choose other institutions where more funding was available. In addition,
this new policy had led to some students more frequently taking breaks between classes
(especially during holiday breaks), which has adversely affected revenues.
Under the initial draft Gainful Employment regulations, the debt component of the debt/earnings
ratio was to include all student loan debt, somewhat unfairly punishing the for-profit providers
for this excess debt that is beyond their control. The finalized regulations include only debt
incurred for program tuition and fees.
A member of BMO
Financial Group
184
September 2013
Billions spent
each year
Percentage of
companies
offering tuition
assistance has
been increasing
BMO Capital Markets
Tuition reimbursement/assistance programs. Bersin & Associates estimates that roughly

$16.5 billion was spent by global and US corporations on tuition assistance in 2008 (latest
available), spending roughly $3,769 per employee about three times what it spent for
traditional corporate training. In its updated 2012 study, the cost per participant had increased
24% to just under $5,000 per employee, though the percentage of US organizations that offered
these programs fell from 87% to 71% -- likely in response to the Great Recession and its
aftermath.
According to the Society for Human Resource Management (SHRM), 61% of employers were
offering undergraduate educational assistance and 59% offer graduate educational assistance in
2012. While these percentages, for the most part, had been declining since peaking in 2003 at
72% and 69%, respectively, they have increased from the post-recession 2011 levels of 58% and
54%, respectively (see Exhibit 208).
since postrecession lows
Exhibit 208. Percentage of Companies Providing Educational

Assistance (2003-2013)
2003
80%
2004
2005
2006
2007
2008
Percentage of Companies Offering
72%
2009
2010
2011
2012
2013
69%
70%
61%
59%
60%
50%
40%
30%
20%
10%
0%
Undergraduate Educational Assistance
Graduate Educational Assistance
Source: BMO Capital Markets and Society for Human Resource Management. Note: Prior to 2003,
educational assistance was not separated into graduate and undergraduate.
Tuition assistance
skews more
towards graduate
programs
According to the NCES, in the 2007-2008 school year (latest data available), 8.3% of
undergraduates, and 21.9% of graduates received some form of employer tuition assistance. The
respective average amounts of $2,943 and $5,132 had increased 9% and 14.3% (CAGR) from
the 2003-2004 school year. A large portion of MBA students a subset of graduate students
received such assistance, at somewhat higher amounts than most other graduate programs (see
Exhibit 209).
Exhibit 209. Employer Tuition Assistance: Percentage of Students

Receiving and Amounts (2003-2004 and 2007-2008 School Years)
Undergraduate
Graduate
MBA (subset of Graduate)

Percentage
Average
Receiving
Amount
8.7%
$2,088
20.5%
3,004
41.5%
4,449

Percentage
Average CAGR (avg.
Receiving
Amount
amount)
8.3%
$2,943
9.0%
21.9%
5,132
14.3%
39.0%
6,271
9.0%
A member of BMO
Financial Group
185
September 2013
Low participation
rate
BMO Capital Markets
Even for those companies that offer such benefits, few employees take advantage. A 2007 study
by SHRM found that fewer than 10% of employees at firms with such programs actually
participated. In a 2009 survey by Bersin & Associates, 60% of survey respondents reported
participation rates of just 1% to 7%, while less than a quarter of organizations had 8% or more
of employees participating.
An Eduventures study, released in February 2007, found that workers in the utilities,
manufacturing, and mining industries were the most likely to have employer-provided tuition
assistance, while those in retail, arts, entertainment, and recreation, and accommodations and
food services were least likely to receive tuition assistance. In addition, students in subjects
related to engineering, transportation, or business were the most likely to receive employer
assistance.
APEI/Walmart
deal
Some cyclical
sensitivity
Companies may
be restricting the
types of eligible
programs
A member of BMO
Most companies that provide tuition assistance programs do not necessarily gear their employees
toward specific schools, but rather set minimum requirements, such as regional accreditation. An
interesting model was announced by Walmart (WMT) in June 2010, when they named American
Public Educations (APEI) American Public University its exclusive education provider to its
1.4 million associates (employees) at Walmart and Sams Clubs. This three-year deal (with
renewable one-year terms thereafter) allows these associates to take classes at a 15% discount to
regular tuition prices (APEI provides the discount and hopes this offsets incremental marketing
costs, which should be minimal as Walmart handles that). We believe this is a win/win for both
companies, as it provides a good recruiting and retention tool (part of WalMarts Lifelong
Learning initiatives) and creates a new focused recruiting base for potential APEI students. While
there have been similar transactions in this sector since, none have been of this size.
We believe there is somewhat of a lag between economic cycle trends and the percentage of
companies offering this assistance, as while these programs are more popular as labor markets
tighten (i.e., recruitment and retention benefits), they likely take some time to be implemented.
Anecdotal data show that during the 2001 economic downturn, few companies actually
disbanded these programs, but rather cut the amount of program funding or limited employee
participation either directly or indirectly (e.g., required multiple internal approvals, changed
policy to require employees to pay with reimbursement contingent on minimum grade levels).
There may have been more such actions in the deeper 2007-2009 Great Recession; a January
2009 Challenger, Gray & Christmas, Inc. survey of human resources executives found that
10.8% had eliminated or reduced tuition reimbursement programs.
We have also seen changes regardless of the economic environment. In November 2006, Intel
(INTC) restricted the number of colleges eligible for tuition assistance by restricting it to
business classes at schools accredited by the Association to Advance Collegiate Schools of
Business and engineering classes taken at institutions accredited by ABET, formerly the
Accreditation Board for Engineering and Technology. As such, about 100 colleges and
universities, including several for-profit institutions such as Apollo Groups (APOL) University
of Phoenix and Capella University (CPLA) no longer qualified. An Intel spokeswoman was
quoted that this change was made after finding that employees were attending institutions "that
were not of the highest value to the company," and that many employees left the company after
completing their education because their new degrees did not improve their prospects at Intel.
We believe this was the beginning of a trend where companies focus on the type of programs
eligible for tuition assistance to ensure a better return on these investments, rather than just
having open-ended programs.
Financial Group
186
September 2013
New methods of
financing
BMO Capital Markets
Non-traditional methods of financing are available to help support these tuition assistance
programs. Organizations, such as CAEL, have developed tools that include Lifelong Learning
Accounts (LiLAs) a sort-of 401(k) program where employees use paycheck deductions,
typically matched by their employee, to further their education, which could continue to enhance
the availability of tuition assistance funds. Following in this mold, International Business
Machines (IBM) announced in July 2007 it would begin to offer learning accounts to its
employees, whereby employees would contribute up to $1,000 annually (and IBM would match
up to 50%) into these accounts for which the funds would be used to enhance skills. LiLA
legislation has gained popularity among lawmakers too. In May 2008, the Lifelong Learning
Accounts Act of 2008 (H.R. 6036) was introduced to 1) establish tax-exempt lifelong learning
accounts to pay certain educational expenses, including tuition, fees, books, supplies, and
information technology devices; 2) allow individuals between age 18 and 71 a tax credit for cash
contributions to their lifelong learning accounts; and 3) allow employers a tax credit for
contributions made to the lifelong learning accounts of their employees and for administrative
costs associated with small employer lifelong learning accounts. Unfortunately, this bill expired
before any vote was taken.
For those companies that focus on working adult students, such as Apollo Group (APOL) and
Strayer Education (STRA), corporate and government tuition reimbursement programs are an
important source of revenues. While neither of these companies breaks out the percentage of
revenues from these programs (i.e., many times students get the monies directly from their
employers and then pay the institutions without stating the source, making it difficult to track the
original source of funds), we believe a sizable number of students at these companies receive at
least some form of tuition reimbursement.
Discounts are
Discounting/scholarships. We believe discounting is fairly rampant in the higher education
very common at
sector, as most traditional schools offer some form of scholarships. Industry consultant Noel
Levitz publishes an annual Tuition Discounting Report for its private not-for-profit school
clients. On average, these schools provided discounts of slightly more than 39% of their gross
revenues (includes tuition, fees, room, and board) in the 2012-2013 school year (2012 per
the report). This was the highest percentage since the company began this survey in 1998 (see
Exhibit 210) and was likely driven by the continued fallout after the Great Recession.
not-for-profit
schools;
percentage
increased after
recent downturn
Discounts as % of revenues
Exhibit 210. Private Not-for-Profit Schools Discounts as a

Percentage of Gross Revenues (Fall 1998 Fall 2012)
40%
38%
36%
34%
32%
30%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Shaded area represents recessionary period. Source: BMO Capital Markets and Noel Levitz.
A member of BMO
Financial Group
187
September 2013
BMO Capital Markets
In Exhibit 211, we provide discounting by school type as measured as a percentage of gross

tuition revenue, according to the Delta Cost Projects annual report entitled Trends in College
Spending. As shown, these percentages have increased slightly over the past decade, though a
relatively greater proportion of private institutions offer discounts relative to their public not-forprofit peers. Unfortunately, data were not available for the private for-profit sector.
Private
institutions offer
greater discounts
when compared
to their public
peers
Exhibit 211. Discounts as a Percentage of Gross Revenues by School Type (Fall 1998
Fall 2010)
Public not-for-profit research
Public not-for-profit master's
Public not-for-profit bachelor's
Public community colleges
Private not-for-profit research
Private not-for-profit master's
Private not-for-profit bachelor's
1998
15%
10%
N.A.
11%
24%
23%
35%
1999
16%
10%
N.A.
11%
24%
23%
35%
2000
16%
11%
13%
9%
24%
23%
32%
2002
17%
14%
N.A.
11%
26%
24%
32%
2003
17%
13%
N.A.
10%
25%
24%
32%
2004
17%
11%
N.A.
10%
26%
24%
33%
2005
17%
11%
14%
9%
26%
24%
33%
2007
18%
12%
N.A.
10%
27%
25%
34%
2008
18%
12%
N.A.
11%
27%
26%
34%
2009
18%
12%
15%
11%
29%
26%
35%
2010
18%
12%
15%
10%
30%
27%
36%
Source: BMO Capital Markets and The Delta Cost Project.
While we believe most for-profit companies also offer some discounting, it is likely not nearly
as high as their not-for-profit counterparts. We believe the most common discounts are for
military students; e.g., Capella Educations (CPLA) Capella University offers military students
discounts of 10%-15%. However, many companies have selective promotions (e.g., waiving
application fees) that are periodically put in place and available for all new students.
Over the past few years, however, many for-profit institutions have begun to offer scholarships
as a way of enhancing the value proposition of their offerings, enticing more students to enroll
and retain, and as a way of limiting the debt burden on their students. Examples can be found in
Exhibit 212.
Examples of
scholarships at
for-profit
institutions
Exhibit 212. Examples of Scholarship by Publicly Held Providers

Ticker
Company
Scholarships/Grants
Other Comments
APEI
APOL
BPI

Apollo Group Inc
Bridgepoint Ed Inc
Academic, Other
Continuing Education, Other
Academic (on campus), Military
N.A.
Total discounts were 6% of revenue in FY2012.
Scholarships increased from $80.2 million (11.2% of
revenue) in 2010 to $124.4 million (12.8%) of revenues in
2012
CPLA
Capella Education Company
27% of students received discount in 2012. 11% received

learner success (persistence) grants
CECO
COCO
Career Education Corp

Corinthian Colleges Inc
Persistence-Based, Academic,
Military, Corporate and educational
relationships
Various, Academic
Military, Continuing Education, Other
DV
Devry Inc
Various, Academic
N.A.
Most up to 15% of tuition
Low-$50 million range in FY2013. "Career Catalyst"
scholarship could be up to $20,000 over three years
EDMC
Education Mgmt Corp
Various
5% of net revenues in 2012, 4% in 2011.
LOPE
Grand Canyon Ed Inc
Academic, Religious
Scholarships increased from $55.8 million (14.2% of

revenue) in 2010 to $94.3 million (18.4%) of revenues in
2012
ESI
Itt Educational Services Inc
Military, Academic
LINC
STRA
Lincoln Edl Svcs Corp

Strayer Ed Inc
Need-Based, Other
Academic
UTI
Universal Technical Inst Inc
Need-Based, Academic, Other
Opportunity Scholarship began March 2013, expected to

reduce revenue per student by 4%-6% in 2013.
Need-based up to $3,000.
Strayer University Graduation Fund (SUGF) announced in
2Q13 will award a free class after completing three essentially a 25% discount.
More than $12 million in scholarships awarded per year.
A member of BMO
Financial Group
188
September 2013
At APOL, one of
few public
companies that
discloses
discounting
exposure each
BMO Capital Markets
Most of the publicly held companies do not disclose their discount amounts with the exception
of Apollo Group (APOL), which typically discloses tuition discounts as a percentage of gross
revenues in its public filings. While it has not moved up in a straight line, from FY2002 through
FY2012, the company's use of discounting expanded from 2.2% of gross revenues to 6.1% and
is at 7.4% in FY2013 year-to-date (first three quarters through May 2012), up from 5.9% in the
prior-year period (see Exhibit 213).
quarter; it has
Exhibit 213. Apollo Group: Discounts as Percentage of Gross

Revenues (FY2002-FY2013 YTD)
Discounts ($mil.)
$250
Discounts
8%
As % of gross revenues
7%
200
6%
150
5%
100
4%
50
3%
2%
FY
20
02
FY
20
03
FY
20
04
FY
20
05
FY
20
06
FY
20
07
FY
20
08
FY
20
09
FY
20
10
FY
20
11
FY
20
12
FY
20
12
(th
FY
ru
20
F3
13
Q
)
(th
ru
F3
Q
)
As % of Gross Revs.
been increasing
Price increases
Economic cycles and pricing trends. There appears to be some lag between economic
have historically
cyclicality and pricing trends. That is, the rate of annual tuition increases tends to accelerate
during a downturn and then continues to accelerate for sometime after a recession ends. This
relationship was apparent using College Board tuition data for not-for-profit schools (both
public and private) in the four US recessions prior to the most recent one (see Exhibit 214). We
believe this occurs as other revenue sources (e.g., state and local appropriations, endowment
income) slow during a downturn, forcing these schools to charge higher prices. Interestingly, the
trend in the Great Recession was a bit different -- specifically for public not-for-profit two-year
schools (i.e., community colleges), where prices were relatively flat in the 2008-2009 school
year (the depths of the recession) but increased significantly thereafter.
accelerated into a
recession and
after one,
although the
Great Recession
was a bit different
(at least for public
two-year schools)
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Exhibit 214. Economic Sensitivity: Not-for-Profit Schools Annual Tuition Increases

Annual Tuition Increase
Private Not-for-Profit Four-Year Schools:
Apr. 1980- Sept. 1980
N.A.
6.6%
9.6%
Oct. 1981 - Mar. 1982
6.6%
9.6%
9.0%
July 1990 - Mar. 1991
8.8%
5.9%
13.6%
Mar. 2001 - Nov. 2001
6.1%
6.7%
5.5%
Average
7.1%
7.2%
9.4%
Year Prior
9.0%
12.2%
8.2%
3.6%
8.2%
Year Of
12.2%
13.7%
7.8%
8.1%
10.5%

13.7%
12.8%
9.8%
9.1%
12.8%
9.8%
9.1%
10.2%
5.1%
6.5%
5.4%
6.5%
3.9%
4.9%
5.8%
4.7%
8.9%
8.5%
7.5%
7.6%

2004-05
2005-06
2006-07
5.8%
4.7%
6.3%
Year Prior
2007-08
6.4%
Year Of
2008-09
6.0%

2009-10
2010-11
2011-12
2012-13E
4.4%
3.9%
4.4%
N.A.
Public Not-for-Profit Four-Year Schools:

Apr. 1980- Sept. 1980
N.A.
6.2%
5.0%
Oct. 1981 - Mar. 1982
6.2%
5.0%
7.3%
July 1990 - Mar. 1991
7.3%
5.0%
6.3%
Mar. 2001 - Nov. 2001
4.6%
4.4%
3.5%
Average
6.0%
5.1%
5.5%
Year Prior
7.3%
8.9%
7.5%
4.3%
7.0%
Year Of
8.9%
13.1%
12.5%
7.4%
10.5%

13.1%
13.4%
11.3%
7.0%
13.4%
11.3%
7.0%
7.3%
10.4%
10.8%
8.6%
6.7%
8.8%
13.3%
10.4%
7.1%
11.4%
12.2%
9.3%
7.0%

2004-05
2005-06
2006-07
10.4%
7.1%
5.7%
Year Prior
2007-08
6.6%
Year Of
2008-09
6.6%

2009-10
2010-11
2011-12
2012-13E
6.5%
8.3%
8.4%
N.A.
Public Not-for-Profit Two-Year Schools:

Apr. 1980- Sept. 1980
N.A.
8.1%
6.9%
Oct. 1981 - Mar. 1982
8.1%
6.9%
8.6%
July 1990 - Mar. 1991
3.0%
12.0%
8.1%
Mar. 2001 - Nov. 2001
7.0%
-0.8%
6.1%
Average
6.0%
6.5%
7.4%
Year Prior
8.6%
10.1%
5.3%
-0.4%
5.9%
Year Of
10.1%
11.0%
7.7%
-2.1%
6.7%

11.0%
9.0%
11.6%
10.6%
9.0%
11.6%
10.6%
9.8%
29.2%
-4.7%
11.6%
5.2%
4.1%
14.0%
8.9%
5.0%
13.3%
7.5%
10.7%
7.6%

2004-05
2005-06
2006-07
8.9%
5.0%
3.8%
Year Prior
2007-08
4.2%
Year Of
2008-09
0.5%

2009-10
2010-11
2011-12
2012-13E
7.3%
6.6%
9.2%
N.A.

Dec. 2007 - June 2009

Dec. 2007 - June 2009

Dec. 2007 - June 2009
Source: BMO Capital Markets, College Boards Trends in College Pricing, and National Bureau of Economic Research. N.A. Not Available.
Public not-forprofit schools

shift funding
increases to
students in bad
economies
Under normal circumstances, as public not-for-profit schools tend to rely on state and local tax
revenues for more than 30% of their funding (in the 2009-2010 school year per the NCES; latest
data available), we believe the level of this funding may be the key driver for tuition increases at
these schools, i.e., when state and local budgets are under pressure, public not-for-profit schools
tend to impose sizable tuition increases. This can be seen by comparing annual changes in
public not-for-profit tuition with annual changes in state appropriations to higher education.
While annual data were only available for the prior decade, there appears to initially have been
an inverse correlation between these two data streams. Prior to the Great Recession, the highest
annual increase in public college tuition (13.7% in the 2003-2004 school year) came during the
same year as the sharpest drop in state appropriations (down 2.6%), while the lowest annual
increase in public college tuition (4.8% in the 2006-2007 school year) came just after the year
when state appropriations increased the most (11.4% in the 2005-2006 school year). The trend
has been fairly similar during and after the Great Recession with tuition increases accelerating
while state appropriations for the most part have fallen (see Exhibit 215).
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Exhibit 215. Annual Change in State Appropriations and Public

Not-For-Profit College Tuition (2000-2001 to 2011-2012 School
Years)
Annual change in public college tuition
Annual change in state appropriations

12%
9%
12%
6%
8%
3%
0%
4%
y/y % change:
appropriations
y/y % change: tuition
16%
-3%
0%
-6%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Note: Shaded area represents recessionary period. State appropriations exclude stimulus funding in the
2008-2009 and 2009-2010 school years. Source: BMO Capital Markets, College Boards Trends in College
Pricing, and Illinois State Universitys Center for the Study of Education Policy.
Tuition increases
at public not-forprofits historically
tend to lag
increases in state
unemployment
rates
In a 2003 paper, Dr. Sarah Turner at the University of Virginia showed that the rate of tuition
increases at public not-for-profit institutions is somewhat counter-cyclical, albeit with a lag. A
regression analysis of state unemployment rates, which most economists agree are later-cycle
data, showed that a 10% increase in state unemployment rates was likely to lead to an 11%
reduction in state appropriations to higher education and a 13% increase in state tuition levels on
average. The opposite should hold true as well, i.e., a decrease in state unemployment rates
should lead to greater state appropriations to higher education and likely a lower rate of
increase in state tuition levels (we do not expect tuition levels to decline).
As it is likely that state unemployment rates continue to decrease in the near term, we envision
state appropriations for higher education to increase, though it will likely occur on a lagged
basis (fall 2012 perhaps?). Should that occur, we could see the rate of tuition increases at public
not-for-profit institutions slow.
Endowments
shrunk in the
most recent
recession
A member of BMO
While the for-profit sector competes against the private not-for-profit sector to a lesser degree,
the Great Recession affected funding for private not-for-profit institutions as well. As shown in
Exhibit 216, the average endowments at higher education institutions (mostly private not-forprofit) fell 3% and 18.7% in the years ended June 30, 2008 and 2009, respectively per the
National Association of College and University Business Officers (NACUBO) annual survey
the latter being the worst result in the surveys history. While the sector returned to positive
returns in the two years thereafter, some endowment funds remain below their prior peaks.
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Exhibit 216. Annual Change in Higher Education Endowments

(Fiscal Years 2000-2011)
25%
20.7%
20% 17.3%
15%
18.0%
11.1%
13.0%
9.3%
Annual return
10%
19.2%
17.2%
15.1%
11.9%
10.7%
3.0%
5%
0%
-5%
-10%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-3.0%
-3.8%
-6.0%
-15%
-20%
-18.7%
-25%
Note: Reflects years ended June 30. Shaded are represents recessionary period. Source: BMO Capital
Markets and National Association of College and University Business Officers (NACUBO).
There is limited historical data for tuition changes at for-profit schools so it is difficult to
ascertain any trends. Nevertheless, we have provided a similar analysis for the for-profit schools
in Exhibit 217 using NCES data. Trends varied across school types during and after the Great
Recession, with the largest annual increases at two-year schools.
Exhibit 217. Economic Sensitivity: For-Profit Schools Annual Tuition Increases

Annual Tuition Increase

Year Prior
Year Of
Four-Year Schools
Mar. 2001 - Nov. 2001
Dec. 2007 - June 2009
7.9%
8.5%
N.A.
4.5%
N.A.
3.6%
N.A.
5.5%
1.9%
3.5%
5.8%
1.6%
5.2%
0.3%
8.5%
N.A.
4.5%
N.A.
Two-Year Schools
Mar. 2001 - Nov. 2001
Dec. 2007 - June 2009
6.3%
2.5%
N.A.
2.1%
N.A.
0.6%
N.A.
6.9%
6.7%
5.1%
6.4%
10.4%
6.3%
1.9%
2.5%
N.A.
2.1%
N.A.
N.A.
N.A.
N.A.
8.1%
N.A.
4.9%
N.A.
10.4%
N.A.
0.9%
N.A.
4.0%
N.A.
4.8%
N.A.
N.A.
8.1%
N.A.
Less Than Two-Year Schools

Mar. 2001 - Nov. 2001
Dec. 2007 - June 2009
Source: BMO Capital Markets, National Center for Education Statistics, and National Bureau of Economic Research. N.A. Not Available.
Pricing
umbrella has
likely been shut
Even should tuition increases accelerate at public institutions, we believe the pricing umbrella
that many of the for-profit providers have claimed they have (i.e., ability to raise tuition annually
by roughly 4%-6%) has closed. Indeed, while price cuts are still rare, many schools are
reducing costs to students through such methods as providing scholarships or changing course
lengths. While some companies most notoriously Apollo Group (APOL) had historically
raised prices at certain programs based on changes in Title IV limits, they have become more
sensitive to public scrutiny and, as such, we believe policies such as these are a thing of the past.
In addition, the gainful employment regulations may actually force some providers to cut tuition
levels to comply (see details later in this section).
A listing of key tuition and fee metrics can be found in Exhibit 218.
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Exhibit 218. Key Tuition and Fees Metrics to Watch

Term
Definition
Postsecondary Norms
For-Profit Norms
Average annual
tuition and fees (1)
Measures the amount it costs for

students to attend postsecondary
institution, excluding ancillary
costs (e.g., room and board)
Public Less Than 2-Year Insts.:

In-district:
$6,504
In-state:
$6,505
Out-of-state:
$6,683
Less Than 2-Year Insts.: $13,536
Private Less Than 2-Year Insts.:

$10,860
2-Year Institutions:
$14,618
$15,728
Public 2-Year Institutions:

In-district:
$2,710
In-state:
$3,162
Out-of-state:
$6,531
Private 2-Year Insts.:
$12,027

In-district:
$6,767
In-state:
$6,770
Out-of-state:
$15,767
Private 4-Year Insts.:
Average annual
increase in tuition
and fees (2)
$22,348
Annual change in tuition and fees Public Less Than 2-Year Institutions: Less Than 2-Year Institutions:
In-district:
6.8%
N.A.
In-state:
6.6%
Out-of-state:
5.8%
Private Less Than 2-Year
Institutions:
N.A.
In-district:
6.0%
In-state:
5.8%
Out-of-state:
4.9%
6.2%
6.0%
Private 2-Year Institutions: 7.9%

In-district:
7.0%
In-state:
7.0%
Out-of-state:
6.2%
Private 4-Year Institutions: 6.8%
N.A. Not Available. Sources:
(1) US Department of Education NCES Report 2011-250, Postsecondary Institutions in the United States: fall 2010; data represents average
charges for the 2010-2011 school year.
(2) Data represents average annual change from 1995-1996 to 2010-2011 school years. 1995-1996 data from US Department of Education NCES
Report 2002-156, Postsecondary Institutions in the United States: fall 2000.
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Exhibit 218. Key Tuition and Fees Metrics to Watch (continued)

Term
Definition
Measures the entire amount it

Average annual
price of attendance costs for students to attend
postsecondary institution,
(1)
including tuition and fees, room
and board, books and supplies
and others
Postsecondary Norms
For-Profit Norms
Less Than 2-Year Institutions:

On-campus: $22,870 (private)
Off-campus (w/o family):
$16,264 (public in-district);
$16,265 (public in-state);
$16,442 (public out-of-state);
$23,462 (private)
Off-campus (w/ family):
$15,776 (private)
Less Than 2-Year Insts.:

On-campus: N.A.
On-campus:
$25,125 (private)
$25,729 (private)
$16,963 (private)
On-campus: $28,842
On-campus:
$35,675 (private)
$33,366 (private)
$24,991 (private)

$26,097

$17,490

$27,998

$19,970
On-campus: $34,922

$31,002

$22,211
Sources:
(1) US Department of Education NCES Report 2011-250, Postsecondary Institutions in the United States: fall 2010; data represents average
charges for the 2010-2011 school year.
(2) Data represents average annual change from 1995-1996 to 2010-2011 school years. 1995-1996 data from US Department of Education NCES
Report 2002-156, Postsecondary Institutions in the United States: fall 2000.
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Postsecondary Schools EBITDA, Operating Income, and Margin

Trends
A summary of historical EBITDA and EBITDA margins, as well as operating income and
operating margins are found in Exhibits 219 and 220, respectively. We note that margins vary
across the spectrum, but that companies with a larger component of online enrollment
(i.e., Apollo Group, Strayer Education) typically have higher margins since that delivery
system is typically more profitable. In addition, there are some scale benefits, with some of
the larger providers (i.e., ITT Educational Services) also having relatively higher margins.
Margins can vary

by school type
and size
Exhibit 219. EBITDA and Margins for Select For-Profit Providers (FY2003-FY2013 YTD) ($ in mn)
EBITDA - FISCAL YEAR
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
Total
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
EBITDA MARGINS - FISCAL YEAR

Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
DeVry
DV
EDMC
LOPE
ESI
Lincoln Educational Services LINC
Strayer Education
STRA
UTI
Washington Post
WPO
Median
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
$2.1
$4.2
$4.7
$8.3
$18.5
$31.6
$47.3
$59.3
$75.3
427.6
605.0
760.1
765.3
750.8
882.8
1,315.0
1,584.6
1,421.2
(1.9)
(4.9)
(7.3)
(4.1)
5.2
35.9
134.2
232.9
297.1
N.A.
348.8
452.5
326.8
213.0
189.2
290.8
406.1
322.2
117.2
180.9
208.1
114.9
81.5
107.0
173.7
301.5
228.6
8.2
15.3
21.3
30.2
43.1
56.6
82.1
117.2
112.3
128.1
144.8
100.7
116.3
137.2
211.7
301.7
483.3
573.0
137.7
188.3
229.1
293.2
318.5
368.3
431.1
593.7
661.5
N.A.
(13.5)
(0.9)
9.1
11.7
24.8
64.5
85.8
107.4
94.5
119.5
165.5
184.6
247.1
357.3
528.8
647.9
552.0
27.4
39.2
49.5
46.5
43.5
56.7
116.4
157.8
79.1
N.A.
N.A.
N.A.
N.A.
(0.5)
2.2
7.7
19.2
19.4
55.5
70.9
87.0
95.5
116.3
148.7
197.2
245.1
213.9
42.6
55.4
61.9
54.9
42.5
28.5
36.7
67.6
70.6
106.6
97.3
127.0
155.5
207.5
315.1
449.4
197.4
66.4
$1,105.3 $1,860.4 $2,229.5 $2,168.5 $2,184.0 $2,708.9 $4,042.3 $5,451.4 $4,931.1
FY2003
11.6%
31.9%
-256.8%
N.A.
22.9%
10.1%
18.8%
21.5%
N.A.
18.1%
14.6%
N.A.
37.7%
21.7%
18.0%
18.5%
FY2004
18.3%
33.6%
-395.5%
23.7%
23.3%
13.0%
18.4%
22.1%
-52.7%
19.3%
15.8%
N.A.
38.7%
21.7%
19.0%
19.2%
FY2005
16.8%
33.8%
-92.1%
24.7%
22.4%
14.3%
12.9%
22.5%
-1.7%
24.1%
17.2%
N.A.
39.4%
19.9%
13.5%
18.6%
FY2006
20.8%
30.9%
-14.2%
18.3%
12.7%
16.8%
13.9%
25.1%
12.6%
24.4%
15.0%
N.A.
36.2%
15.8%
14.8%
16.3%
FY2007
26.8%
27.6%
6.1%
12.8%
8.9%
19.1%
14.7%
23.4%
11.8%
28.4%
13.3%
-1.1%
36.6%
12.0%
16.7%
14.7%
FY2008
29.5%
28.2%
16.4%
11.4%
10.0%
20.8%
19.4%
21.9%
15.4%
35.2%
15.0%
4.5%
37.5%
8.3%
17.9%
17.9%
FY2009
31.8%
33.3%
29.5%
15.9%
14.7%
24.5%
20.6%
21.4%
24.6%
40.1%
21.1%
12.2%
38.5%
10.0%
20.5%
21.4%
FY2010
29.9%
32.2%
32.7%
19.4%
18.6%
27.5%
25.2%
23.7%
22.2%
40.6%
24.7%
21.4%
38.5%
15.5%
23.5%
24.7%
FY2011
28.9%
30.0%
31.8%
17.1%
13.1%
26.1%
26.3%
22.9%
25.2%
36.8%
15.6%
18.5%
34.1%
15.6%
14.1%
25.2%
FY2012
$83.8
993.5
237.4
16.8
140.9
93.5
418.4
510.2
149.1
300.4
25.2
13.5
143.0
39.5
37.9
$3,203.2
FY2012
26.7%
23.4%
24.5%
1.1%
8.9%
22.2%
20.1%
18.5%
29.2%
23.3%
6.2%
11.8%
25.5%
9.5%
3.3%
20.1%
'03-12
CAGR
50.9%
9.8%
N.A.
N.A.
2.1%
31.0%
14.1%
15.7%
N.A.
13.7%
-0.9%
N.A.
11.1%
-0.8%
-6.0%
11.1%
'07-12
CAGR
35.2%
5.8%
114.6%
-39.8%
11.6%
16.7%
25.0%
9.9%
66.4%
4.0%
-10.4%
N.A.
4.2%
-1.5%
-24.6%
7.8%
YTD
YTD
FY2012
FY2013
$37.2
$43.9
830.5
662.8
145.1
83.1
55.4
14.8
140.9
126.3
52.3
48.8
418.4
347.5
510.2
376.3
66.7
84.7
201.9
107.9
0.4
(7.6)
13.5
15.8
94.6
73.8
31.0
22.7
38.2
51.0
$2,636.4 $2,051.9
YTD
FY2012
24.7%
25.5%
28.6%
7.0%
8.9%
24.3%
20.1%
18.5%
28.2%
30.1%
0.2%
11.8%
32.0%
9.9%
6.4%
20.1%
YTD '12-13
% chg.
18.2%
-20.2%
-42.7%
-73.3%
-10.4%
-6.7%
-16.9%
-26.3%
27.0%
-46.5%
-1877.3%
16.6%
-21.9%
-26.8%
33.3%
-20.2%
YTD
FY2013
26.7%
23.4%
19.8%
2.3%
7.9%
23.4%
17.6%
15.1%
29.9%
19.7%
-4.3%
12.2%
27.4%
8.0%
9.4%
17.6%
Note: Data represent fiscal years. Data used for Career Education and Corinthian Colleges exclude discontinued operations where available. We
have removed stock-based compensation costs where disclosed. N.A. Not Available.
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Exhibit 220. Operating Income and Margins for Select For-Profit Providers (FY2003-FY2013 YTD)
OPERATING INCOME - FISCAL YEAR
Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
DeVry
DV
EDMC
LOPE
ESI
Strayer Education
STRA
UTI
Washington Post
WPO
Total
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
$1.8
$3.6
$3.4
$6.4
$15.7
$27.4
$42.1
$52.8
$66.0
$72.6
387.3
547.4
714.5
698.0
686.0
820.9
1,234.5
1,437.6
1,262.2
815.3
(1.9)
(5.0)
(7.8)
(4.8)
4.0
35.0
128.3
224.4
284.3
220.0
N.A.
291.3
387.2
252.6
139.5
117.6
225.1
312.2
229.2
225.1
103.8
156.3
171.9
75.6
38.4
62.2
109.8
221.4
139.7
59.7
4.1
9.9
14.9
22.0
33.3
44.4
67.6
98.7
88.2
64.3
87.7
89.2
43.1
68.2
93.2
171.8
251.3
421.1
508.4
329.7
92.7
133.0
168.6
223.0
227.9
269.0
318.8
477.9
526.9
364.5
N.A.
(14.6)
(3.3)
1.1
8.1
19.5
56.7
73.0
89.7
125.3
94.5
119.5
165.5
184.6
247.1
335.1
503.9
621.1
524.1
271.1
17.5
28.8
36.4
31.6
27.7
38.8
92.1
131.5
50.7
8.0
N.A.
N.A.
N.A.
N.A.
(2.2)
0.0
5.4
16.6
14.4
5.4
51.1
65.5
80.3
88.4
107.8
138.0
183.2
227.8
192.4
119.1
36.2
50.1
55.8
46.6
34.7
16.0
23.3
52.4
55.1
22.4
93.4
77.3
100.7
125.6
173.4
277.3
406.3
149.1
166.4
58.4
$933.2 $1,568.4 $1,907.9 $1,793.9 $1,787.0 $2,269.2 $3,519.4 $4,774.9 $4,180.4 $2,868.8
OPERATING MARGINS - FISCAL YEAR

Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
DeVry
DV
EDMC
LOPE
ESI
Strayer Education
STRA
UTI
Washington Post
WPO
Median
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
FY2003
10.4%
28.9%
-259.9%
N.A.
20.3%
5.0%
12.9%
14.5%
N.A.
18.1%
9.3%
N.A.
34.8%
18.4%
15.9%
15.2%
FY2004
15.4%
30.4%
-399.3%
19.8%
20.2%
8.4%
11.4%
15.6%
-57.1%
19.3%
11.6%
N.A.
35.7%
19.6%
16.7%
16.1%
FY2005
12.1%
31.7%
-98.3%
21.1%
18.5%
10.0%
5.5%
16.5%
-6.3%
24.1%
12.7%
N.A.
36.4%
17.9%
10.7%
14.6%
FY2006
15.9%
28.2%
-16.8%
14.1%
8.3%
12.2%
8.1%
19.1%
1.5%
24.4%
10.2%
N.A.
33.5%
13.4%
11.8%
12.8%
FY2007
22.8%
25.2%
4.6%
8.4%
4.2%
14.7%
10.0%
16.7%
8.2%
28.4%
8.5%
-4.9%
33.9%
9.8%
13.5%
10.0%
FY2008
25.5%
26.2%
16.0%
7.1%
5.8%
16.3%
15.7%
16.0%
12.1%
33.0%
10.3%
0.0%
34.8%
4.7%
14.9%
15.7%
FY2009
28.2%
31.2%
28.2%
12.3%
9.3%
20.2%
17.2%
15.8%
21.7%
38.2%
16.7%
8.6%
35.8%
6.4%
18.0%
18.0%
FY2010
26.7%
29.2%
31.5%
14.9%
13.7%
23.2%
22.0%
19.1%
18.9%
38.9%
20.6%
18.5%
35.8%
12.0%
21.2%
21.2%
FY2011
25.4%
26.7%
30.5%
12.2%
8.0%
20.5%
23.3%
18.2%
21.0%
34.9%
10.0%
13.7%
30.7%
12.2%
10.6%
20.5%
FY2012
23.2%
19.2%
22.7%
15.2%
3.8%
15.2%
15.8%
13.2%
24.5%
21.1%
2.0%
4.7%
21.2%
5.4%
14.5%
15.2%
'03-12
CAGR
50.4%
8.6%
N.A.
N.A.
-6.0%
35.9%
15.8%
16.4%
N.A.
12.4%
-8.3%
N.A.
9.8%
-5.2%
12.3%
12.3%
'07-12
CAGR
35.8%
3.5%
N.M.
10.0%
9.2%
14.0%
28.8%
9.8%
N.M.
1.9%
-22.0%
N.A.
2.0%
-8.3%
5.8%
7.5%
YTD
YTD
FY2012
FY2013
$31.8
$37.4
697.0
539.2
136.8
72.8
26.3
(77.5)
59.7
55.1
37.9
35.2
329.7
254.3
364.5
233.7
56.7
72.6
186.7
93.3
(3.1)
(16.1)
5.2
10.0
82.9
61.4
17.2
9.0
14.8
27.6
$2,044.2 $1,408.1
YTD
FY2012
21.1%
21.4%
27.0%
3.3%
3.8%
17.6%
15.8%
13.2%
24.0%
27.8%
-1.6%
4.5%
28.0%
5.5%
2.5%
15.8%
YTD '12-13
% chg.
17.6%
-22.6%
-46.8%
-394.3%
-7.7%
-7.1%
-22.9%
-35.9%
28.2%
-50.0%
419.8%
91.7%
-25.9%
-48.0%
86.6%
-22.6%
YTD
FY2013
22.7%
19.0%
17.3%
-12.2%
3.4%
16.9%
12.9%
9.4%
25.6%
17.0%
-9.2%
7.7%
22.8%
3.2%
5.1%
12.9%
Note: Data represent fiscal years. Data used for Career Education, Corinthian Colleges and Lincoln Educational Services excludes discontinued
operations where available. We have removed stock-based compensation costs and one-time items where disclosed. N.A. Not Available.
For-profits are
more profitable
than their not-forprofit peers (not a
surprising
We have attempted to create a common size income statement on a per FTE student basis
using ED data. As shown in Exhibit 221, for-profit schools are more profitable than their
public not-for-profit peers, when measured on a percentage basis likely not a surprising
conclusion to anyone. Private not-for-profits were relatively more profitable in the 20102011 school year owing to strong endowment returns that year.
conclusion)
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Exhibit 221. Common Size Income Statement on Per FTE Student Basis (2010-2011
School Year)
Revenues
Instructional costs
Gross margins
Non-instructional costs:
Academic and inst. support, and student svces.
Research and public service
Auxiliary enterprises
Net grant aid
Other expenses (includes hospital services)
Total non-instructional costs
Surplus/deficit
As % of revenues
Revenues
Instructional costs
Gross margins
Net grant aid
Surplus/deficit (i.e. operating margins)
Public-Not-For-Profit
Private-Not-For-Profit
Private-For-Profit
Two-year Four-year
All Two-year Four-year
All Two-year Four-year
All
Schools Schools Schools Schools Schools Schools Schools Schools Schools
$17,094
$17,800
$17,632
$14,140
$43,275
$31,627
$19,468
$65,412
$64,924
9,133
7,202
6,177
15,669
15,568
4,529
3,222
3,534
4,280
9,860
34,142
24,425
13,291
49,743
49,356
12,565
14,578
14,098
3,339
180
546
0
4,053
8,118
6,348
6,094
2,912
0
11,943
27,297
5,151
3,741
1,970
0
8,805
19,667
9,036
77
885
40
2,177
12,215
14,495
6,216
4,568
244
6,902
32,425
14,437
6,150
4,529
242
6,853
32,211
7,375
10
375
32
1,933
9,725
9,875
13
282
62
612
10,844
9,279
12
304
55
927
10,577
$1,742
$6,845
$4,758
$1,076
$17,318
$17,145
$2,840
$3,734
$3,521
100.0%
30.3%
69.7%
100.0%
21.1%
78.9%
100.0%
22.8%
77.2%
100.0%
31.7%
68.3%
100.0%
24.0%
76.0%
100.0%
24.0%
76.0%
100.0%
26.5%
73.5%
100.0%
18.1%
81.9%
100.0%
20.0%
80.0%
23.6%
1.3%
3.9%
0.0%
28.7%
57.4%
14.7%
14.1%
6.7%
0.0%
27.6%
63.1%
16.3%
11.8%
6.2%
0.0%
27.8%
62.2%
46.4%
0.4%
4.5%
0.2%
11.2%
62.7%
22.2%
9.5%
7.0%
0.4%
10.6%
49.6%
22.2%
9.5%
7.0%
0.4%
10.6%
49.6%
43.1%
0.1%
2.2%
0.2%
11.3%
56.9%
55.5%
0.1%
1.6%
0.3%
3.4%
60.9%
52.6%
0.1%
1.7%
0.3%
5.3%
60.0%
12.3%
15.8%
15.0%
5.5%
26.5%
26.4%
16.6%
21.0%
20.0%
Surprisingly, the
bulk of staff at forprofit institutions
provide
instruction; not so
at their not-forprofit peers
The ED publishes a summary of employees at postsecondary institutions, allowing us to

analyze the staff components at these institutions by primary activity. Surprisingly, the bulk
(nearly 56% in the fall 2011 school year) of staff at for-profit institutions provide instruction
(see Exhibit 222). While the largest component of staff at not-for-profit schools (28.5%)
provide instruction, it is a much smaller component, contrary to the perception that these
schools focus more on this issue when compared with their for-profit peers. We provide data
on a per FTE student basis later in this report.
Exhibit 222. Breakdown of Staff by Institution Type (Fall 2011)
Instruction
Instruction/research/public service
Research
Public service
Executive/administrative/managerial
Other professional (support/service)
Graduate assistants
Technical and paraprofessionals
Clerical and secretarial
Skilled crafts
Service/maintenance
Total
Public
Not-forProfit
28.5%
7.6%
1.8%
0.7%
4.5%
20.5%
11.4%
5.8%
11.0%
1.8%
6.3%
100.0%
Private
Not-forPrivate
Profit For-Profit
28.5%
55.9%
7.3%
0.4%
2.3%
0.0%
0.7%
0.0%
9.3%
10.5%
21.2%
21.6%
6.2%
0.2%
4.4%
1.4%
12.1%
8.4%
1.3%
0.1%
6.8%
1.5%
100.0%
100.0%
Note: Source: BMO Capital Markets and US Department of Education National Center for Education Statistics
(NCES 2012-156).
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Postsecondary Schools Instructional Costs Trends

The direct cost of educating students, known as instructional costs or cost of educational
services, is typically one of the largest expenses among for-profit schools. As shown in
Exhibit 223, in FY2011 (latest data available) these costs at for-profit schools represented
roughly 22% of revenues lower percentages than typically incurred by the not-for-profit
sector (29.1% and 24% for public and private not-for-profit schools, respectively) that
potentially show greater efficiency of the for-profit sector, in our view (although some claim
less of a focus by the for-profits on this line item).
For-profits have
relatively lower
instructional
costs than notfor-profits
Exhibit 223. Instructional Costs as a Percentage of Revenues (FY2011)

Revenues
Less than
2-Year
100.0%
2-Year
100.0%
4-Year
100.0%
All Less than
Schools
2-Year
100.0%
100.0%
2-Year
100.0%
4-Year
100.0%
Private For-Profit
All Less than
Schools
2-Year
100.0%
100.0%
2-Year
100.0%
4-Year
100.0%
All
Schools
100.0%
Instructional costs
Gross margins
Net grant aid
46.8%
53.2%
39.0%
61.0%
26.7%
73.3%
29.1%
70.9%
45.6%
54.4%
38.5%
61.5%
24.0%
76.0%
24.0%
76.0%
32.0%
68.0%
27.1%
72.9%
18.1%
81.9%
22.0%
78.0%
29.3%
0.6%
0.0%
0.0%
10.2%
40.0%
31.2%
1.6%
4.8%
0.0%
17.1%
54.7%
19.2%
17.4%
9.5%
0.0%
18.4%
64.5%
21.5%
14.4%
8.6%
0.0%
18.2%
62.6%
37.8%
1.0%
0.0%
0.1%
11.9%
50.8%
45.0%
0.3%
3.8%
0.2%
10.8%
60.1%
22.2%
9.5%
7.0%
0.4%
10.6%
49.6%
22.3%
9.5%
7.0%
0.4%
10.6%
49.6%
36.6%
0.4%
0.0%
0.2%
12.9%
50.1%
42.9%
0.1%
1.8%
0.2%
11.5%
56.6%
55.5%
0.1%
1.6%
0.3%
3.4%
60.9%
50.2%
0.1%
1.4%
0.3%
6.5%
58.5%
Surplus/deficit (i.e. operating margins)
13.1%
6.3%
8.8%
8.3%
3.6%
1.4%
26.5%
26.4%
18.0%
16.3%
21.0%
19.5%
Note: Academic and institutional support and student services comprise a number of different expenses, including academic support (e.g.,
libraries), institutional support (e.g., administrative), and student services (e.g., admissions). Data follows FASB for private not-for-profit and private
for-profit schools and GASB for public not-for-profit schools. Source: BMO Capital Markets and US Department of Education National Center for
Instructional
costs per
student highest
at not-for-profit
research
institutions and
have not
increased much
over the past
decade at most
schools
The American Institutes for Researchs Delta Cost Project tracks the average amount spent in
this line item per FTE student by school type. As shown in Exhibit 224, costs vary by school
type, with private not-for-profit research institutions spending more than most other schools.
When measured in constant dollars, instructional costs did not increase much from the 2000 to
2010 school years, rising the most for students at private not-for-profit research institutions and
actually declining for students at community college. While the Delta Cost Project did not
provide comparable data for the for-profit sector, it is believed that for-profit schools on average
spend less per student on instructional costs per FTE student than their not-for-profit peers.
Exhibit 224. Instructional Costs per FTE Student (20002010

School Years)
School type
Public not-for-profit research institution
Public not-for-profit masters
Public not-for-profit bachelors
Community college
Private not-for-profit research institution
Private not-for-profit masters
Private not-for-profit bachelors
Cost per FTE Student

2000
2010
$9,354
$10,139
6,068
6,355
5,688
6,166
5,381
4,805
16,707
20,032
6,584
7,232
7,603
8,423
CAGR
0.8%
0.5%
0.8%
-1.1%
1.8%
0.9%
1.0%
Note: Data in constant dollars. Source: BMO Capital Markets and Delta Cost Project.
It was difficult to accurately compare the instructional costs across the landscape of the
publicly held for-profit companies, as many companies categorize instructional versus noninstructional differently (i.e., some included occupancy costs as instructional, others include it
as non-instructional). With that caveat, we have made comparisons anyhow.
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BMO Capital Markets
Instructional costs as a percentage of revenues for the larger publicly held for-profit
postsecondary companies fell to 38% in FY2010 from 48% in FY2003 for the median of this
group. This positive leverage reversed in FY2011 and has continued to date owing to
declining industry revenues; in 2013 year-to-date, the industry median is 46.7% (see
Exhibit 225). We note the wide range of spending on this line item, as companies with more
hands-on programs such as auto tech (e.g., Corinthian Colleges, Universal Technical
Institutes) tend to spend more as a percentage of revenue on instructional costs, and those
with a greater online presence (e.g., Bridgepoint Education, Capella Education) would likely
spend less given that they have lower real-estate related costs.
Most companies
gained some
leverage off this
line item through
FY2010 but the
trend has
reversed since
Exhibit 225. Total Instructional Costs and as a Percentage of Revenues for Select For-Profit
Providers (FY2003-FY2013 YTD)
INSTRUCTIONAL COSTS - FISCAL YEAR
Company
Ticker
FYE
APEI
12
Apollo Group
APOL
8
BPI
12
Career Education
CECO
12
Corinthian Colleges
COCO
6
Capella Education
CPLA
12
DeVry
DV
6
EDMC
6
LOPE
12
ESI
12
12
5
Strayer Education
STRA
12
UTI
9
Total
AS % OF REVENUES - FISCAL YEAR
Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
DeVry
DV
EDMC
LOPE
ESI
Strayer Education
STRA
UTI
Median
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
$8.6
$10.9
$13.2
$17.9
$29.4
$43.3
$57.9
$74.6
$94.3
$109.4
612.9
781.4
956.6
1,100.2
1,021.4
1,153.9
1,291.8
1,709.5
1,747.1
1,771.3
0.3
1.4
5.5
12.5
29.8
62.8
117.4
185.4
267.8
358.7
316.1
453.6
531.1
553.9
586.0
605.5
606.0
626.3
632.6
568.7
251.4
398.7
497.6
505.8
526.6
622.9
670.0
876.0
1,020.6
953.8
43.8
58.9
71.2
82.9
99.0
119.0
134.3
163.1
172.2
190.6
366.1
420.1
437.3
451.2
485.0
501.3
667.3
822.8
920.9
965.2
417.6
546.1
640.4
636.8
729.9
896.6
1,067.7
1,264.2
1,466.4
1,497.7
N.A.
19.7
30.7
36.0
45.3
61.2
100.8
176.9
191.9
213.6
280.0
298.7
328.3
356.9
358.6
383.8
449.8
537.9
553.1
539.2
78.6
97.4
114.2
129.3
139.5
153.5
211.3
239.7
220.1
194.3
N.A.
N.A.
N.A.
N.A.
10.2
15.1
17.4
20.4
22.6
27.8
53.1
63.9
76.2
90.5
108.2
129.8
165.0
267.2
288.4
296.8
116.7
145.0
172.3
183.0
186.1
193.0
211.7
219.8
209.9
92.4
$2,520.9 $3,267.7 $3,847.4 $4,146.2 $4,351.9 $4,934.7 $5,749.6 $7,175.6 $7,817.7 $7,897.2
FY2003
48.4%
45.8%
47.6%
26.8%
49.1%
53.5%
53.9%
65.2%
N.A.
53.6%
41.9%
N.A.
36.1%
47.0%
48.0%
FY2004
47.3%
43.4%
111.9%
30.8%
51.4%
50.0%
53.5%
64.0%
N.A.
48.4%
39.2%
N.A.
34.9%
45.7%
47.8%
FY2005
47.0%
42.5%
69.1%
29.0%
53.6%
47.7%
56.0%
62.8%
N.A.
47.7%
39.7%
N.A.
34.5%
46.7%
47.4%
FY2006
44.6%
44.4%
43.7%
31.0%
55.7%
46.1%
53.7%
54.4%
49.9%
47.1%
41.6%
N.A.
34.3%
49.6%
46.1%
FY2007
42.5%
37.5%
34.8%
35.1%
57.3%
43.8%
52.0%
53.5%
45.6%
41.2%
42.6%
23.0%
34.0%
51.8%
42.5%
FY2008
40.4%
36.8%
28.8%
36.5%
58.3%
43.7%
45.9%
53.2%
37.9%
37.8%
40.7%
30.6%
32.8%
54.2%
39.2%
FY2009
38.9%
32.7%
25.8%
33.0%
56.5%
40.1%
45.7%
53.1%
38.5%
34.1%
38.2%
27.8%
32.2%
52.6%
38.4%
FY2010
37.6%
34.7%
26.0%
30.0%
54.2%
38.3%
43.0%
50.4%
45.8%
33.7%
37.5%
22.7%
42.0%
48.6%
38.0%
FY2011
36.2%
36.9%
28.7%
33.6%
58.3%
40.0%
42.2%
50.8%
45.0%
36.9%
43.3%
21.5%
46.0%
48.6%
41.1%
FY2012
34.9%
41.6%
37.0%
38.4%
60.3%
45.2%
46.3%
54.2%
41.8%
41.9%
48.0%
24.2%
52.8%
50.8%
43.5%
'03-12
CAGR
32.6%
12.5%
116.2%
6.7%
16.0%
17.8%
11.4%
15.2%
N.A.
7.6%
10.6%
N.A.
21.1%
9.5%
13.9%
'07-13
CAGR
30.1%
11.6%
64.4%
-0.6%
12.6%
14.0%
14.8%
15.5%
36.4%
8.5%
6.9%
N.A.
22.4%
2.8%
14.0%
YTD
YTD
FY2012
FY2013
$53.6
$55.2
1,324.4
1,190.5
167.7
200.8
293.9
254.2
953.8
981.9
94.6
91.1
965.2
967.7
1,497.7
1,435.4
99.4
116.7
275.9
249.0
96.2
91.0
27.8
29.2
147.8
142.8
157.0
148.6
$6,154.9 $5,954.2
YTD
FY2012
35.7%
40.7%
33.1%
36.9%
60.3%
43.9%
46.3%
54.2%
42.0%
41.1%
48.5%
24.2%
50.0%
50.3%
43.0%
YTD '12-13
% chg.
2.9%
-10.1%
19.8%
-13.5%
2.9%
-3.7%
0.3%
-4.2%
17.4%
-9.7%
-5.4%
4.9%
-3.4%
-5.3%
-3.5%
YTD
FY2013
33.5%
42.0%
47.9%
40.0%
61.4%
43.6%
49.0%
57.4%
41.1%
45.5%
51.9%
22.6%
53.0%
52.2%
46.7%
Note: Data represents fiscal years. Data used for Career Education, Corinthian Colleges and Lincoln Educational Services excludes discontinued
operations where available. Restated line item data was not available for Lincoln Educational Services for 2005. We have removed stock-based
compensation costs where disclosed. N.A. Not Available.
Faculty at forprofit institutions

makes less than
their not-for-profit
We believe the largest component of instructional costs is faculty salaries and benefits. On
average, faculty at for-profit institutions make less than their peers at not-for-profit
institutions (see Exhibit 226) because the idea of tenure does not exist and as we believe forprofit faculty skew a bit more toward adjunct positions.
peers
A member of BMO
Financial Group
199
September 2013
BMO Capital Markets
Exhibit 226. Average Faculty Compensation (1989-1990, 1999-2000, and

2010-2011 Academic Years)
All institutions
Doctoral universities
Master's colleges/universities
Other four-year colleges
Two-year colleges
Two-year colleges
Private for-profit:
Two-year colleges
1989-1990
Fringe
Salary Benefits
$40,100
$8,200
1999-2000
Fringe
Salary Benefits
$55,900 $13,200
2010-2011
Fringe
Salary Benefits
$75,500 $21,700
CAGR: 1989-1990 to
2010-2011
Fringe
Salary Benefits
3.1%
4.7%
44,500
40,400
35,600
34,400
9,600
9,000
7,400
6,100
62,300
52,800
47,900
48,200
14,300
12,500
11,100
11,100
81,600
68,200
61,000
62,300
22,800
21,100
19,200
19,000
2.9%
2.5%
2.6%
2.9%
4.2%
4.1%
4.6%
5.6%
49,000
35,300
32,600
24,500
9,700
7,500
6,400
3,900
71,900
49,900
46,800
37,600
17,700
12,400
11,700
9,800
95,000
65,700
65,700
46,300
26,100
18,900
19,500
11,800
3.2%
3.0%
3.4%
3.1%
4.8%
4.5%
5.4%
5.4%
N.A.
23,700
23,700
N.A.
N.A.
3,300
900
N.A.
74,800
31,900
28,100
24,500
10,700
6,000
3,800
3,700
61,700
53,400
51,100
40,100
16,300
11,000
8,200
9,100
N.A.
3.9%
3.7%
N.A.
N.A.
5.9%
11.1%
N.A.
N.A.. Not Available. Source: BMO Capital Markets and National Center for Education Statistics.
Besides adding more students to leverage the fixed (or at least semi-variable) components of
instructional costs, there are a number of ways these companies have generated leverage off
this line item. Among the methods used are these:
Trade-off between
Increasing class sizes. According to the NCES, the average class size in the not-for-
profit sector in the 2011-2012 school year (latest data available) ranged from 10.8
(private not-for-profit four-year institutions) to 15.1 (public four-year institutions) to 21.1
(public two-year institutions). The average for private for-profit institutions (all sizes)
that year was the highest among these groups at 24.9. There is typically a trade-off
between average class size and quality, with the perception that a smaller average class
size yields a higher quality education. However, schools with smaller class sizes are
typically more costly as they require a greater number of faculty per student.
class size and

quality
Class sizes may vary by type. For example, classes for associate degree students are
typically larger than those for doctoral degree students as they contain more basic
introductory classes (e.g., English composition). In addition, online classes are typically
smaller than campus-based classes, as they require more student/teacher interaction
(i.e., you cant just sit in the back of class and fall asleep as many online classes have
minimum requirement for class participation).
We believe online
programs have
lower
instructional
costs (i.e., higher
gross margins)
A member of BMO
Shift mix toward online and blended programs. We believe the online delivery
model has higher gross margins (i.e., lower instructional costs) than the campus-based
model owing to the lack of facility-related costs, which could offset higher compensation
costs from smaller classes. Unfortunately, none of the publicly held companies disclose
gross margins by delivery type, although Apollo Group (APOL) did so prior to the
August 2004 repurchase of its UOPX tracking stock. As shown in Exhibit 227, the
companys online instructional costs as a percentage of revenues were lower than at its
on-ground campuses, despite having larger average class sizes.
Financial Group
200
September 2013
BMO Capital Markets
Exhibit 227. Apollo Group: Instructional Costs as a Percentage of

Revenues by Segment (FY1997FY2004, First Three Quarters)
70%
On-ground
Online
As % of revenues
60%
50%
40%
30%
20%
10%
0%
FY1997
FY1998
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004*
Note: FY2004 data for first three quarters; full-year data not available as company repurchased its UOPX
tracking stock in August 2004. Source: BMO Capital Markets and company reports.
In addition, we believe Apollo pioneered the concept of a blended learning model a

hybrid of on-ground and online that many in the industry have now co-opted. Last
decade, the company rolled out its FlexNet program, where students attend classes at an
on-ground location for the first and last week of a course, with the classes between the first
and last (typically three weeks for undergraduate and four weeks for graduate) conducted
online. Many others in the industry both for-profit and not-for-profit have since rolled
out similar models.
Blended learning
programs
In addition to improving capacity utilization by allowing a greater number of students to be

cycled through its on-ground campuses, we believe blended learning programs allow
schools to accommodate two to three times the number of course offerings without
increasing facility costs. While this may be somewhat offset by increased faculty costs (e.g.,
we believe blended learning class sizes resemble pure online classes rather than the larger
on-ground size), we nevertheless believe the addition of such programs had helped the
industry expand its overall margins before the downturn hit.
Shift to more
adjunct faculty
can save costs
A member of BMO
Shifting from full-time faculty to adjunct (part-time) faculty. All else being equal, a
school with a greater proportion of full-time faculty should have lower instructional costs
as a percentage of revenues, provided those faculty are being used efficiently for
instructional purposes. For most not-for-profit providers, however, given many of their
full-time faculty have tenure and may have other duties beyond instruction (i.e.,
research), it is typically less costly to use adjunct faculty for instruction as they are
typically less seasoned and therefore less expensive (although there may be quality tradeoffs). In recent years, most not-for-profit providers have expanded their use of adjunct
(part-time) faculty as a means of adding flexibility, as well as saving costs (e.g.,
employment-related benefits). As shown in Exhibit 228, the ratio of part-time to full-time
faculty for all postsecondary institutions increased from 0.28 as of fall 1970 to 1.00 as of
fall 2011 (latest data available).
Financial Group
201
September 2013
BMO Capital Markets
Exhibit 228. Part-Time to Full-Time Faculty Ratio: All

Postsecondary Institutions (Fall 1970Fall 2011)
Part-time to Full-Time Ratio
1.2
1.0
0.95
0.97
1.00
0.91
0.86
0.80
0.8
0.74 0.74
0.68 0.69
0.57
0.56 0.57
0.54
0.54 0.54 0.55
0.52
0.51 0.52 0.52 0.53
0.6
0.4
0.40
0.43
0.46
0.35
0.32
0.28 0.30
0.2
19
7
19 0
7
19 1
7
19 2
73
19
7
19 4
7
19 5
7
19 6
77
19
7
19 9
8
19 0
81
19
8
19 2
8
19 3
8
19 4
85
19
8
19 6
8
19 7
89
19
9
19 1
9
19 3
9
19 5
97
19
9
20 9
0
20 1
03
20
0
20 5
0
20 7
0
20 9
11
0.0
For-profit
providers use
relatively more
part-time faculty
at four-year
schools, though
relatively less at
At two-year institutions, public not-for-profits use a higher percentage of adjunct faculty

relative to their for-profit peers. This ratio has been increasing, reaching 2.3:1 and 1.3:1,
respectively, in fall 2011 (latest data available). The opposite holds true at four-year
institutions where for-profit providers use significantly more part-time faculty. While the
ratios have also increased at the not-for-profit four-year institutions (0.6:1 and 0.9:1 at
public and private not-for-profits, respectively in fall 2011), they are still well below the
rate seen at private for-profit institutions (6:1; see Exhibit 229).
two-year schools
Exhibit 229. Part-Time to Full-Time Faculty Ratio by School Type

(Fall 2003Fall 2011)
8.0
Fall 2003
Fall 2005
Fall 2007
Fall 2009
Fall 2011
Ratio of part-time to full-time faculty
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Public 4-year
Private not-forprofit 4-year
Private for-profit 4year
Public 2-year
Private not-forprofit 2-year
Private for-profit 2year
A comparison of the ratio of part-time to full-time faculty for a select group of for-profit
providers can be found in Exhibit 230. As shown, the part-time to full-time faculty ratio has
increased for most companies over the past decade, allowing them to shift some of their
instructional costs to variable from fixed. However, recent concerns regarding educational
outcomes have led to a number of companies reducing their part-time staff ratios.
A member of BMO
Financial Group
202
September 2013
BMO Capital Markets
Exhibit 230. Part-Time to Full-Time Faculty Ratio for Select Group of For-Profit
Providers (FY2002-FY2013)
Company
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
MEDIAN
Ticker
APEI
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
FYE
12
12
12
6
12
6
6
12
12
12
5
12
2002
N.A.
N.A.
1.6
2.5
N.A.
N.A.
N.A.
N.A.
0.8
N.A.
N.A.
4.0
2.1
2003
N.A.
N.A.
1.4
1.1
N.A.
N.A.
N.A.
N.A.
0.8
N.A.
N.A.
5.0
1.3
2004
N.A.
N.A.
N.A.
1.1
5.7
N.A.
N.A.
N.A.
1.3
0.3
N.A.
4.9
1.3
2005
N.A.
N.A.
N.A.
2.0
5.5
N.A.
N.A.
N.A.
1.2
0.4
N.A.
7.2
2.0
2006
N.A.
N.A.
1.4
2.3
6.0
N.A.
2.2
N.A.
2.3
0.6
N.A.
6.6
2.3
2007
4.7
N.A.
1.3
2.3
5.8
N.A.
2.5
N.A.
3.4
0.5
N.A.
9.4
2.9
2008
5.2
20.0
2.8
2.0
5.4
0.0
2.6
9.6
N.A.
0.8
N.A.
12.1
4.0
2009
3.7
37.4
3.5
2.2
6.4
0.1
2.7
8.2
N.A.
0.8
4.3
7.2
3.7
2010
5.0
48.3
3.8
2.0
N.A.
0.1
2.9
N.A.
N.A.
0.7
6.3
5.7
3.8
2011
4.7
N.A.
4.6
2.3
N.A.
0.1
3.2
N.A.
N.A.
0.8
24.2
5.2
3.9
2012
3.7
24.5
2.9
2.4
N.A.
0.1
3.8
N.A.
N.A.
0.9
27.1
5.3
3.7
2013
N.A.
N.A.
N.A.
2.5
N.A.
0.2
3.8
N.A.
N.A.
N.A.
6.5
N.A.
N.A.
Note: Data represents fiscal years. N.A. Not Available.

Some schools pay
Use variable instructional pay. While this may not necessarily help in margin
percentages, it certainly can help maximize margins in dollars. American Public

Education (APEI) uses this model, paying adjunct instructors $130 per student in
undergraduate courses and $150 per student in graduate courses. This approach enables
the university to offer smaller class sizes, provide a greater variety of courses, and
encourage more student-faculty interaction. APEIs average class size is roughly 16
students, with a maximum class size of 25 students. Given the majority of its faculty are
adjunct, rather than full-time, it is relatively easier for the company to follow this policy.
faculty on the
basis of class
sizes
Optimize real estate costs. From FY2007 to FY2011, DeVry (DV) made significant
strides in this line item, helping to reduce its Cost of Educational Services as a
percentage of revenues from 52% to 42.2%. One method employed was its real estate
optimization program, in which the company relocated a number of programs and
administrative staff together in existing underutilized facilities. Also, the company used a
number of sales/leaseback transactions, which, in and of themselves, may have increased
the cost of educational services (rent may be higher than depreciation and amortization
on the facility), although the added interest income on the cash received, as well as the
extra financial flexibility it provided, helped to boost overall profitability.
Incorporate online books. The company that pioneered this approach was Apollo Group
(APOL) at its University of Phoenix. In March 2004, Apollo finished rolling out
rEsource, its online delivery method for course materials. While the roll-out was not
without controversy, rEsource has now become Apollos primary delivery method of
course materials. While there are a number of advantages for students (e.g., real-time
updates), we estimate margins on rEsource are significantly higher than those made on
traditional book sales, which benefits the company. A number of other companies in the
business have since rolled out their own e-book options, helping reduce their
instructional costs as a percentage of revenues.
A member of BMO
Financial Group
203
September 2013
Credit hour
definition could
affect
instructional
costs
BMO Capital Markets
On October 29, 2010, the ED issued its final rules on credit hour definition as part of the
Program Integrity regulations effective July 1, 2011. On March 18, 2011, the ED issued a
Dear Colleague letter, which attempted to clarify some of the ambiguity in the regulation.
While we are no expert on credit hour definitions (we leave that to the accrediting bodies), the
number of credits per course can meaningfully affect the instructional cost line item
especially when comparing across schools. For example, if for whatever reason, a similar
course is considered worth three credits at one institution and four at another, the institution
with the three credit course may have higher instructional costs (when measured as a
percentage of revenues) since, in most cases, tuition is charged on a per credit basis; while the
cost of delivery may be somewhat similar (i.e., unless instructors are paid by their time), the
revenue per student would be lower.
A number of the publicly held companies in the sector include bad debt expenses as part of
Instructional Costs and Services expense (see Exhibit 231). We note that Corinthian Colleges
(COCO) includes reserves associated with its third-party lending through ASFG as a contrarevenue account.
Exhibit 231. Classification of Bad Debt Expense on Income Statement

Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Total
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
Income Statement Classification

Instructional Costs
General and Admin.
Separate Line Item
X
X
X
X
X
X
X
X
X
X
X
X
X
X
7
6
1
While bad debts

had been
increasing, they
have been
declining as
companies focus
on this more
A member of BMO
We have listed historical bad debt levels for the for-profit providers in Exhibit 232. Note that
companies with relatively low levels of private lending (e.g., American Public Education), also
have relatively low levels of bad debt expense as a percentage of revenues. Much of the bad
debt recorded (excluding those schools with internal lending programs) represents students who
have dropped out prior to being completely packaged (i.e., financial aid documentation
completely in order). While bad debt increased for most of the industry as enrollment declined
and drop-out rates increased, it has begin to fall again as companies focus more on this metric.
Financial Group
204
September 2013
BMO Capital Markets
Exhibit 232. Select For-Profit Postsecondary School Operators Bad Debt Expense
(FY2003FY2013 To Date)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Total
'03-12
CAGR
N.A.
24.3%
N.A.
N.A.
11.0%
44.9%
11.4%
32.0%
N.A.
32.7%
12.3%
N.A.
27.8%
9.9%
24.3%
'07-12
CAGR
119.1%
4.0%
78.4%
-1.1%
-0.7%
36.9%
12.2%
42.4%
23.5%
33.3%
3.5%
29.9%
17.7%
11.4%
20.6%
YTD
FY2013
$1.6
67.6
36.9
14.0
65.9
7.1
62.4
171.9
9.5
38.9
7.5
4.5
11.2
3.7
$502.5
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
FY2003
N.A.
$20.7
N.A.
N.A.
19.9
0.6
34.5
13.4
N.A.
6.1
7.4
N.A.
2.6
2.5
$107.8
FY2004
$0.1
26.9
N.A.
N.A.
30.7
1.4
35.5
22.2
N.A.
12.0
9.2
N.A.
4.2
2.3
$144.5
FY2005
$0.5
57.1
0.9
73.9
46.9
2.3
43.5
28.0
2.6
10.7
11.2
N.A.
5.5
4.2
$287.2
FY2006
$0.3
101.0
1.0
55.9
48.3
2.9
47.3
22.9
4.7
10.9
15.6
N.A.
7.6
4.7
$322.9
FY2007
$0.1
120.6
4.1
42.2
52.6
3.6
51.2
28.0
6.3
18.6
17.8
1.1
10.5
3.4
$360.1
FY2008
$0.2
104.2
13.4
43.1
72.8
5.2
51.9
42.2
8.5
43.3
21.6
1.4
12.7
4.4
$424.8
FY2009
$0.4
152.5
23.2
57.0
106.3
7.0
72.4
72.5
14.0
82.0
37.0
1.6
20.6
6.7
$653.2
FY2010
$0.2
282.6
39.6
106.4
88.5
8.7
88.2
105.6
38.7
86.9
39.1
2.4
24.2
6.5
$917.6
FY2011
$3.9
181.3
58.5
55.7
92.4
10.6
90.7
134.6
34.4
61.3
30.6
3.4
24.8
8.3
$790.4
FY2012
$6.1
146.7
73.7
39.9
50.9
17.3
90.9
163.9
18.0
78.3
21.1
4.2
23.7
5.8
$740.6
YTD
YTD
Ticker
FYE
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2012
FY2013
0.9%
Bad debt as % of revenues

Company
YTD
FY2012
$3.7
108.0
33.4
17.5
50.9
7.0
90.9
163.9
7.9
34.6
9.5
4.2
12.1
4.4
$548.2
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
APEI
12
N.A.
0.5%
1.7%
0.8%
0.2%
0.1%
0.2%
0.1%
1.5%
1.9%
2.5%
Apollo Group
APOL
1.5%
1.5%
2.5%
4.1%
4.4%
3.3%
3.9%
5.7%
3.8%
3.5%
3.3%
2.4%
BPI
12
N.A.
N.A.
10.8%
3.4%
4.8%
6.2%
5.1%
5.6%
6.3%
7.6%
6.6%
8.8%
Career Education
CECO
12
N.A.
N.A.
4.0%
3.1%
2.5%
2.6%
3.1%
5.1%
3.0%
2.7%
2.2%
2.2%
Corinthian Colleges
COCO
3.9%
4.0%
5.0%
5.3%
5.7%
6.8%
9.0%
5.5%
5.3%
3.2%
3.2%
4.1%
Capella Education
CPLA
12
0.8%
1.2%
1.5%
1.6%
1.6%
1.9%
2.1%
2.1%
2.5%
4.1%
3.3%
3.4%
DeVry
DV
5.1%
4.5%
5.6%
5.6%
5.5%
4.8%
5.0%
4.6%
4.2%
4.4%
4.4%
3.2%
2.1%
2.6%
2.7%
EDMC
3.6%
4.2%
LOPE
12
N.A.
N.A.
5.1%
6.5%
6.3%
5.2%
5.4%
10.0%
8.1%
3.5%
3.3%
3.3%
ESI
12
1.2%
1.9%
1.6%
1.4%
2.0%
2.1%
2.1%
4.3%
2.5%
6.2%
5.4%
4.1%
4.7%
6.1%
5.9%
5.2%
5.9%
7.1%
LINC
12
4.0%
3.7%
3.9%
5.0%
5.4%
5.7%
6.7%
6.1%
6.0%
5.2%
4.8%
4.3%
YTD '12-13
% chg.
-57.8%
-37.4%
10.4%
-20.1%
29.5%
0.2%
-31.3%
4.8%
20.5%
12.5%
-21.0%
6.5%
-7.8%
-17.3%
-3.8%
6.9%
NAUH
N.A.
N.A.
N.A.
N.A.
2.6%
2.7%
2.6%
2.6%
3.2%
3.7%
3.7%
3.5%
Strayer Education
STRA
12
1.8%
2.3%
2.5%
2.9%
3.3%
3.2%
4.0%
3.8%
3.9%
4.2%
4.1%
4.1%

MEDIAN
UTI
1.3%
1.8%
0.9%
2.1%
1.4%
2.7%
1.4%
3.1%
1.0%
2.9%
1.3%
3.3%
1.8%
3.9%
1.5%
4.8%
1.8%
4.0%
1.4%
3.9%
1.4%
3.5%
1.3%
3.4%
Source: BMO Capital Markets and company reports. Note: Data reflects fiscal year. Career Education data not available prior to 2005 owing to
reclassifications. Corinthian Colleges data was not restated for discontinued operations prior to FY2010. N.A. Not Available.
A listing of key instructional cost metrics can be found in Exhibit 233.
A member of BMO
Financial Group
205
September 2013
BMO Capital Markets
Exhibit 233. Key Instructional Costs Metrics to Watch

Term
Definition
Postsecondary Norms
For-Profit Norms
Instructional costs
(i.e., educational
services) as % of
revenues (1)
IPEDS (Dept. of Education) definition:

Includes general academic instruction,
occupational and vocational
instruction, community education,
preparatory and adult basic education,
and regular, special, and extension
sessions. Also includes expenses for
both credit and non-credit activities.
Public less than 2-Year

institutions: 46.8%
Less than 2-year institutions:

32%
Public 2-year institutions: 39%
2-year institutions: 27.1%
Public 4-year institutions: 26.7%
Public company definition varies.

Student/
teacher ratio
(class size) (2)
Records the number of faculty per

student; this serves as a key metric for
quality of education. Should this ratio
spike, it could have a negative impact
on customer satisfaction. Conversely,
schools typically can improve
profitability by increasing class sizes.
Adjunct to full-time Measures the ratio of adjunct (partfaculty ratio (3)

time) faculty to full-time faculty
Bad debt expense
Private less than 2-year

institutions: 45.6%
Private 2-year institutions: 38.5%
Private 4-year institutions: 24%
Public 2-year institutions: 21.1
Public 4-year institutions: 15.1
For-profit public companies

most recent annual average:
46.7% (YTD FY2013)
Private not-for profit
institutions: 24.9
Private not-for profit institutions:

10.8
All postsecondary institutions: 1:1
Bad debt as a percentage of revenues

most recent annual average:
3.4% (YTD FY2013)
Note: We believe some of the higher percentage of instructional costs as a percentage of revenues for the publicly held companies reflects a difference
in accounting methodology rather than the entire amount representing a substantially higher cost structure relative to the privately held for-profit
providers.
Sources: (1) US Department of Education NCES Report 2012-174rev Table 2 (FY2011 data) and public company reports; (2) US Department of
Education NCES Digest of Education Statistics 2012 Tables 288 and 289 (fall 2011 data); (3) US Department of Education NCES Digest of
Education Statistics 2012 Table 290 (fall 2011 data)
Postsecondary Schools Sales and Marketing Trends

Sales and
marketing
expense - above
25% of revenues
for many
providers
Competition has
and will likely
continue to
intensify
A member of BMO
Sales and marketing expenses are a large cost for companies in the for-profit education
business. While not all companies disclose this data, it runs above 25% of revenues for many
publicly held companies, with almost half of that spent on external promotions and
advertising, and the remainder on internal enrollment management and direct sales expenses.
We believe this overall spending level dwarfs what not-for-profit postsecondary institutions
spend (reliable data is difficult to obtain) and is likely higher than the spending levels of most
consumer goods companies. This is a major reason we believe that for-profit enrollment
growth has historically outpaced that of their not-for-profit peers.
However, we believe the competition for new students has and will continue to intensify.
Specifically, we have seen a number of not-for-profit providers increase their marketing
presence, whether for their traditional campuses or for new online programs. As many of
these institutions have faced budgetary constraints, they are looking to increase their
enrollments to increase their revenue streams and see this enhanced marketing spending as a
viable investment.
Financial Group
206
September 2013
BMO Capital Markets
Because not all the publicly held companies in this space provide detail about their sales and
marketing expenses, we have analyzed total non-instructional costs (i.e., those not directly
related to teaching students) to help set the stage for our discussion (with the caveat that not
all these companies follow identical expense classifications). From FY20023to FY2008, total
non-instructional costs as a percentage of revenues for the larger publicly held for-profit
postsecondary companies increased to 39.2% from 33.2% for the median of this group, as
marketing became more expensive. These companies gained some operating leverage as
revenue growth accelerated through FY2010 as the median percentage fell to 35.9%.
However, as revenues, for the most part have fallen since then while competition has
intensified, in our view, this combination has driven negative leverage with this expense
increasing back to prior highs (see Exhibit 234).
Companies have
gained some
positive leverage
in noninstructional
expenses but that
trend has
reversed recently
Exhibit 234. Total Non-Instructional Costs and as a Percentage of Revenues for Select
For-Profit Providers (FY2003FY2013 YTD)
NON-INSTRUCTIONAL COSTS - FISCAL YEAR
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
Company
Ticker
FYE
APEI
12
$7.3
$8.6
$11.5
$15.8
$24.0
$36.4
$49.0
$70.8
$100.0
$131.5
Apollo Group
APOL
8
339.3
471.2
579.9
679.3
1,014.4
1,158.6
1,427.3
1,778.7
1,723.8
1,666.8
BPI
12
2.3
4.8
10.3
20.9
51.9
120.5
208.7
303.4
381.2
389.5
Career Education
CECO
12
N.A.
860.6
913.7
982.8
942.8
937.7
996.3
1,150.2
1,021.2
972.1
Corinthian Colleges
COCO
6
156.2
220.2
259.5
326.4
354.2
383.5
393.7
505.7
580.1
560.4
Capella Education
CPLA
12
34.0
49.0
63.1
75.0
93.9
108.9
132.8
164.3
169.7
167.0
DeVry
DV
6
225.8
275.6
300.2
320.1
355.3
418.7
542.9
671.3
753.0
791.0
EDMC
6
129.7
173.9
210.3
310.4
405.9
518.6
625.0
766.5
894.4
898.7
LOPE
12
N.A.
20.6
24.4
35.1
45.9
80.7
104.4
135.9
145.2
172.4
ESI
12
148.3
199.5
194.2
216.3
263.8
296.5
365.4
429.3
422.7
476.8
LINC
12
91.4
122.2
136.8
149.7
160.5
184.6
249.1
268.2
238.1
202.4
5
N.A.
N.A.
N.A.
N.A.
36.4
34.3
39.8
52.8
67.8
81.9
Strayer Education
STRA
12
42.8
53.9
64.0
84.7
102.1
128.5
163.7
141.8
146.7
146.1
UTI
9
67.9
88.3
110.0
128.2
135.7
141.3
150.3
171.8
177.0
181.2
Total
$1,245.0 $2,548.3 $2,878.0 $3,344.6 $3,986.7 $4,548.8 $5,448.5 $6,610.7 $6,820.9 $6,837.8
Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
DeVry
DV
EDMC
LOPE
ESI
LINC
Strayer Education
STRA
UTI
Median
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
FY2003
41.1%
25.3%
312.3%
N.A.
30.6%
41.5%
33.2%
20.3%
N.A.
28.4%
48.8%
N.A.
29.1%
34.6%
33.2%
FY2004
37.3%
26.2%
387.4%
58.4%
28.4%
41.6%
35.1%
20.4%
80.2%
32.3%
49.2%
N.A.
29.4%
34.6%
35.1%
FY2005
40.8%
25.8%
129.1%
49.9%
27.9%
42.3%
38.5%
20.6%
47.1%
28.2%
N.A.
N.A.
29.0%
35.4%
36.9%
FY2006
39.5%
27.4%
73.1%
54.9%
36.0%
41.7%
38.1%
26.5%
48.7%
28.5%
48.2%
N.A.
32.1%
36.9%
38.1%
FY2007
34.7%
37.3%
60.5%
56.5%
38.5%
41.5%
38.1%
29.8%
46.2%
30.3%
49.0%
81.9%
32.1%
38.4%
38.5%
FY2008
34.0%
37.0%
55.2%
56.5%
35.9%
40.0%
38.4%
30.8%
50.0%
29.2%
49.0%
69.3%
32.4%
41.2%
39.2%
FY2009
32.9%
36.1%
45.9%
54.3%
33.2%
39.7%
37.2%
31.1%
39.9%
27.7%
45.1%
63.6%
32.0%
41.0%
38.4%
FY2010
35.7%
36.1%
42.5%
55.1%
31.3%
38.6%
35.1%
30.6%
35.2%
26.9%
41.9%
58.7%
22.3%
39.4%
35.9%
FY2011
38.4%
36.4%
40.8%
54.2%
33.1%
39.5%
34.5%
31.0%
34.0%
28.2%
46.8%
64.7%
23.4%
39.2%
37.4%
FY2012
42.0%
39.2%
40.2%
65.7%
35.4%
39.6%
37.9%
32.6%
33.7%
37.0%
50.0%
71.2%
26.0%
43.8%
39.4%
'03-12
CAGR
37.9%
19.3%
77.1%
N.A.
15.2%
19.4%
14.9%
24.0%
N.A.
13.9%
9.2%
N.A.
14.6%
11.5%
15.2%
'07-12
CAGR
40.5%
10.4%
49.7%
0.6%
9.6%
12.2%
17.4%
17.2%
30.3%
12.6%
4.7%
N.A.
7.4%
6.0%
12.2%
YTD
YTD
FY2012
FY2013
$65.0
$72.2
1,235.5
1,106.6
202.3
146.0
475.4
458.6
560.4
556.3
83.0
82.6
791.0
754.7
898.7
829.5
80.3
94.2
209.0
205.3
105.1
100.4
81.9
90.0
65.2
65.3
138.1
126.9
$4,990.8 $4,688.5
YTD
FY2012
43.2%
37.9%
39.9%
59.8%
35.4%
38.5%
37.9%
32.6%
34.0%
31.1%
53.0%
71.2%
22.0%
44.2%
38.2%
YTD '12-13
% chg.
11.1%
-10.4%
-27.9%
-3.5%
-0.7%
-0.6%
-4.6%
-7.7%
17.3%
-1.8%
-4.5%
9.9%
0.2%
-8.1%
-2.7%
YTD
FY2013
43.8%
39.0%
34.8%
72.2%
34.8%
39.5%
38.2%
33.2%
33.2%
37.5%
57.3%
69.7%
24.2%
44.6%
38.6%
operations where available. Restated line item data was not available for Lincoln Educational Services for 2005. We have removed stock-based
compensation costs and one-time items where disclosed. Source: BMO Capital Markets and company reports.
For-profits
typically spend
more on noninstructional
costs than notfor-profits
A member of BMO
While at one time, for-profit schools spent less on non-instructional costs than their not-forprofit peers, this may no longer be the case, especially when one strips out hospital services
expense from the not-for-profit schools, a service that most for-profits do not provide. As
shown in Exhibit 235, when looking at the category entitled academic and institutional
support and student services, the for-profit sector spent roughly 50.2% of revenues on this line
item in FY2011 (latest data available) more than twice as much as the public and private
not-for-profit schools, which spent 21.5% and 22.3%, respectively.
Financial Group
207
September 2013
BMO Capital Markets
Exhibit 235. Non-Instructional Costs as a Percentage of Revenues (FY2011)

Revenues
Less than
2-Year
100.0%
2-Year
100.0%
4-Year
100.0%
All Less than
Schools
2-Year
100.0%
100.0%
2-Year
100.0%
4-Year
100.0%
Private For-Profit
All Less than
Schools
2-Year
100.0%
100.0%
2-Year
100.0%
4-Year
100.0%
All
Schools
100.0%
Instructional costs
Gross margins
Net grant aid
46.8%
53.2%
39.0%
61.0%
26.7%
73.3%
29.1%
70.9%
45.6%
54.4%
38.5%
61.5%
24.0%
76.0%
24.0%
76.0%
32.0%
68.0%
27.1%
72.9%
18.1%
81.9%
22.0%
78.0%
29.3%
0.6%
0.0%
0.0%
10.2%
40.0%
31.2%
1.6%
4.8%
0.0%
17.1%
54.7%
19.2%
17.4%
9.5%
0.0%
18.4%
64.5%
21.5%
14.4%
8.6%
0.0%
18.2%
62.6%
37.8%
1.0%
0.0%
0.1%
11.9%
50.8%
45.0%
0.3%
3.8%
0.2%
10.8%
60.1%
22.2%
9.5%
7.0%
0.4%
10.6%
49.6%
22.3%
9.5%
7.0%
0.4%
10.6%
49.6%
36.6%
0.4%
0.0%
0.2%
12.9%
50.1%
42.9%
0.1%
1.8%
0.2%
11.5%
56.6%
55.5%
0.1%
1.6%
0.3%
3.4%
60.9%
50.2%
0.1%
1.4%
0.3%
6.5%
58.5%
Surplus/deficit (i.e., operating margins)
13.1%
6.3%
8.8%
8.3%
3.6%
1.4%
26.5%
26.4%
18.0%
16.3%
21.0%
19.5%
In its annual report entitled Trends in College Spending, the Delta Cost Project tracked the
average amount spent in various line items per FTE student by school type. For purposes of our
analysis, we have defined non-instructional costs as student services. Academic and
institutional support and have excluded other costs such as research and public service, which
we acknowledge are sizeable. When measured in constant dollars from the 2000 to 2010 school
years, changes in non-instructional costs per FTE varied, remaining relatively flat at most
schools, though falling at community colleges, and rising at private not-for-profit institutions
(see Exhibit 236).
Exhibit 236. Non-Instructional Costs per FTE Student (2000 2010

School Years)
School type
Public not-for-profit research institution
Public not-for-profit masters
Public not-for-profit bachelors
Community college
Private not-for-profit research institution
Private not-for-profit masters
Private not-for-profit bachelors
Cost per FTE Student

2000
2010
$9,952
$11,581
4,770
5,031
5,287
5,462
4,143
3,787
12,587
15,952
7,255
8,420
9,753
11,042
CAGR
1.5%
0.5%
0.3%
-0.9%
2.4%
1.5%
1.2%
Source: BMO Capital Markets and Delta Cost Project.
While the Delta Cost Project did not provide comparable data for the for-profit sector, it is
believed that for-profit schools on average spend more per student on instructional costs per
FTE student than their not-for-profit peers. We believe a sizeable portion of this difference is
driven by higher sales and marketing expense at for-profit schools. While not all companies
report this expense (which includes advertising, compensation for enrollment counselors, and
other associated expenses) as a separate line item, we believe the analysis on those that do is
apropos for analyzing trends across the entire sector.
A member of BMO
Financial Group
208
September 2013
BMO Capital Markets
As shown in Exhibit 237, from FY2003 to FY2008, sales and marketing expenses as a
percentage of revenues for these companies increased to 25.5% from 18.1% for the median of
the companies that disclose this data. While this percentage declined to 22.1% in FY2010 as
revenue growth accelerated, it has increased since that time as revenue trends have reversed.
Sales and
marketing
expense has been
increasing as a
percentage of
revenues
Exhibit 237. Sales and Marketing Expense as Percentage of Revenues for Select ForProfit Providers (FY2003FY2013 YTD)
SALES AND MARKETING - FISCAL YEARS
Company
Ticker
FYE
APEI
12
Apollo Group
APOL
8
BPI
12
Career Education
CECO
12
Corinthian Colleges
COCO
6
Capella Education
CPLA
12
EDMC
6
LOPE
12
LINC
12
Strayer Education
STRA
12
Total
FY2003
$2.8
272.3
0.0
N.A.
106.5
22.2
N.A.
N.A.
N.A.
22.8
$426.7
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
$2.2
$4.0
$4.9
$6.7
$12.3
$20.3
$34.1
$44.4
$59.5
383.1
485.5
542.4
650.5
788.0
926.1
1,083.5
1,063.3
1,039.7
2.3
4.1
12.2
36.0
81.0
139.2
209.8
274.5
336.5
327.6
454.0
519.4
462.9
445.4
483.9
510.9
477.9
477.9
169.9
212.0
239.2
247.6
275.4
265.4
326.0
381.5
389.9
35.1
45.6
56.3
69.1
81.9
99.2
120.0
135.0
130.4
N.A.
N.A.
201.4
260.7
354.3
440.5
556.9
646.8
640.5
9.7
14.0
20.1
35.1
64.2
85.3
112.3
119.7
140.9
N.A.
N.A.
59.2
60.5
69.7
77.2
90.7
81.3
68.0
29.4
40.5
51.7
60.1
75.3
93.0
95.5
100.8
98.2
$959.3 $1,259.8 $1,706.7 $1,889.2 $2,247.5 $2,630.2 $3,139.5 $3,325.0 $3,381.4

Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
EDMC
LOPE
LINC
Strayer Education
STRA
Median
FY2003
15.9%
20.3%
0.0%
N.A.
20.8%
27.2%
N.A.
N.A.
N.A.
15.5%
18.1%
FY2004
9.5%
21.3%
181.8%
22.3%
21.9%
29.8%
N.A.
38.0%
N.A.
16.1%
22.1%
FYE
12
8
12
12
6
12
6
12
12
12
FY2005
14.3%
21.6%
51.3%
24.8%
22.8%
30.6%
N.A.
27.1%
N.A.
18.4%
23.8%
FY2006
12.2%
21.9%
42.7%
29.0%
26.3%
31.3%
17.2%
27.9%
19.0%
19.6%
24.1%
FY2007
9.7%
23.9%
42.0%
27.7%
26.9%
30.6%
19.1%
35.4%
18.5%
18.9%
25.4%
FY2008
11.5%
25.1%
37.1%
26.8%
25.8%
30.1%
21.0%
39.8%
18.5%
19.0%
25.5%
FY2009
13.6%
23.4%
30.6%
26.4%
22.4%
29.6%
21.9%
32.6%
14.0%
18.2%
22.9%
FY2010
17.2%
22.0%
29.4%
24.5%
20.2%
28.2%
22.2%
29.1%
14.2%
15.0%
22.1%
FY2011
17.0%
22.5%
29.4%
25.4%
21.8%
31.4%
22.4%
28.0%
16.0%
16.1%
22.4%
FY2012
19.0%
24.4%
34.8%
32.3%
24.6%
30.9%
23.2%
27.6%
16.8%
17.5%
24.5%
'03-12
CAGR
40.3%
16.0%
N.A.
N.A.
15.5%
21.7%
N.A.
N.A.
N.A.
17.6%
17.6%
'07-12
CAGR
54.7%
9.8%
56.4%
0.6%
9.5%
13.5%
19.7%
32.0%
2.4%
10.3%
11.9%
YTD
YTD
FY2012
FY2013
$28.7
$32.5
774.5
693.6
175.9
112.8
248.4
220.1
389.9
395.1
65.8
62.8
640.5
569.5
67.1
79.4
N.A.
N.A.
43.8
44.5
$2,434.6 $2,210.4
FY2012
19.1%
23.8%
34.7%
31.2%
24.6%
30.5%
23.2%
28.4%
N.A.
14.8%
24.6%
'12-13
% chg.
13.4%
-10.4%
-35.9%
-11.4%
1.3%
-4.5%
-11.1%
18.3%
N.A.
1.7%
-4.5%
FY2013
19.7%
24.5%
26.9%
34.6%
24.7%
30.1%
22.8%
28.0%
N.A.
16.5%
24.7%
Note: Data represent fiscal years. Data used for Career Education, Corinthian Colleges and Lincoln Educational Services excludes discontinued
operations where available. N.A. Not Available.
Source: BMO Capital Markets estimates and company reports.
Legislative
proposals to limit
marketing
expenses
A member of BMO
A number of recent legislative proposals would restrict marketing spending by for-profit

schools. They include the following:
On July 30, 2012, the HELP Committee released its long-awaited report on the sector
entitled For-Profit Higher Education: The Failure to Safeguard the Federal Investment and
Ensure Student Status. The report was long on data and criticism of the sector and made a
number of recommendations including examining tying Title IV access to minimum
student outcome thresholds and prohibiting Federal funds from being used for marketing,
advertising, and recruiting activities.
On March 12, 2013 a bill that had previously introduced in the prior Congress called The
Protecting Financial Aid for Students and Taxpayers Act was reintroduced in the Senate (S.
528) sponsored by Senator Kay Hagan (D-NC) and in the House (HR 340) by
Representative Raul Grijalva (D-AZ). The bill would prohibit postsecondary educational
institutions from using revenues derived from federal educational assistance funds for
(1) advertising and promotion, (2) identifying and attracting prospective students, or
(3) other activities the Secretary of Education may proscribe, such as paying for the
promotion or sponsorship of education or military-related associations.
Another bill proposed in September 2012 by Representatives John Tierney (D-MA) and
George Miller (D-CA), The College Student Rebate Act (H.R. 6407), would have required
for-profit schools to spend more than 80% of revenue on educational and related services
(excludes advertising, excessive executive compensation, lobbying, etc.). If a school spends
less than 80%, the difference is rebated to the government or students. The follows the
framework of the 80/20 rule contained in the Affordable Care Act (Obamacare).
Financial Group
209
September 2013
BMO Capital Markets
The admissions process is often described as a funnel, whereby schools generate inquiries or
leads, which then are whittled down until the potential students are admitted, then enrolled, and
then actually show up for class. A graphical depiction of this process is found in Exhibit 238.
Exhibit 238. Admissions Funnel
Inquiry
Visit
Application
Acceptance
Enrollment
Admission
Start
A number of different metrics are used in an attempt to measure the effectiveness of sales and
marketing spending at points along this funnel:
Cost per lead (CPL) - costs for admissions, recruiting, and marketing divided by the
number of leads.
Cost per applicant - costs for admissions, recruiting, and marketing divided by the
number of applicants.
Conversion rate (inquiry to applicant ratio) - measures the percentage of leads that
are converted into applications.
Application to admit ratio - measures the percentage of applications that are granted
acceptance to the institution.
Cost per accepted (CPA) - costs for admissions, recruiting, and marketing divided by
the number of students accepted.
Lead-to-start rate (inquiry-to-start ratio) - measures the percentage of applications
that are converted to new students.

A member of BMO
Financial Group
210
September 2013
BMO Capital Markets
Show rate (yield rate) - measures the percentage of those admitted that actually enroll,
calculated as the number of enrollments divided by the number of admitted.
Cost per start (CPS) (cost per enrolled, cost per new student, student acquisition
cost) - costs for admissions, recruiting, and marketing divided by the number of new
students enrolled.
Inquiry to
enrollment ratio
has remained
fairly stable over
time
We obtained benchmark data from the annual Noel Levitz Admissions Funnel Report for fouryear not-for-profit schools on a number of the ratios (non-costs) mentioned above. As shown in
Exhibit 239, while these metrics have fluctuated a bit, the overall inquiry to enroll ratio has
remained fairly stable over time, although it had been increasing slightly at public four-year
institutions driven by slightly higher yield rates, which tend to increase as the economy worsens,
although somewhat on a lagged basis. As would be expected, private not-for-profit institutions
tend to have tougher (i.e., lower) admission rates than what are typically less selective public
not-for-profit institutions (though some high profile public institutions such as the University of
Michigan are more selective than their private counterparts).
Exhibit 239. Higher Education Admission Ratios (Fall 2001Fall 2012)

2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Four-year public institutions:

(1) Inquiry to application
(2) Application to admit (all applications)
(1*2) Inquiry to admit
(3) Admit to enroll (yield)
(1*2*3) Inquiry to enroll
22%
77%
17%
46%
8%
24%
72%
17%
49%
8%
27%
70%
19%
47%
9%
25%
73%
18%
43%
8%
28%
70%
20%
42%
8%
31%
67%
21%
39%
8%
33%
66%
22%
38%
8%
34%
65%
22%
43%
10%
35%
66%
23%
41%
9%
33%
69%
23%
40%
9%
33%
66%
22%
38%
8%
Four-year private institutions:

(4) Inquiry to application
(5) Application to admit (all applications)
(4*5) Inquiry to admit
(6) Admit to enroll (yield)
(4*5*6) Inquiry to enroll
9%
79%
7%
40%
3%
10%
76%
8%
36%
3%
12%
75%
9%
36%
3%
13%
72%
9%
35%
3%
14%
70%
10%
35%
3%
13%
73%
9%
33%
3%
13%
71%
9%
31%
3%
15%
65%
10%
29%
3%
15%
66%
10%
29%
3%
17%
64%
11%
31%
3%
16%
64%
10%
29%
3%
Note: 2002 data was not available. Source: Noel Levitz Admissions Funnel Report.
Costs per student

fell dramatically in
the fall 2011
school year,
though likely
owing to more
students
A member of BMO
We also obtained benchmark data from the annual National Association for College Admissions
Counselings (NACAC) State of College Admissions reports for not-for-profit schools on a
number of the cost metrics mentioned above. As shown in Exhibit 240, these costs tend to be
higher at private not-for-profit than at public not-for-profit schools, likely owing to the greater
selectively at the private schools. We note that recruiting-related costs, when measured on a per
student basis, fell dramatically in the fall 2011 school year, though this may be owing to
increased numbers of students rather than declining costs trends.
Financial Group
211
September 2013
BMO Capital Markets
Exhibit 240. Costs to Recruit and Enroll (Fall 2004Fall 2011)

2004
Cost per Applicant:
Total
2005
2006
2007
2008
2009
2010
2011
$432
$442
$614
$578
$506
$524
$585
$439
Public College
Private College
191
538
217
533
324
720
343
668
299
590
322
614
349
691
236
575
Change from prior year:

Total
N.A.
2.2%
39.0%
-5.9%
-12.4%
3.4%
11.7%
-25.0%
Public College
Private College
N.A.
N.A.
13.5%
-0.9%
49.5%
35.1%
5.7%
-7.2%
-12.8%
-11.7%
7.8%
3.9%
8.3%
12.6%
-32.4%
-16.8%
$651
$714
$880
$836
$865
$843
$806
$675
Public College
Private College
299
805
328
867
463
1,034
470
977
457
1,022
463
1,006
449
965
371
861

Total
N.A.
9.7%
23.2%
-4.9%
3.4%
-2.6%
-4.4%
-16.2%
Public College
Private College
N.A.
N.A.
10.0%
7.7%
41.1%
19.4%
1.5%
-5.6%
-2.8%
4.6%
1.2%
-1.6%
-2.9%
-4.0%
-17.4%
-10.8%
Cost per Admitted:

Total
Cost per Enrolled:

Total
Public College
Private College
$1,684
$1,753
$2,350
$2,366
$2,383
$2,553
$2,408
$2,311
594
2,146
667
2,167
1,083
2,802
1,002
2,895
974
2,954
1,046
3,199
987
3,043
995
3,118

Total
N.A.
4.1%
34.1%
0.7%
0.7%
7.1%
-5.7%
-4.0%
Public College
Private College
N.A.
N.A.
12.3%
1.0%
62.2%
29.3%
-7.4%
3.3%
-2.8%
2.1%
7.4%
8.3%
-5.7%
-4.9%
0.8%
2.5%
N.A. Not Available. Source: NACAC (National Association for College Admission Counseling) Annual State
of College Admissions.
Unfortunately, it was difficult to obtain similar benchmark data for the for-profit sector.
However, we attempted to calculate cost per start (CPS) for the publicly held for-profit
providers where information was available (i.e., sales and marketing expenses and number of
starts). While we acknowledge the limitations of this analysis (i.e., sales and marketing
expenses in one year may lead to starts in the following period, only a handful of companies
report both starts and sales and marketing data), we nevertheless believe it can yield some
meaningful insights.
Costs per start
vary dramatically;
APEI is lowest
owing to military
focus; increasing
for most of rest of
industry
A member of BMO
As shown in Exhibit 241, cost per start in FY2012 varied dramatically from a low of $686 for
American Public Education (APEI) to a high of $6,182 for Career Education (estimated).
While the data for APEI represents the cost per new course registration, as opposed to new
student (i.e., if a student takes two courses, it is considered two course registrations), we
nevertheless believe APEIs costs per start are dramatically lower than the other publicly held
providers; APEIs military focus helps it gain marketing efficiencies, in our view, in that it
targets Education Service Officers, who serve on military bases as central repositories for
education-related sources, as opposed to the military personnel themselves. While we expect
APEIs cost per start to continue to rise as it shifts more of its focus on expanding its presence
Financial Group
212
September 2013
BMO Capital Markets
in the civilian market (it has since FY2009), it will not likely approach the levels of the other
publicly held providers. We note that costs per start for most others in the group have been
increasing dramatically, mostly owing to steep declines in start with no commensurate cut in
marketing spending.
Exhibit 241. Cost per Start for Select For-Profit Providers (FY2003-FY2013 YTD)
Company
Apollo Group
Career Education
Corinthian Colleges
MEDIAN
Ticker
APEI
APOL
BPI
CECO
COCO
EDMC
LINC
FYE
12
8
12
12
6
6
12
FY2003
N.A.
N.A.
N.A.
N.A.
$1,875
N.A.
N.A.
$1,875
FY2004
N.A.
N.A.
N.A.
N.A.
$1,925
N.A.
N.A.
$1,925
FY2005
N.A.
N.A.
N.A.
N.A.
$2,311
N.A.
N.A.
$2,311
FY2006
$338
2,504
2,196
N.A.
2,764
4,045
2,620
$2,562
FY2007
$272
2,516
2,386
4,777
2,791
4,261
2,500
$2,516
FY2008
$334
2,734
2,212
4,401
2,748
4,597
2,564
$2,734
FY2009
$406
2,603
2,263
4,084
2,511
4,486
2,070
$2,511
FY2010
$584
2,915
2,548
3,880
2,594
4,428
2,454
$2,594
FY2011
$512
4,907
3,743
6,182
3,505
5,422
4,070
$4,070
FY2012
$686
4,798
4,588
6,182
3,582
5,369
3,404
$4,588
'03-12
CAGR
N.A.
N.A.
N.A.
N.A.
7.5%
N.A.
N.A.
7.5%
'07-12
CAGR
20.3%
13.8%
14.0%
5.3%
5.1%
4.7%
6.4%
6.4%
YTD
FY2012
$715
4,725
4,037
6,535
3,582
5,369
N.A.
$4,381
YTD
FY2013
$878
5,259
4,721
7,831
3,720
5,618
N.A.
$4,990
YTD '12-13
% chg.
22.9%
11.3%
16.9%
19.8%
3.9%
4.6%
N.A.
14.1%
Note: Data represents fiscal years. Data for American Public Education represents costs per new course registration. Data used for Career
Education, Corinthian Colleges and Lincoln Educational Services excludes discontinued operations where available. N.A. Not Available.
Source: BMO Capital Markets estimates and company reports.
While advertising tends to be less than half of the total selling and marketing budget, it has
received the most investor attention in recent years given its volatility (e.g., Great Recession
saw a decline in TV rates, which have since escalated) and greater profile. Fortunately,
several companies report their advertising costs on an annual basis even those that do not
break out sales and marketing expenses. As shown in Exhibit 242, while there is limited
historical data, advertising expenses as a percentage of revenues has ranged between 9% and
12% for much of the last decade, increasing in recent years as revenues have declined. By
comparison, consumer goods giant Procter & Gamble (PG) spends roughly 10% of revenues
on advertising costs.
Advertising has
ranged between
9% and 12% of
revenues for the
median of the
group, increasing
in recent years
Exhibit 242. Advertising Expense and as a Percentage of Revenues for Select For-Profit
Providers (FY2003-FY2013 YTD)
ADVERTISING COSTS - FISCAL YEARS
Company
Ticker
FYE
APEI
12
Apollo Group
APOL
8
BPI
12
Career Education
CECO
12
Corinthian Colleges
COCO
6
Capella Education
CPLA
12
DeVry
DV
6
EDMC
6
LOPE
12
LINC
12
5
UTI
9
Total
FY2003
N.A.
$126.5
N.A.
N.A.
63.1
12.2
N.A.
35.0
N.A.
17.5
N.A.
7.9
$262.2
FY2004
$0.7
174.6
N.A.
164.7
104.6
17.8
N.A.
46.2
N.A.
22.3
N.A.
12.0
$542.9
FY2005
$1.8
224.0
1.5
218.0
133.3
22.9
88.2
63.5
3.4
25.6
N.A.
16.2
$798.3
FY2006
FY2007
FY2008
FY2009
FY2010
$1.8
$2.9
$6.4
$12.1
$22.0
231.6
338.8
413.9
490.4
618.6
5.0
15.1
26.9
40.7
63.0
260.7
241.4
248.9
291.7
300.4
148.4
152.8
156.0
150.0
145.5
30.3
35.1
42.5
51.6
64.3
107.1
112.6
135.1
179.4
224.1
91.4
132.4
165.6
218.1
259.7
4.7
10.2
18.5
24.8
35.6
28.9
31.1
33.8
40.9
46.7
N.A.
6.2
5.3
6.2
7.6
22.8
27.3
26.4
23.7
32.6
$932.7 $1,106.0 $1,279.3 $1,529.6 $1,820.1

Company
Ticker
APEI
Apollo Group
APOL
BPI
Career Education
CECO
Corinthian Colleges
COCO
Capella Education
CPLA
DeVry
DV
EDMC
LOPE
LINC
UTI
Median
FY2003
N.A.
9.4%
N.A.
N.A.
12.3%
15.0%
N.A.
5.5%
N.A.
9.3%
N.A.
4.0%
9.4%
FY2004
3.1%
9.7%
N.A.
11.2%
13.5%
15.1%
N.A.
5.4%
N.A.
9.0%
N.A.
4.7%
9.3%
FY2005
6.2%
10.0%
18.9%
11.9%
14.3%
15.3%
11.3%
6.2%
6.6%
8.9%
N.A.
5.2%
10.0%
FY2006
4.5%
9.3%
17.5%
14.6%
16.3%
16.8%
12.8%
7.8%
6.5%
9.3%
N.A.
6.6%
9.3%
FYE
12
8
12
12
6
12
6
6
12
12
5
9
FY2007
4.2%
12.4%
17.6%
14.5%
16.6%
15.5%
12.1%
9.7%
10.3%
9.5%
14.0%
7.7%
12.3%
FY2008
6.0%
13.2%
12.3%
15.0%
14.6%
15.6%
12.4%
9.8%
11.5%
9.0%
10.8%
7.7%
11.9%
FY2009
8.1%
12.4%
9.0%
15.9%
12.7%
15.4%
12.3%
10.8%
9.5%
7.4%
9.8%
6.5%
10.3%
FY2010
11.1%
12.6%
8.8%
14.4%
9.0%
15.1%
11.7%
10.4%
9.2%
7.3%
8.5%
7.5%
9.8%
FY2011
$29.3
650.1
84.0
300.4
153.4
80.7
246.9
300.0
45.6
43.4
10.5
34.6
$1,978.9
FY2012
$41.9
657.0
103.7
287.2
166.4
81.1
266.0
280.0
51.0
34.2
16.0
42.1
$2,026.7
FY2011
11.3%
13.7%
9.0%
16.0%
8.8%
18.8%
11.3%
10.4%
10.7%
8.5%
10.0%
7.7%
10.5%
FY2012
13.4%
15.4%
10.7%
19.4%
10.5%
19.2%
12.8%
10.1%
10.0%
8.4%
13.9%
10.2%
11.7%
'03-12
CAGR
N.A.
N.A.
N.A.
N.A.
11.4%
23.4%
N.A.
26.0%
N.A.
7.7%
N.A.
20.4%
20.4%
'07-12
CAGR
70.5%
14.2%
47.0%
3.5%
1.7%
18.2%
18.8%
16.2%
38.0%
1.9%
20.7%
9.1%
17.2%
YTD
FY2012
N.A.
$477.6
N.A.
154.5
166.4
N.A.
266.0
280.0
N.A.
N.A.
16.0
32.2
$1,392.8
YTD
FY2013
N.A.
$489.4
N.A.
145.2
177.7
N.A.
261.0
270.0
N.A.
N.A.
12.4
28.2
$1,383.8
FY2012
N.A.
14.7%
N.A.
19.4%
10.5%
N.A.
12.8%
10.1%
N.A.
N.A.
13.9%
10.3%
12.8%
FY2013
N.A.
17.3%
N.A.
22.8%
11.1%
N.A.
13.2%
10.8%
N.A.
N.A.
9.6%
9.9%
11.1%
'12-13
% chg.
N.A.
2.5%
N.A.
-6.0%
N.A.
N.A.
-1.9%
-3.6%
N.A.
N.A.
-22.5%
-12.6%
-4.8%
operations where available. N.A. Not Available. Source: BMO Capital Markets and company reports.
A member of BMO
Financial Group
213
September 2013
APOL and ESI are

among the largest
US media
spenders across
all industries
BMO Capital Markets
These increased spending levels have raised the ranking of certain for-profit companies
among all US companies. Each year, Advertising Age lists the Top 200 Megabrands, a
ranking of goods and services under the same brand name by measured media spending in the
US. Apollo Groups (APOL) University of Phoenix first made the list in 2003, joined by ITT
Educational Services (ESI) in 2004. Over those periods, University of Phoenix has been
ranked as high as number 85 (2010), while ITT Educational Services reached a high of 124 in
2008. In the 2012 (latest) ranking, APOL and ESI spent roughly $154 million and $93
million, respectively (see Exhibit 243), with APOL spending more than such household
names as Applebees and IBM. We believe the sizeable increase for University of Phoenix in
2010 was more of a branding initiative as APOL tried to position the school as a high-quality
provider.
Exhibit 243. Apollo Group (APOL) and ITT Educational Services

(ESI) Media Spending (20032012)
Measured Media Spending ($ mil.)
$200
ITT Educational Services (ESI)
170
140
110
80
50
20
-10
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Advertising Age.
Changes in
advertising
spending are
cyclical
A member of BMO
We believe some of the increase in advertising expense in the last decade was related to the
overall increase in advertising costs, which is typically cyclical. As shown in Exhibit 244,
after falling during the 2001 recession, US advertising spending grew at a 3.5% CAGR to
roughly $168 billion in 2007 from roughly $136 billion in 2001. However, the Great
Recession took its toll on this industry, as revenues fell to just under $134 billion in 2009, a
20.4% drop over the two-year period. The economic recovery has helped to once again spur
growth, with industry revenues increasing 3.6% CAGR, reaching an estimated $155 billion in
2013. MAGNA Media forecast growth to accelerate a bit, with US advertising revenues
increasing 4.4% annually to nearly $192 billion in 2018.
Financial Group
214
September 2013
BMO Capital Markets
Exhibit 244. US Advertising Spending (19992018E)

15%
190
10%
180
5%
170
0%
160
-5%
150
y/y % change
y/y % change
-10%
140
130
-15%
120
-20%
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
18
E
Total spending ($ in bil.)
US Advertising
$200
Note: Shaded area represents recessionary period. Source: MAGNA Media Advertising Forecast
But online
advertising is still
in a secular
growth phase
However, this masks the secular trend of the increase in online advertising an industry that really
only began to develop in the mid-1990s. With the growth in search engines and other related tools,
online advertising did not fare as badly as the overall advertising market during the past two
recessions. In addition, its growth in the post-recession periods has been even stronger; since 2009,
US online advertising revenues has increased at a 15.2% CAGR to nearly $41 billion in 2013
(estimated), representing over 26% of all advertising dollars spent. MAGNA Media forecasts
continued growth, with US online advertising revenues projected to increase at a 11.6% CAGR,
generating nearly $71 billion in revenues in 2018, or nearly 37% of total US advertising spending
that year (see Exhibit 245).
Exhibit 245. US Online Advertising Spending as Percentage of

Total (19992018E)
% of total
35%
50
30%
20%
30
15%
20
10%
20
09
20
10
20
11
20
12
E
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
08
0%
20
04
20
05
20
06
20
07
0
20
02
20
03
5%
20
01
10
Note: Shaded area represents recessionary period. Source: MAGNA Media Advertising Forecast.
Internet - fastest
growing source of
new students
A member of BMO
Over the past decade, we have seen a dramatic increase in the use of online advertising for both
for-profit and not-for-profit schools. According to the US Custom Education Study by Compete,
Inc. (3Q 2011), roughly 1 in 4 education researchers never look to courses outside the web,
while 8 of 10 students apply online.
Financial Group
215
September 2013
% of total
25%
40
19
99
20
00
Total spending ($ in bil.)
US Online Advertising
$60
BMO Capital Markets
While few of the publicly held companies consistently disclose their new student enrollment by
source, we believe the internet has been the fastest growing source of new students, taking share
from such old media sources as TV, print, and radio, as well as referrals. The internet will likely
become the top source of leads for most companies in this sector over the next few years; we
believe it is already for those companies with a larger online presence.
Online lead costs
could rise,
following trends
seen with
traditional media
leads
Some companies
backward
integrated by
purchasing leadgeneration
providers
Scrutiny on the
industry has led
to slower growth
in online leads
During the Great Recession, many companies cited decreasing costs per online lead, as
economic pressures led many third-party advertisers to increase their exposure to the
education sector one of the largest buyers of interactive leads with this increased
competition holding back increases in lead prices. However, as the economy rebounded, cost
per online lead have increased, following trends already being seen with traditional media
(e.g., cable TV) leads.
Some companies in the sector have taken actions on their own to rein in these costs. Among
the most aggressive is Apollo Group (APOL), which arguably spends more on internet
advertising than any other company in the sector and is one of the top internet advertisers
overall. In October 2007, APOL purchased online advertising network Aptimus for
$48 million in a move to essentially in-source some of this spending and keep a lid on these
costs (this purchase also signaled to us that its February 2006 decision to enter into an
exclusive relationship with Advertising.coms affiliate network may not have worked out as
initially hoped). Since then, other lead-generation providers have been purchased by
postsecondary providers, including the October 2007 purchase of CourseAdvisor by The
Washington Post Company (WPO), owner of Kaplan Higher Education.
The recent regulatory and media scrutiny of the sector (see details later in this section) has
also led to many companies proactively slowing their recruiting efforts by shifting the focus
to outcomes (e.g., retention and graduation rates) from inputs (e.g., new students). While this
could lead to companies reducing their external marketing spending, it may shift the focus to
higher converting leads (e.g., referrals, high school recruiting) rather than purchasing online
leads. Many providers in the business have cited less reliance on so-called lead aggregators,
marketing firms that act as middlemen between the schools and affiliates, i.e. other websites
that collect potential student leads, given their relatively lower conversion rates. While this
may slow the purchase of online leads, we still believe online leads will be the largest lead
source for most companies in the sector.
We note the trade-off between advertising spending and enrollment growth could be
substantial, and those companies that focus on managing these costs for the near term could
be sacrificing future top-line growth. Nevertheless, while the for-profit sector was once
notorious for its if you spend it, they will come mentality, we no longer believe that to be
the case.
Cost per lead and

conversion rates
can vary by
source
A member of BMO
Historically, most investors were concerned with costs per inquiry (or cost per lead; CPL),
which had been rising by specific media type along with increasing advertising rates during
last decades economic expansion. The CPL varies based on the type of student being targeted
(e.g., online versus campus, allied health versus MBA) and how targeted the schools wish to be
(e.g., certain zip codes, age, etc.). While it may be misleading to show specific rates, in a March
2013 presentation by Gragg Advertising, CPLs conversion rates and costs per start for the forprofit sector were provided based on the companys recent experience by source and campus
type (see Exhibit 246).
Financial Group
216
September 2013
BMO Capital Markets
Exhibit 246. Cost per Lead and Conversion Rates by Source and
Campus Type: For-Profit Schools (2013)
Source
Pay-per-lead: Ground
Pay-per-lead: Online
Search engine marketing: Ground
Search engine marketing: Online
Website: Ground
Website: Online
Cost per
Lead to Start
Inquiry
Conversion %
$49.50
2.71%
51.17
1.01%
104.98
5.49%
153.70
1.05%
8.02%
2.62%
Cost per
Start
$1,828.12
5,078.73
1,913.84
14,609.19
Source: Gragg Advertising.
At one time, online CPLs were less than half the rates of those from traditional lead sources, but
that price gap has disappeared for the most part. Typically, as online leads are considered lower
quality (i.e., a student less focused on one particular school), admissions representatives must work
harder to convert these leads, taking up more of their time per lead, likely making these folks less
productive when measured by the number of leads they converted within a specific timeframe. As
such, online leads typically convert at lower rates when compared with leads from traditional
media sources. In a June 2010 presentation at the Association of Private Sector Colleges and
Universities (formerly Career College Association) Convention, Gragg Advertising stated that an
inbound call was 65% more likely to convert to a start than an inquiry that requires an outbound
phone call (i.e., internet leads).
Internet leads
typically convert
at lower rates
Reasons vary by
age when looking
at show rates
A member of BMO
Conversion rates for internet leads tend to vary dramatically depending on whether the lead is
generated by networks that obtain single leads for multiple schools (known as co-registered),
which have lower conversion rates, or from a schools website, which tend to convert at higher
rates as these students are likely more focused on attending a specific school. Many companies
provide leads for postsecondary schools (to be discussed in detail later in this report), although a
number of school operators have stated the quality of these leads can vary greatly.
Interestingly, some schools have cited low show rates (i.e., percentage of admitted students
that actually begin their classwork) as one reason for declining enrollments. This is
particularly an issue for schools that recruit traditional students, as there is typically more lead
time between when they choose a specific institution (e.g., spring) and when they begin
classes (e.g., fall). While coaching services provider InsideTrack conducted their survey of
reasons students did not start college in 2010, we believe many of those reasons still apply
today. As shown in Exhibit 247, each age group has slightly different reasons, with younger
students (under 25) citing suitability as their top reason, those between 25-39 citing finances,
and those 40 and over citing a competitor.
Financial Group
217
September 2013
BMO Capital Markets
Exhibit 247. Reasons for Not Starting at College (2010)

Nonstart reason
Competitor
Suitability
External
Finances
Delayed start term
Program not offered
Administrative
Commitment to degree
Not interested
Managing commitments
All Students
Rank
Percent
1
18.2%
2
17.9%
3
17.8%
4
13.9%
5
13.4%
6
11.6%
7
3.0%
8
1.9%
9
1.1%
10
0.9%
Under 25
Rank
Percent
2
20.6%
1
32.8%
5
7.8%
4
13.9%
3
20.0%
25 - 39
Rank
Percent
2
23.3%
4
18.8%
2
23.3%
1
25.2%
5
9.4%
40 and Over
Rank
Percent
1
25.2%
2
23.3%
4
18.5%
3
23.4%
5
8.6%
Source: InsideTrack 2010 survey.
Non-advertising
expenses has
been declining as
a percentage of
sales and
marketing
expenses
A member of BMO
While advertising has received the most attention, non-advertising costs, such as enrollment
management, marketing, and direct sales, are roughly half of total sales and marketing
expense for postsecondary providers, according to Eduventures. An analysis of the data for
the public companies that disclose both sales and marketing and advertising expense shows
that non-advertising expenses have been declining when measured as a percentage of total
sales and marketing expenses (though increasing as a percentage of revenues as revenues have
fallen; see Exhibit 248). Therefore, we believe it is important for investors to understand
trends in these expense components.
Financial Group
218
September 2013
BMO Capital Markets
Exhibit 248. Non-Advertising Expense as Percentage of Sales and Marketing and

Revenues for Select For-Profit Providers (FY2003FY2012)
NON-ADVERTISING EXPENSES
'07-12
Company
Ticker
FYE
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012
APEI
12
Apollo Group
APOL
BPI
12
Career Education
CECO
12
Corinthian Colleges
COCO
43.4
Capella Education
CPLA
12
10.0
EDMC
N.A.
N.A.
LOPE
12
N.A.
N.A.
LINC
12
N.A.
N.A.
N.A.
$145.8
N.A.
N.A.
CAGR
$1.5
$2.3
$3.1
$3.8
$5.9
$8.2
$12.0
$15.1
$17.5
208.5
261.5
310.8
311.6
374.2
435.7
464.8
413.3
382.7
4.2%
2.6
7.2
20.9
54.1
98.5
146.8
190.5
232.8
61.9%
162.9
236.0
258.7
221.5
196.5
192.2
210.6
177.5
190.7
-2.9%
65.3
78.7
90.8
94.8
119.4
115.4
180.5
228.1
223.5
18.7%
17.3
22.8
N.A.
N.A.
10.6
N.A.
35.8%
26.0
34.0
39.4
47.6
55.7
54.3
49.3
7.7%
110.0
128.3
188.7
222.4
297.2
346.8
360.5
23.0%
15.4
24.9
45.7
60.5
76.7
74.1
89.9
29.2%
30.3
29.4
35.9
36.3
44.0
37.9
33.8
Median
2.8%
18.7%
AS A % OF SALES AND MARKETING EXPENSE

APEI
12
N.A.
67.5%
56.6%
62.8%
56.6%
47.9%
40.5%
35.3%
34.0%
29.5%
Apollo Group
APOL
53.6%
54.4%
53.9%
57.3%
47.9%
47.5%
47.1%
42.9%
38.9%
36.8%
BPI
12
N.A.
N.A.
63.2%
59.1%
58.1%
66.8%
70.8%
70.0%
69.4%
69.2%
Career Education
CECO
12
N.A.
49.7%
52.0%
49.8%
47.8%
44.1%
39.7%
41.2%
37.1%
39.9%
Corinthian Colleges
COCO
40.7%
38.4%
37.1%
38.0%
38.3%
43.3%
43.5%
55.4%
59.8%
57.3%
Capella Education
CPLA
12
44.9%
49.2%
49.9%
46.2%
49.2%
48.1%
48.0%
46.4%
40.2%
37.8%
EDMC
N.A.
N.A.
N.A.
54.6%
49.2%
53.3%
50.5%
53.4%
53.6%
56.3%
LOPE
12
N.A.
N.A.
75.6%
76.7%
70.9%
71.1%
70.9%
68.3%
61.9%
63.8%
LINC
12
N.A.
N.A.
N.A.
66.3%
54.1%
44.0%
37.5%
36.4%
33.8%
27.3%
44.9%
49.7%
53.9%
57.3%
49.2%
47.9%
47.1%
46.4%
40.2%
39.9%
Median
AS A % OF REVENUES
APEI
12
N.A.
6.4%
8.1%
7.6%
5.5%
5.5%
5.5%
6.1%
5.8%
5.6%
Apollo Group
APOL
10.9%
11.6%
11.6%
12.5%
11.4%
11.9%
11.0%
9.4%
8.7%
9.0%
BPI
12
N.A.
N.A.
32.4%
25.2%
24.4%
24.8%
21.7%
20.6%
20.4%
24.0%
Career Education
CECO
12
N.A.
11.1%
12.9%
14.5%
13.3%
11.8%
10.5%
10.1%
9.4%
12.9%
Corinthian Colleges
COCO
8.5%
8.4%
8.5%
10.0%
10.3%
11.2%
9.7%
11.2%
13.0%
14.1%
Capella Education
CPLA
12
12.2%
14.7%
15.3%
14.4%
15.0%
14.5%
14.2%
13.1%
12.6%
11.7%
EDMC
N.A.
N.A.
N.A.
9.4%
9.4%
11.2%
11.1%
11.8%
12.0%
13.1%
LOPE
12
N.A.
N.A.
20.5%
21.4%
25.1%
28.3%
23.1%
19.9%
17.4%
17.6%
LINC
12
N.A.
N.A.
N.A.
4.0%
3.4%
3.5%
2.7%
2.8%
2.5%
2.6%
10.9%
11.1%
12.9%
12.5%
11.4%
11.8%
11.0%
11.2%
12.0%
12.9%
Median
operations where available. N.A. Not Available. Source: BMO Capital Markets and company reports.
While most public companies in this sector have some sort of national marketing function that
typically assists research, strategy, and national recruitment efforts (e.g., high school
recruiting), it is typically supplemented with on-site directors of admissions and recruitment
staff at each campus. We believe the largest portion of non-advertising sales and marketing
expenses relates to compensation for recruiters (sometimes called admissions or enrollment
advisors, representatives, or counselors). According to Eduventures, the typical recruiting
staff person working for a for-profit postsecondary provider interacts with 500-1,500 leads per
year and is expected to convert 10%-15% of these prospects into students. In the 2012 EDU
Advertising and Marketing Survey of for-profit schools conducted by ForProfitedu.com, 5-6
new leads per day was the most common amount given to recruiters. However, recent
regulatory changes including the removal of the safe harbor provisions from the incentive
compensation rule (see details later in this section) have affected the dynamics of this
function, shifting the focus to more of an advisory position than a recruiting one.
A member of BMO
Financial Group
219
September 2013
Increases in sales
and marketing
staff salaries for
not-for-profits
have moderated
recently; likely
higher for forprofits
BMO Capital Markets
We were unable to obtain typical salary data for the marketing functions at for-profit
companies. However, the College and University Association for Human Resources (CUPAHR) compiles an annual salary survey for the non-profit sector. We have compiled some of
the data related to what we believe would be employee categories included in sales and
marketing expense in Exhibit 249. As shown, the median costs for these positions rose, on
average, 2.9% annually between FY2005 and FY2013, although they had increased at higher
annual rates last decade. We believe these salaries provide a proxy for salaries in the for-profit
postsecondary space, although it is likely that the for-profits would pay somewhat higher
salaries commensurate with the greater importance they place on recruiting new students. As
a reminder, both for-profit and not-for-profit institutions whose students are eligible for Title
IV funding (federally financed student loans and grants) are prohibited from providing
incentive compensation to their employees engaged in admissions and financial aid roles
based on enrollment levels.
Exhibit 249. Median Salaries for Typical Sales and Marketing Positions (FY20042005 to
FY2012-2013 School Years)
Title/Category Number
Chief, Enrollment Management (115000)
Chief Campus Marketing Administrator (196460)
Chief Student Admissions Officer (171000)
Director, Admissions and Financial Aid (2081)
Director, Admissions and Registrar (2077)
Associate Director, Admissions (2076)
Admissions Rep-High School Relations (2576)
Median
FY2004-05 FY2005-06 FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 FY2012-13

$96,250
$99,920
$104,000
$106,322
$112,044
$118,648
$120,560
$129,738
$132,349
65,394
68,250
72,100
74,940
77,126
78,320
78,510
79,682
82,265
70,216
75,000
75,920
78,978
83,294
84,605
87,000
90,000
88,597
83,757
90,000
94,700
91,776
93,953
105,913
106,419
90,614
N.A.
62,899
68,108
67,440
69,431
70,065
71,866
73,264
71,654
N.A.
49,110
51,945
52,316
53,150
54,785
54,724
55,608
56,107
N.A.
31,544
32,049
32,392
33,139
33,957
34,581
N.A.
N.A.
N.A.
CAGR
4.1%
2.9%
2.9%
N.A.
N.A.
N.A.
N.A.
2.9%
Note: Data represents fiscal years. N.A. Not Available.

Source: College and University Association for Human Resources (CUPA-HR) Annual Salary Survey.
Recent legislation
proposed to limit
marketing
spending
Given accusations against some for-profit providers regarding the aggressive marketing for
potential students, there has been some legislation proposed to rein in that spending. On April
18, 2012, Senators Kay Hagan (D-NC) and Tom Harkin (D-IA) proposed The Protecting
Financial Aid for Students and Taxpayers Act to prohibit postsecondary schools from using
certain federal funding on advertising, marketing and recruitment. This legislation would
prohibit the use of Pell Grants, federal student loans, the Post-9/11 G.I. Bill, and other
federal education funds for such practices, similar to a current law that bans the use of federal
higher education dollars for lobbying. We note the other revenue sources are beyond Title IV
funds. As noted earlier, this bill was reintroduced in the current Congress.
What was noteworthy was that this proposed legislation would apply to all higher education
institutions not just the for-profit providers. As such, it may have more difficulty passing
given the formidable not-for-profit higher education lobby, though as noted, not-for-profit
providers typically spend less in this area relative to their for-profit peers; the Senators cite
that in FY2009, the 15 large for-profit companies it analyzed spent $3.7 billion or 23% of
their budgets (we infer revenues) in advertising, marketing, and recruiting, while
nonprofit colleges and universities spend an average of 0.5% of their revenues on marketing.
Such comparisons may be misleading, as such expenses such as sports may not be considered
marketing at nonprofit institutions, though they provide strong branding and public
relations opportunities, in our view.
A member of BMO
Financial Group
220
September 2013
BMO Capital Markets
A number of different terms are used when measuring the effectiveness of sales and
marketing expenses. We have outlined them in Exhibit 250 along with some typical
benchmarked costs.
Exhibit 250. Key Sales and Marketing Metrics to Watch

Definition
Postsecondary Norms
For-Profit Norms
Sales and marketing Public company definition varies, but typically

includes compensation for enrollment advisors
expenses as % of
and corporate marketing, advertising costs,
revenues (1)
production of marketing materials, and other
selling and promotional costs.
N.A.
For-profit public
companies most recent
annual average: 24.5%
Lead flow
Measures the number of leads generated from

media (new and traditional) and referrals.
N.A.
N.A.
Cost per lead
Costs for admissions, recruiting and marketing

divided by the number of leads.
N.A.
$50-$154 (2)
All non-profit institutions: $439
N.A.
Term
Cost per applicant (3) Costs for admissions, recruiting and marketing
divided by the number of applications.
Public college: $236

Private college: $575
Conversion
rate (4)
Acceptance
rate
Cost per accepted

student (3)
Measures the percentage of "leads" that actually

are converted into applications. Also known as
the inquiry to application ratio.
Measures the percentage of students that apply
to a school that are actually accepted.
Calculated as number of acceptances divided
by number of applications. Also known as a
selectivity ratio or applications to admit ratio.
Costs for admissions, recruiting, and marketing
divided by the number of students accepted.
N.A.
Public 4-year institutions: 66% (4)
All for-profit institutions: 74%

(5)
Private 4-year institutions: 64% (4)

All non-profit institutions: $675
N.A.

Private college: $861
Lead to admit rate (4) Measures the percentage of applications that

are converted into admitted students. Also
known as the inquiry to admit ratio. Can be
calculated by multiplying inquiry to applications
ratio by application to admit ratio.
Show rate (4)
Cost per start (new

student)
Inquiry to enroll rate

(4)
Measures the percentage of those accepted that

actually enroll. Calculated as number of
enrollments divided by number of acceptances.
Also known as a yield rate or admit to enroll
rate.
N.A.
N.A.
Costs for admissions, recruiting, and marketing

divided by the number of new students enrolled.
Sometimes referred to as cost per start, cost
per enrollee, or student acquisition cost.
All non-profit institutions: $2,311 (3)
Measures the percentage of inquires that

eventually enroll in the institution. Calculated by
multiplying the inquiry to application rate by the
application to admit rate by the admit to
enroll rate.

Private college: $3,118

most recent annual
average: $4,990 (YTD
FY2013) (1)
Note: N.A. Not Available. Sources: (1) BMO Capital Markets calculation for FY2012 to date based on company reports. (2) Gragg Advertising 2013
data. (3) National Association for College Admissions Counseling (NACAC) State of College Admissions Report (fall 2011 data) (4) Fall 2012
Admissions Funnel Report conducted by Noel Levitz (5) For-Profit Higher Education: Growth Innovation and Regulation (Bennett, Lucchesi and
Vedder) using US Department of Education data (2007-2008 school year).
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Postsecondary Schools New Campus Opening and Relocation

Trends
Opening new locations and/or expanding existing locations is a common method used to
foster organic growth. As there are some regulatory restrictions (e.g., obtaining state licensing
approval), the process may take some time, especially when entering a new state.
Most for-profit campuses are relatively small (typically 20,000-40,000 square feet),
typically located in existing facilities (e.g., office complexes) rather than stand-alone
locations, and average a few hundred students; as such, they usually require minimal capital
expenditures. However, for certain programs, such as auto tech, locations are larger (well over
100,000 square feet) and greater capital outlays may be needed to properly equip the facility.
For example, a typical large new campus for auto-tech education provider Universal
Technical Institutes (UTI) requires an initial capital outlay of roughly $4-$5 million, with
about half spent prior to opening and the remainder during the first year of operations.
Minimal capital
outlays except for
certain programs
In Exhibit 251, we have provided a list of the capital expenditures as a percentage of revenues
for a select group of for-profit providers. As shown, for much of the last decade, the median
capital expenditures as a percentage of revenues has ranged in the low- to mid-single digits
for the industry as a whole, though it varies, e.g., companies that offer capital-intensive
programs, such as the auto-tech programs offered by Universal Technical Institute (UTI), tend
to have higher capital expenditures as a percentage of revenue. We note that, as enrollments
have declined, most companies have trimmed their capital spending budgets, focusing on
backfilling existing capacity rather than adding new seats.
Capital spending
varies by program
type; more
hands-on
programs (e.g.,
auto-tech) are
higher
Exhibit 251. Select For-Profit Postsecondary School Operators Capital Expenditures as

a Percentage of Revenues (20032013 YTD)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
MEDIAN
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
12
6
12
6
6
12
12
12
5
12
9
12
FY2003
23.2%
4.2%
0.7%
8.5%
6.7%
4.5%
6.4%
12.6%
N.A.
7.7%
7.0%
N.A.
4.7%
5.9%
5.7%
6.4%
FY2004
11.3%
4.3%
21.0%
9.7%
9.6%
6.4%
5.5%
9.5%
95.1%
5.7%
9.6%
N.A.
6.0%
6.7%
8.8%
9.1%
FY2005
16.4%
3.9%
4.1%
6.9%
8.2%
6.1%
5.5%
7.0%
1.6%
6.8%
7.9%
N.A.
5.6%
14.7%
6.8%
6.8%
FY2006
11.2%
1.8%
4.8%
3.9%
6.2%
8.5%
3.0%
5.6%
3.3%
5.6%
6.2%
N.A.
5.0%
13.3%
4.2%
5.3%
FY2007
9.9%
2.2%
4.2%
3.5%
7.7%
7.1%
4.1%
7.0%
7.5%
3.2%
7.6%
5.6%
4.7%
13.2%
2.9%
5.6%
FY2008
9.3%
3.0%
7.3%
3.2%
5.1%
5.3%
5.8%
9.0%
5.2%
3.5%
5.4%
7.1%
5.2%
5.2%
4.0%
5.2%
FY2009
7.2%
3.2%
5.3%
4.0%
4.2%
4.9%
5.1%
7.5%
9.5%
2.1%
4.3%
1.3%
5.9%
7.8%
4.3%
4.9%
FY2010
11.3%
3.4%
3.7%
6.1%
5.2%
6.0%
6.8%
7.0%
16.2%
2.1%
6.6%
5.2%
7.2%
8.5%
3.0%
6.1%
FY2011
9.6%
3.4%
3.7%
4.2%
6.3%
6.9%
6.2%
4.8%
18.9%
2.1%
7.5%
6.8%
4.8%
6.4%
3.7%
6.2%
FY2012
11.2%
2.7%
2.6%
2.6%
2.7%
5.5%
6.2%
3.4%
20.5%
1.4%
2.2%
11.5%
4.4%
2.7%
4.5%
3.4%
YTD
FY2012
12.6%
2.6%
3.0%
2.5%
2.7%
5.4%
6.2%
3.4%
21.3%
1.8%
2.4%
11.5%
3.3%
2.2%
N.A.
3.1%
YTD
FY2013
6.6%
3.4%
1.6%
1.6%
2.8%
4.9%
5.7%
3.3%
13.4%
0.7%
1.1%
6.7%
1.9%
2.3%
N.A.
3.0%
Note: Data represents fiscal years. N.A. Not Available. Source: BMO Capital Markets and company reports.
Most new campuses accrue start-up losses prior to opening from fit-out costs and premarketing before the first student enrolls. These locations tend to be profitable within a few
months after opening, but cumulative breakeven points are generally reached within a few
months (e.g., campus relocations where some students already exist) to more than two years
(e.g., large new auto-tech facilities). While we believe the IRR of a new campus (usually over
30%) is typically higher than that of an acquired facility, it may be advantageous to make
selective acquisitions for faster entry into a geographically or programmatically hot market.
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BMO Capital Markets
Companies must consider a number of issues when opening a new school or relocating an
existing facility:
Lease versus buy. Typically real estate issues (e.g., price, financing options) come into
play here, but in certain instances tax credits become available when placing a campus in
lower-income areas. The vast majority of campuses operated by for-profit providers are
leased, allowing greater flexibility.
For-profit schools
had expanded
much faster than
their not-for-profit
counterparts until
recently
Hub and spoke. We believe Apollo Groups (APOL) University of Phoenix (UOP)
pioneered this concept with its learning centers. The learning centers differ from
campuses in that they are primarily classroom facilities with limited on-site
administrative staff. They are usually located in cities where the company already has
existing campuses, but are placed where a large facility may not be financially feasible
owing to limited demand and/or financial constraints (i.e., inner city with high rents). In
October 2012, the company announced plans to retrench from this strategy with plans to
close 115 locations, including 90 learning center.
Size of campus. When a campus is in a hot geographic market and/or offers a hot
program, it generally pays to have a larger facility to leverage a greater amount of fixed
costs. From the 2000-2001 to 2009-2010 school years, the average number of students
attending a for-profit institution increased at a 12.2% CAGR to 763 students (see Exhibit
252); over the same period, the average public and private not-for-profit schools, while
much larger only grew at average annual rates of 3.3% and 3.2%, respectively. We
believe the faster increase at for-profit schools is related to more aggressive expansion
strategies, as well as a mix shift toward more degree-granting schools that tends to be
larger than non-degree granting schools. In addition, the relatively faster growth in online
enrollment at for-profit schools may also be skewing this calculation, since an online
school may be counted as one institution. Since that peak, however, the average at forprofit institutions fell 8.9% to 695 students in the 2011-2012 school year, while the
averages at public and private not-for-profit schools have risen slightly to 7,580 and
2,161, respectively, as enrollment in the for-profit sector has declined.
800
Avg. Size (in students)
700
y/y % change
763
640
600
464
500
400
300
271
307
348
513
519
761
695
20%
15%
546
10%
401
5%
0%
200
-5%
100
Annual % Change
Avg. No. of Students
Exhibit 252. Average Size of For-Profit Postsecondary Institution

(20002001 to 20112012 School Years)
-10%
0
2000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-112011-12
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BMO Capital Markets
A campus expansion strategy can be daunting should demand begin to slow, as most
providers are now experiencing. This was particularly acute at DeVry (DV) in the early
part of last decade as the tech wreck slowed demand for its IT programs and capacity
utilization fell sharply at its big box locations, creating more overhead than the
company could easily absorb. DeVry has since shifted its strategy away from the big
box and toward smaller DeVry University Centers, allowing it to expand more rapidly
and with relatively less risk.
Universal Technical Institute (UTI) had been facing similar problems at some of the
newer campuses it opened in recent years, owing to slowing demand for auto-tech
programs. As such, this company is also opening smaller boxes. In July 2010, the
company opened its Dallas campus; in line with management expectations, this new
facility (about one-third the size of the company's current destination campuses) was
profitable in less than nine months after opening faster than the 9-to 15-month target.
Temporary versus permanent. Corinthian Colleges (COCO) has taken this strategy one
step further by typically opening relatively small locations, starting with a handful of
students, and targets reaching 400 students after two years. If enrollments approach those
levels and the company believes there is still unmet demand, it either moves the campus
to a larger location or remodels or enlarges the existing facility. In FY2013, COCO
remodeled, relocated, or expanded 51 of its 97 schools.
Shared services. Education Management (EDMC) followed a shared-services strategy
earlier last decade in which more than one school occupies a single location, increasing
campus utilization (e.g., day and evening) and taking greater advantage of fixed-cost
leverage (e.g., administrative services such as human resources and finance). EDMC
management (at that time) believed this strategy allowed it to reach breakeven earlier,
saving roughly $400,000 in the first year of operations and about $1 million annually
thereafter. However, under its current management team, the company no longer
aggressively pursues this strategy.
Public companies
are present in all
top 50 MSAs in
the US
A member of BMO
In the middle part of last decade, a number of investors had cited concerns about the rapid
opening of new campuses in recent years, potentially leading to a for-profit school on every
street corner. While the rate of new campus openings has slowed since then, we do not
believe we have reached those levels yet, but see certain geographic locations (e.g., some
Florida markets) where there may be a preponderance of schools run by larger providers. In
Exhibit 253, we list companies with locations in the top 50 US metropolitan statistical areas
(MSA). As shown, there is at least one for-profit school run by the larger providers in each of
the top 50 MSAs, with a number of areas hosting schools run by at least 10 of these 13
companies. Apollo Group (APOL) and ITT Educational Services (ESI) have the largest
penetration, respectively covering 46 each. While these companies may not compete head to
head in every market owing to different program offerings, we believe this is a useful tool to
show current penetration and also identify potential targets for new campuses.
Financial Group
224
September 2013
BMO Capital Markets
Exhibit 253. Select For-Profit Companies Penetration in Top 50 MSAs

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
MSA
New York-Newark-Jersey City, NY-NJ-PA
Los Angeles-Long Beach-Anaheim, CA
Chicago-Naperville-Elgin, IL-IN-WI
Dallas-Fort Worth-Arlington, TX
Houston-The Woodlands-Sugar Land, TX
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD
Washington-Arlington-Alexandria, DC-VA-MD-WV
Miami-Fort Lauderdale-West Palm Beach, FL
Atlanta-Sandy Springs-Roswell, GA
Boston-Cambridge-Newton, MA-NH
San Francisco-Oakland-Hayward, CA
Riverside-San Bernardino-Ontario, CA
Phoenix-Mesa-Scottsdale, AZ
Detroit-Warren-Dearborn, MI
Seattle-Tacoma-Bellevue, WA
Minneapolis-St. Paul-Bloomington, MN-WI
San Diego-Carlsbad, CA
Tampa-St. Petersburg-Clearwater, FL
St. Louis, MO-IL
Baltimore-Columbia-Towson, MD
Denver-Aurora-Lakewood, CO
Pittsburgh, PA
Charlotte-Concord-Gastonia, NC-SC
Portland-Vancouver-Hillsboro, OR-WA
San Antonio-New Braunfels, TX
Orlando-Kissimmee-Sanford, FL
Sacramento--Roseville--Arden-Arcade, CA
Cincinnati, OH-KY-IN
Cleveland-Elyria, OH
Kansas City, MO-KS
Las Vegas-Henderson-Paradise, NV
Columbus, OH
Indianapolis-Carmel-Anderson, IN
San Jose-Sunnyvale-Santa Clara, CA
Austin-Round Rock, TX
Nashville-Davidson--Murfreesboro--Franklin, TN
Virginia Beach-Norfolk-Newport News, VA-NC
Providence-Warwick, RI-MA
Milwaukee-Waukesha-West Allis, WI
Jacksonville, FL
Memphis, TN-MS-AR
Oklahoma City, OK
Louisville/Jefferson County, KY-IN
Richmond, VA
New Orleans-Metairie, LA
Hartford-West Hartford-East Hartford, CT
Raleigh, NC
Birmingham-Hoover, AL
Buffalo-Cheektowaga-Niagara Falls, NY
Salt Lake City, UT
Top 50 MSA's Penetrated
Population (mil.)
% change
7/1/2012 from 2011
19.83
0.5%
13.05
0.8%
9.52
0.3%
6.70
2.0%
6.18
2.1%
6.02
0.4%
5.86
1.5%
5.76
1.3%
5.46
1.5%
4.64
0.8%
4.46
1.3%
4.35
1.1%
4.33
1.8%
4.29
0.1%
3.55
1.6%
3.42
1.0%
3.18
1.2%
2.84
0.6%
2.80
0.1%
2.75
0.7%
2.65
1.8%
2.36
0.0%
2.30
1.7%
2.29
1.3%
2.23
1.9%
2.22
2.2%
2.20
0.9%
2.13
0.3%
2.06
-0.2%
2.04
0.7%
2.00
1.7%
1.94
1.0%
1.93
1.0%
1.89
1.4%
1.83
3.0%
1.73
1.7%
1.70
0.8%
1.60
0.1%
1.57
0.4%
1.38
1.2%
1.34
0.6%
1.30
1.6%
1.25
0.5%
1.23
1.1%
1.23
1.1%
1.21
-0.1%
1.19
2.2%
1.14
0.4%
1.13
-0.1%
1.12
1.5%
1.0%
APOL
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
BPI
CECO COCO
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
DV
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
EDMC
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
ESI
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
29
LOPE NAUH STRA

X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
UTI
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
46
LINC
X
X
33
X
X
X
42
X
41
X
X
X
X
46
X
X
19
X
30
10
WPO TOTAL
7
X
8
X
10
X
11
X
10
X
9
X
7
8
X
9
X
8
X
7
X
6
8
X
7
6
8
X
5
8
X
8
X
5
X
10
X
8
X
7
6
X
7
8
X
8
X
7
X
8
7
X
8
X
5
X
9
4
8
X
8
6
2
X
6
X
9
4
4
5
4
3
2
5
4
1
6
27
Note: Population estimates as of July 1, 2012. APEI and CPLA have no physical campus locations. Sources: Census Bureau, BMO Capital
Markets, and company reports.
In Exhibit 254, we highlight recent new campus opening and relocation trends for the publicly
held companies. Given recent enrollment trends, most companies in the space have been
recently closing or consolidating campuses, rather than opening new ones.
A member of BMO
Financial Group
225
September 2013
BMO Capital Markets
Exhibit 254. Select For-Profit Postsecondary School Operators New Campus

Openings/Relocations (20022012)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
MEDIAN
Ticker
APEI
APOL
CECO
COCO
CPLA
DV
EDMC
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
6
12
6
6
12
12
5
12
9
12
2002
N.A.
4
2
4
N.A.
2
0
4
0
N.A.
3
1
N.A.
2
2003
N.A.
10
4
6
N.A.
3
0
3
0
N.A.
5
0
N.A.
3
2004
N.A.
11
4
(13)
N.A.
11
2
3
0
N.A.
5
1
N.A.
3
2005
N.A.
8
4
(7)
N.A.
13
4
7
0
N.A.
5
1
N.A.
4
2006
N.A.
9
(11)
(14)
N.A.
3
2
11
1
N.A.
9
0
N.A.
2
2007
N.A.
3
3
(2)
N.A.
6
7
10
(2)
N.A.
8
0
N.A.
3
2008
N.A.
N.A.
4
0
N.A.
0
10
8
2
N.A.
9
0
N.A.
3
2009
N.A.
N.A.
2
0
N.A.
3
4
10
1
N.A.
11
0
N.A.
3
2010
N.A.
N.A.
6
1
N.A.
1
9
9
2
N.A.
13
1
N.A.
4
2011
N.A.
2
N.A.
6
N.A.
4-5
4
11
3
N.A.
8
N.A.
N.A.
5
2012
N.A.
N.A.
(4)
2
N.A.
1
4
8-10
(7)
N.A.
8
N.A.
N.A.
2
Notes: Campus openings exclude acquisitions and are net of closures. Data represents fiscal years. N.A. Not Available. Source: BMO
Given enrollment declines for many schools, it has recently been more common for the
publicly held companies to close, teach-out or even sell, rather open campuses. Examples of
recent such moves can be found in Exhibit 255.
Campus
closures/teachouts/sales
Exhibit 255. Examples of Recent Campus Closures/Sales/Teach-outs for Selected

Publicly Held For-Profit Providers
Company/Ticker
Date
Apollo Group (APOL) Oct-12
Type
Closure
Career Education
(CECO)
Nov-12
Teach-out
Corinthian Colleges
(COCO)
FY2013
Teach-out
Corinthian Colleges
(COCO)
Corinthian Colleges
(COCO)
Corinthian Colleges
(COCO)
FY2012
Teach-out
FY2011
Teach-out
FY2013
Sale
Corinthian Colleges
(COCO)
Jun-12
Sale
Lincoln Educational
Services (LINC)
Jun-13
Teach-out
Details
Announces closing of 115 locations, consisting of 90 learning
and student resource centers, which are generally smaller
satellite locations, and 25 campuses. University of Phoenix
will preserve a national coast-to-coast network of 112
locations and plans to retain a presence in 36 states, the
District of Columbia and Puerto Rico.
Announced plans to teach out 23 domestic campuses across
its Art & Design, CTU and Health Education verticals. The
campuses identified for teach-out are expected to contribute
approximately $124.3 million in revenue and approximately
$62.0 million in operating loss in CY2012.
Expected Costs
Company expects to incur approximately $175
million of restructuring and other charges,
principally for lease exit and other related costs,
with most of these costs incurred in FY2013.
Company expects to take a $33-$41 million

charge, including $25-$30 million of noncash
asset impairments, $5-$7 million in cash
severance and related charges and $3-$4 million
in cash retention bonuses.
Completed the teach-out of its Arlington, VA; Decatur, GA and

Milwaukee, WI, Hialeah, FL; London, Ontario (Canada) and
Thunder Bay, Ontario (Canada) campuses
Completed the teach-out of the Ft. Lauderdale, FL and
Chicago, IL campuses.
Completed the teach-out of its Fife, WA and Toronto
(Central), Ontario campuses
Completed the sale of the four Everest schools located in San
Francisco, CA; San Jose, CA; Hayward, CA and Los Angeles,
CA (announced plans in FY3Q12)
Approved a plan to sell its WyoTech campuses in
In August 2013, the company disclosed it was
Sacramento, California and Daytona Beach, Florida.
unable to sell these campuses and had taught out
the Sacramento location and retained the Florida
location
Approved a plan to cease operations at four campuses in
In addition to the expected operational losses,
Ohio and one campus in Kentucky by December 31, 2013.
company expects to incur approximately $12.5
These campuses were expected to contribute roughly $24
million in additional pre-tax expenses.
million in revenue and 1,800 student starts in 2013.
A member of BMO
Financial Group
226
September 2013
BMO Capital Markets
In the mid-2000s, a number of companies that own larger campuses (e.g., DeVry, Universal
Technical Institutes) began to employ sales/leaseback techniques to extract some value from
these somewhat under-utilized assets and take advantage of what might have been peak real
estate values in certain markets. The recent rebound in the real estate market, combined with
the need for certain companies (e.g., Corinthian Colleges) to strengthen their balance sheets,
has led to a renewal of this strategy. However, as the vast majority of campuses run by the
publicly held companies are leased, not owned, this strategy is somewhat limited.
Sales/leaseback
transactions
Historically, for-profits have been much more aggressive in their campus expansion strategies
than have their not-for-profit peers. While many not-for-profit institutions open satellite
locations or new branches within the same geographical area (e.g., Pennsylvania State
University has 24 campuses throughout the state), there are a few that have physically
expanded beyond their core geographical base in the US (though many have opened
international locations, as discussed later in this report). Some examples can be found in
Exhibit 256.
Some not-forprofits open new

locations far from
their base
Exhibit 256. Examples of Not-For-Profit Institutions New Campus Openings

School
New Location(s)
Albright College (Pennsylvania),
Mesa, AZ
Benedictine University (Illionis) AND
Westminster College (Missouri) and
Carnegie Mellon University
(Pittsburgh)
Drexel University (Philadelphia)
Moffett Field, CA
Sacramento, CA
Emerson College (Boston)
Los Angeles, CA
Northeastern University (Boston)
Charlotte, NC; Seattle, WA
Wharton School (Philadelphia)
San Francisco, CA
Comments
In 2012, these three liberal arts colleges announced plans to set up
branches in Mesa, Arizona. The Albright campus opened in fall 2012,
with the Benedictine and Westminster campuses planned openings in
fall 2013.
Established this Silicon Valley location in 2002 by offering software
engineering programs at this site of NASA research.
Opened a Center for Graduate Studies in January 2009. At the time,
the school had also hoped to build a larger undergraduate campus
nearby in suburban Roseville , California, but those plans were
cancelled in August 2011, blamed on the subpar real estate market
and its impact on the local economy.
November 2011: Announced plans to open a new academic center,
with hopes of opening in 2014
Opened graduate school campuses in Chartlotte (fall 2011), and
Seattle (January 2013). According to InsideHigherEd.com, the school
plans to open similar campus in Austin, Texas, Minneapolis, Minnesota
and the Silicon Valley over the next few years
The University of Pennsylvanias Wharton School of Business
established its Wharton West campus in San Francisco in 2001.
Source: BMO Capital Markets and school news items.
Postsecondary Schools New Program Trends

Centralized
curricula
development:
faster creation
and rollout
A member of BMO
Another growth area among for-profit providers is the addition of new programs, whether
created from scratch or transplanted from existing locations. As most of the publicly held
providers have a centralized curricula development department, we believe this provides a
competitive advantage versus their not-for-profit peers as they can create new program
offerings at faster rates (sometimes within a few months). In addition, the uniformity of these
programs makes them easier to roll out across all company locations, with usually only minor
modifications based on certain state requirements.
Financial Group
227
September 2013
BMO Capital Markets
We believe another competitive advantage is that the programs provided by for-profit

providers tend to be more in tune with current and expected supply/demand imbalances within
the labor force. Exhibit 257 contains a list of the expected fastest-growing occupations
through 2020, according to the BLS, which updates these projections every two years.
Surprisingly there has been some turnover in this list recently. While healthcare is still overrepresented, it has been joined by a number of construction and extraction occupations.
Interestingly, no computer and related jobs were on this top 30 list, though we expect more to
join when the next set of projections are released (early 2014). Nevertheless, for the first time
in recent memory, many of these projected fastest-growing jobs do not require much
education beyond high school.
Fastest-growing
occupations
healthcare and
construction/
extraction; only 4
of the top 10
require higher
education
Exhibit 257. Expected Fastest-Growing Occupations (2010-2020E)

Employed (000's)
Change
Rank Title
2010
2020E
No.
Personal care aides
861
1,468
607
70.5% Less than high school
% Required Education/Training
Healthcare
Occupational Group
Home health aides
1,018
1,724
706
Healthcare
Biomedical engineers
16
25
10
61.8% Bachelor's degree
Architecture and Engineering
Helpers - brickmasons, blockmasons, stonemasons and tile and

marble setters
29
47
18
Construction and Extraction
Helpers - carpenters
47
72
26
Veterinary technologists and technicians
80
122
42
52.0% Associate's degree
Healthcare
Reinforcing iron and rebar workers
19
28
67
98
31
Physical therapist assistants

Helpers - pipeplayers, plumbers, pipefitters and steamfitters
58
84
26
45.4% High school diploma or equivalent
10
Meeting, convention and event planners
72
103
31
Business and Financial
Healthcare
11
Diagnostic medical sonographers
54
77
23
Healthcare
12
Occupational therapy assistants
29
41
12
Healthcare
13
Physical therapist aides
47
67
20
Healthcare
14
Glaziers
42
60
18
15
Interpreters and translators
58
83
25
Education, Training and Library
16
Medical secretaries
509
719
210
Healthcare
17
Market research analysts and marketing specialists
283
399
117
18
Marriage and family therapists
36
51
15
41.1% Master's degree
Life, Physical and Social Science
19
Brickmasons and blockmasons
89
125
36
20
Physical therapists
199
276
77
39.0% Doctoral or professional degree
Healthcare
21
Dental hygienists
182
250
69
Healthcare
22
Bicycle repairers
10
14
Entertainment and Sports
23
Audiologists
13
18
Healthcare
24
Health educators
63
87
23
Education, Training and Library
25
Stonemasons
16
21
26
Cost estimators
185
253
68
27
Medical scientists, except epidemologists
100
137
37
Healthcare
120
164
44
36.2% Master's degree
Healthcare
Transportation and Material Moving
61
83
22
Healthcare
28
Mental health counselors
29
Pile-driver operators
30
Veterinarians
Source: Bureau of Labor Statistics and BMO Capital Markets.
More managerial
and professional
office jobs
expected to
require
postsecondary
In its June 2013 report Projections of Jobs and Education Requirements Through 2020, the
Georgetown University Center on Education and the Workforce analyzed where it expected the
fastest employment growth for those occupations requiring at least some postsecondary
education. Not surprisingly, those in higher-skilled positions (e.g., managerial and professional
office) are expected to see the greatest increases in the percentage of their jobs requiring such
from 2010 to 2020 (see Exhibit 258).
education
A member of BMO
Financial Group
228
September 2013
BMO Capital Markets
Exhibit 258. Distribution of Jobs Requiring Postsecondary Education by Occupation

(20102020E; ranked by shift in distribution)
2010
Jobs Req.
Postsec.
Education
% of Jobs in
(in 000s)
Category
Occupation
Managerial and professional office
Sales and office support
Education
Blue collar
Community services and arts
Food and personal services
Healthcare professional and technical
Social science
STEM
Healthcare support
Total
15,570
22,600
7,350
8,740
5,510
9,330
6,040
700
5,750
2,160
83,750
78%
60%
90%
31%
88%
40%
93%
100%
95%
59%
59%
2020E
2010-2020E
Jobs Req.
Postsec.
Change in
Change in %
Education
% of Jobs in
Jobs Req.
of Jobs in
(in 000s)
Category Postsec. Ed.
Category
21,320
27,760
9,500
10,370
7,170
11,890
7,990
830
7,120
2,700
106,650
86%
66%
94%
34%
91%
43%
94%
100%
94%
58%
65%
37%
23%
29%
19%
30%
27%
32%
19%
24%
25%
27%
8%
6%
4%
3%
3%
3%
1%
0%
-1%
-1%
6%
In the same study, when ranking by industry, the differences are not as great, though those in
financial activities and government and public education rank highest (see Exhibit 259).
Exhibit 259. Distribution of Jobs Requiring Postsecondary Education by Industry (2010

2020E; ranked by shift in distribution)
2010
Jobs Req.
Postsec.
Education
% of Jobs in
(in 000s)
Category
Industry
Financial activities
Government and public education
Natural resources
Wholesale and retail trade services
Healthcare and social assistance
Manufacturing
Construction
Transportation and utilities services
Private education services
Information services
Leisure and hospitality
Professional and business services
Personal services
Total
18,840
14,330
1,220
10,610
12,440
5,240
2,670
2,970
2,730
2,050
6,430
6,980
3,920
90,430
77%
79%
32%
55%
79%
52%
36%
54%
79%
78%
50%
72%
53%
64%
2020E
2010-2020E
Jobs Req.
Postsec.
Change in
Change in %
Education
% of Jobs in
Jobs Req.
of Jobs in
(in 000s)
Category Postsec. Ed.
Category
23,870
16,253
1,452
12,043
15,833
5,526
3,038
3,463
3,517
2,287
7,690
8,767
4,640
108,379
79%
81%
34%
56%
80%
53%
37%
55%
80%
79%
50%
72%
53%
66%
27%
13%
19%
14%
27%
5%
14%
17%
29%
12%
20%
26%
18%
20%
2%
2%
2%
1%
1%
1%
1%
1%
1%
1%
0%
0%
0%
2%
Unemployment
rates and
earnings vary by
major despite
little difference in
cost of degrees
A member of BMO
In May 2013, the Georgetown University Center on Education and the Workforce updated its
analysis of earnings and unemployment by major in its publication entitled Hard Times: Not
All Colleges Degrees Are Created Equal. As per the publications title, there was a wide
variance in unemployment rates (from health majors in low-single digits to architecture
majors in high-single/low-double digits) and earnings (arts majors at the low-end to
engineering majors at the high-end; see Exhibit 260), despite what is likely not strikingly
different costs when these degrees are obtained at the same schools (i.e., few schools charge
different prices by major).
Financial Group
229
September 2013
BMO Capital Markets
Exhibit 260. Unemployment Rates and Median Earnings by Major (2010-2011)
Major
Agriculture and Natural Resources
Architecture
Arts
Business
Communications and Journalism
Computers and Mathematics
Education
Engineering
Health
Humanities and Liberal Arts
Industrial Arts
Law and Public Policy
Psychology and Social Work
Recreation
Science - Life/Physical
Social Science
Unemployment Rates
Recent Experienced
Graduate
College
College
Degree
Graduate
Graduate
Holder
6.1%
3.4%
2.3%
12.8%
9.3%
6.9%
9.8%
6.9%
5.6%
7.3%
5.2%
4.3%
7.8%
6.0%
4.2%
9.1%
4.8%
3.6%
5.7%
4.0%
2.0%
7.4%
4.4%
3.0%
6.1%
2.6%
2.0%
9.0%
6.3%
3.0%
8.2%
4.6%
N.A.
9.2%
4.8%
4.1%
8.8%
6.6%
3.4%
5.2%
4.5%
N.A.
7.3%
4.8%
2.1%
10.3%
5.7%
4.0%
Median Earnings
Recent Experienced
College
College
Graduate
Graduate
$33,000
$51,000
36,000
65,000
30,000
48,000
39,000
63,000
33,000
54,000
45,000
76,000
33,000
44,000
54,000
83,000
43,000
65,000
30,000
51,000
41,000
71,000
33,000
56,000
30,000
46,000
29,000
50,000
30,000
60,000
36,000
61,000
Graduate
Degree
Holder
$67,000
72,000
55,000
83,000
64,000
91,000
57,000
101,000
81,000
66,000
N.A.
70,000
60,000
N.A.
90,000
84,000
N.A. Not Available. Source: Georgetown University Center on Education and the Workforce.
Reasons students
at for-profit
schools choose a
program
In 2012, Imagine America and Wonderlic conducted an Educational Benchmark Survey for
students at for-profit schools. When asked why they chose a specific program, a wide variety
of answers were provided surprisingly jobs and tuition were near the bottom of the list (see
Exhibit 261).
Exhibit 261. Why College Students Choose a Particular Program

(2012)
Reason
I liked a particular program
The length of the program was reasonable
The school had a good reputation
The program and quality of education were strong
A friend, family member, coworker, or employer suggested it to me
The classes were scheduled at convenient hours
The school location was convenient (e.g. transportation)
The school had good equipment or other resources
The students at this school get good jobs when they graduate
The school helped me get a school loan
There were a variety of programs available
The tuition was affordable
% cited
73%
60%
54%
51%
41%
40%
38%
35%
30%
27%
23%
15%
Source: Educational Benchmark Survey from Imagine America and Wonderlic.
Given that most schools have core requirements for graduation, it is not surprising that the
most frequently taken classes are core classes (e.g., writing, history; see Exhibit 262).
A member of BMO
Financial Group
230
September 2013
BMO Capital Markets
Exhibit 262. Top Courses Taken by Bachelors Degree Recipients

(Graduated in 20072008 school year)
Course name
Psychology, general
Writing, general
Sociology
American History
Biology/Biological Sciences, general
American Government and Politics
Calculus
Statistics, general
Spanish Language and Literature
Accounting
Chemistry, general
General Literature
Marketing/Marketing Management, general
Algebra and Number Theory
Microeconomics
Speech Communication and Rhetoric
Economics, general
Macroeconomics
Philosophy
Business Administration and Management, general
Business Law
Finance, general
Sports and Exercise
Physics, general
World Civilization/World History
Public Speaking, Debate and/or Forensics
Developmental and Child Psychology
Communication, general
Geology/Earth Science, general
Music, general
Percentage
earning
credits
59.0%
57.7%
44.2%
43.7%
37.6%
33.6%
32.5%
31.1%
31.0%
29.9%
28.8%
28.6%
27.9%
27.4%
25.2%
24.2%
23.8%
23.5%
23.1%
22.8%
22.7%
22.3%
21.5%
21.0%
20.5%
19.8%
18.9%
18.7%
17.3%
16.7%
Source: National Center for Education Statistics.
Recent recession
affected incoming
freshmen career
choices
A member of BMO
Each year, the National Research Center for College & University Admissions (NRCUA)
conducts a survey of incoming freshmen, asking them their career choice upon entering
college. While we personally acknowledge ones right to change his or her focus and major
while attending college (I started out pre-law), it is interesting nonetheless to see how these
choices have changed over the years. Interestingly, after years of fairly stable results, recent
entering classes have showed some dramatic changes, including the following:
Nursing/healthcare moving to the number one or number two choice over the past four
years.
Lawyer/legal services dropped to number nine in each of the past two year its lowest
ranking in the survey history.
Science moved up to 17 in the 2012 survey its highest ranking ever.
Financial Group
231
September 2013
BMO Capital Markets
We believe the Great Recession has taken its toll, with more students choosing to enter
programs (e.g., healthcare) with better near-term job opportunities (see Exhibit 263).
Exhibit 263. Top Career Preferences Among College-Bound Students (20022012;

Ranked by 2012 Preference)
Career
Nursing/Health Care
Medical Physician
Art
Business Administration
Psychology/Psychiatry
Music
Teaching/Education
Criminal Justice/Law Enforcement
Lawyer/Legal Services
Culinary/Chef
Engineering (Mechanical)
Engineering (General)
Biology
Business Owner/Entrepreneur
Athletics/Coaching
Child Care/Development
Science
Drama/Theatre Arts
Military Science
Architecture
2012 Survey
Rank
%
1
5.8%
2
5.4%
3
4.0%
4
3.3%
5
3.2%
6
3.1%
7
3.1%
8
3.0%
9
2.9%
10
2.4%
11
2.2%
12
2.2%
13
2.0%
14
2.0%
15
1.8%
16
1.8%
17
1.8%
18
1.7%
19
1.7%
20
1.7%
2011 Survey
Rank
%
2
5.5%
1
5.5%
3
3.8%
5
3.6%
4
3.7%
7
3.0%
6
3.4%
10
2.7%
9
2.9%
12
2.2%
16
1.9%
11
2.5%
13
2.0%
15
1.9%
19
1.8%
17
1.8%
21
1.6%
20
1.7%
23
1.5%
21
1.6%
2010 Survey
Rank
%
2
4.9%
1
5.2%
3
4.2%
8
2.7%
6
3.0%
4
3.6%
7
2.9%
9
2.6%
5
3.4%
11
2.3%
12
2.2%
17
1.9%
19
1.9%
13
2.1%
10
2.4%
15
2.0%
31
1.2%
14
2.1%
18
1.9%
20
1.9%
2009 Survey
Rank
%
1
5.4%
3
4.6%
5
3.8%
2
5.1%
6
3.5%
7
3.0%
4
4.0%
9
2.5%
8
2.8%
16
1.8%
22
1.5%
10
2.5%
12
2.2%
17
1.8%
19
1.7%
24
1.4%
24
1.4%
14
2.0%
20
1.5%
18
1.7%
2008 Survey
Rank
%
3
4.2%
1
5.0%
5
4.0%
15
2.1%
6
3.0%
2
4.8%
8
2.9%
10
2.8%
4
4.1%
25
1.6%
11
2.8%
31
1.1%
22
1.5%
7
3.0%
9
2.9%
13
2.2%
32
1.1%
12
2.3%
30
1.4%
16
2.0%
2007 Survey
Rank
%
4
4.1%
1
5.1%
5
3.9%
17
2.0%
6
3.2%
2
4.8%
7
3.0%
10
2.8%
3
4.5%
25
1.5%
11
2.8%
31
1.3%
22
1.5%
8
2.9%
9
2.9%
14
2.2%
32
1.2%
13
2.3%
30
1.3%
16
2.0%
2006 Survey
Rank
%
2
4.2%
1
5.6%
6
3.5%
18
2.0%
9
2.8%
9
4.4%
8
3.0%
11
2.8%
4
5.1%
25
1.4%
12
2.8%
27
1.4%
24
1.5%
10
2.8%
7
3.0%
14
2.4%
37
1.1%
16
2.2%
29
1.3%
15
2.4%
2005 Survey
Rank
%
4
4.3%
1
5.2%
5
3.3%
26
1.3%
7
3.1%
3
4.6%
12
2.6%
11
2.7%
2
5.1%
24
1.4%
10
2.8%
39
1.0%
28
1.2%
8
3.0%
6
3.1%
13
2.5%
33
1.2%
15
2.0%
30
1.2%
14
2.3%
2004 Survey
Rank
%
4
3.8%
1
5.4%
5
3.3%
24
1.5%
7
3.2%
3
4.5%
10
2.7%
13
2.4%
2
5.2%
30
1.2%
11
2.6%
40
1.0%
28
1.3%
9
3.0%
8
3.0%
12
2.4%
34
1.1%
15
2.0%
29
1.2%
14
2.2%
2003 Survey
Rank
%
4
3.7%
1
5.2%
8
2.8%
9
2.6%
7
3.2%
3
3.8%
6
3.5%
16
1.9%
2
4.5%
32
1.0%
13
1.9%
23
1.4%
29
1.2%
10
2.4%
11
2.3%
12
2.0%
22
1.5%
15
1.9%
31
1.0%
14
1.9%
2002 Survey
Rank
%
9
3.1%
1
5.3%
8
3.2%
18
2.0%
4
3.4%
6
3.3%
3
3.5%
14
2.4%
2
5.1%
39
1.0%
11
2.6%
N.A.
N.A.
22
1.7%
7
3.2%
10
2.9%
12
2.5%
31
1.2%
13
2.4%
30
1.3%
17
2.0%
N.A. Not Available. Source: National Research Center for College & University Admissions.
Community
college focus
matches well with
fastest-growing
occupations
Health and
technology
among most
popular associate
degrees
A member of BMO
As many of the expected fastest-growing occupations over the next decade with at least some
higher education requirements require less than a bachelor degree, we believe community
colleges and for-profit schools will play an important role in the schooling for these jobs.
According to the American Association of Community Colleges (AACC), community
colleges provide postsecondary education and specialized training programs to about 45% of
all US undergraduates. Community colleges are also at the forefront of educating and training
many of the first responders in the health care and security industries expected to continue
to be areas of future job growth. According to the AACC, community colleges educate 59%
of new nurses and the majority of other new healthcare workers. In addition, close to 80% of
firefighters, law enforcement officers, and EMTs are credentialed at community colleges.
While we were unable to obtain a list of top fields of study by program type, we were able to
obtain a list of degrees granted. These top degrees do not necessarily match up with the
expected fastest-growing occupations, except at the associate degree level where students may
be more career-focused as opposed to those attending master and graduate programs, where
they may be more degree-focused. As shown in Exhibit 264, health and technology-related
degrees account for four of the top seven most popular associate degrees the highest of any
field of study. We note the most popular associate degrees tend to be liberal arts/general
studies as it has become more common for students to fulfill their basic requirements at a less
expensive community college and then transfer to another school to focus on their major.
Financial Group
232
September 2013
BMO Capital Markets
Exhibit 264. Degrees Granted by Field of Study: All Postsecondary Institutions (20102011 School Year)
Bachelors
Associates
Rank Field of Study
1
Liberal arts and sciences,
general studies, and humanities
2
Nursing, RN and other
% of
Degrees Field of Study
32.5% Business
Masters
% of
21.3% Business
8.8%
Social sciences and history
10.3%
Education
8.4%
Health professions and related

programs
Public administration and
social services
Psychology
Health sciences, other
6.1%
Business administration and

management
Criminal justice and corrections
4.9%

programs
Education
4.2%
Psychology
5.9%
4.2%
4.0%
Visual and performing arts

Biological and biomedical
sciences
Communication, journalism,
and related programs
Engineering
5.5%
5.2%
5
6
7
8
9
10
Medical assisting
Computer and information
sciences
Engineering-related technologies
Business and management,
other
Multi/interdisciplinary studies
3.8%
3.3%
2.5%
Top 10 programs
Other programs
TOTAL
74.3%
25.7%
100.0%
Total degrees granted
942,327
English language and

literature/letters
Top 10 programs
Other programs
TOTAL
6.1%
4.9%
4.5%
3.1%
75.0%
25.0%
100.0%
Doctors
% of
25.6% Health professions and
related clinical sciences
25.3% Legal professions and
studies
10.3% Education
27.4%
5.9%
5.3%
Engineering
5.1%
3.4%

sciences
Psychology
Physical sciences and
science technologies
4.7%

sciences
2.9%
2.7%
Theology and religious

vocations
sciences
Top 10 programs
Other programs
TOTAL
1.8%
1,715,913
% of
Degrees
36.7%
2.2%
1.6%
81.1%
18.9%
100.0%
Theology and religious

vocations
Business
Top 10 programs
Other programs
TOTAL
730,635
3.2%
3.2%
2.7%
1.4%
1.4%
91.8%
8.2%
100.0%
163,765
Source: BMO Capital Markets and National Center for Educational Statistics.
When drilling down within the for-profit sector, the degrees offered tend to skew more
heavily toward business, health, and computer programs, except at the doctorate levels, where
nearly half the degrees are in legal and education (see Exhibit 265).
Most popular
degrees at forprofit schools are
business, health,
and computerrelated
Exhibit 265. Degrees Granted by Field of Study: For-Profit Postsecondary Institutions

Associates
Rank Field of Study
1
programs
2
Business
3
4
5
6

sciences
Homeland security, law
enforcement and firefighting
Engineering technologies and
engineering-related fields
Virtual and performing arts
Bachelors
% of
31.5% Business
25.4%
Masters
% of
43.3% Business
5.5%

programs
sciences
enforcement, and firefighting
4.0%
2.9%
9.3%
8.9%
Doctors
% of
46.7% Legal professions and
studies
25.1% Education
11.9%
Education
10.4%

programs
Psychology
11.4%
5.2%
Health professions and

related programs
Psychology
15.6%

sciences
social service professions
2.8%
Business
15.2%
2.3%

Liberal arts and sciences,
general studies and
humanities
sciences
Family and consumer
sciences/human sciences
Top 10 programs
Other programs
TOTAL
2.3%
8.4%
7.7%
Mechanic and repair

technologies
3.4%
Psychology
2.5%
Legal professions and studies
2.8%
2.2%
1.2%
2.4%

Social sciences
2.1%
0.7%
10
Education
2.0%
Communications technologies
1.8%
Engineering
0.4%
Top 10 programs
Other programs
TOTAL
95.3%
4.7%
100.0%
Total degrees granted
193,570
Top 10 programs
Other programs
TOTAL
% of
Degrees
24.8%
93.2%
6.8%
100.0%
Top 10 programs
Other programs
TOTAL
114,510
1.7%
97.5%
2.5%
100.0%
78,185
24.0%
16.6%
0.5%
0.4%
0.4%
0.1%
99.8%
0.2%
100.0%
5,219
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233
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For-profit schools
granted a high
share of degrees in
communications,
mechanic/repair,
and computer
BMO Capital Markets
In the 2010-2011 school year, for-profit institutions granted over 20% of all associates
degrees awarded, 6.7% of all bachelors degrees, 10.7% of all masters degrees and 3.2% of all
doctoral degrees (see Exhibit 266). By comparison, during that year, these schools enrolled
11.9% of all undergraduates and 10.3% of graduate students in degree-granting schools. Forprofit institutions granted a disproportionate share of communications, mechanic and repair,
and computer and information science degrees.
fields
Exhibit 266. Degrees Granted by Field of Study: For-Profit Postsecondary Institutions

Share of Total (20102011 School Year)
Field of study
Agriculture and natural resources
Architecture and related services
Area, ethnic, cultural, gender, and group studies
Biological and biomedical sciences
Business
Communications, journalism, and related programs
Communications technologies
Computer and information sciences
Construction trades
Education
Engineering
Engineering technologies and engineering-related fields
English language and literature/letters
Family and consumer sciences
Foreign languages, literatures, and linguistics
Health professions and related programs
History
Homeland security, law enforcement, and firefighting
Legal professions and studies
Liberal arts and sciences, general studies, and humanities
Library science
Mathematics and statistics
Mechanic and repair technologies
Military technologies and applied sciences
Parks, recreation, leisure and fitness studies
Philosophy and religious studies
Physical sciences and science technologies
Precision production
Psychology
Public administration and social service professions
Social sciences
Theology and religious vocations
Transportation and materials moving
All fields, total
degrees
degrees
0.0%
0.6%
0.0%
0.6%
0.0%
0.0%
0.0%
0.1%
35.2%
13.6%
5.1%
1.2%
26.5%
42.7%
47.7%
27.7%
18.0%
0.0%
18.5%
1.9%
1.8%
0.5%
30.0%
10.8%
25.8%
0.2%
2.1%
0.7%
0.0%
0.0%
30.2%
9.5%
1.9%
0.7%
38.4%
20.3%
47.0%
24.3%
0.9%
0.3%
0.0%
0.0%
0.0%
0.0%
33.2%
0.0%
1.4%
26.6%
19.4%
8.0%
24.9%
0.7%
0.0%
0.6%
0.3%
0.0%
9.7%
0.0%
1.8%
2.8%
30.1%
9.3%
0.0%
1.7%
0.5%
1.2%
4.5%
2.2%
36.5%
9.4%
20.5%
6.7%
Master's
degrees
0.8%
1.1%
0.0%
0.0%
19.5%
0.6%
34.9%
9.3%
0.0%
10.6%
0.8%
4.9%
0.3%
8.9%
0.0%
11.8%
7.5%
29.9%
3.3%
1.3%
0.0%
0.0%
0.0%
0.0%
8.3%
2.1%
1.9%
0.0%
0.0%
16.1%
3.5%
1.1%
0.5%
5.1%
5.6%
10.7%
Doctor's
degrees All degrees
0.0%
0.5%
0.0%
0.8%
0.0%
0.0%
0.0%
0.1%
34.6%
19.6%
0.0%
1.2%
0.0%
35.2%
1.3%
31.2%
0.0%
17.0%
13.0%
8.3%
0.0%
0.6%
0.0%
22.4%
0.0%
1.0%
1.3%
1.7%
0.0%
0.0%
1.4%
17.5%
0.0%
1.4%
16.8%
29.2%
2.9%
12.0%
25.3%
0.9%
0.0%
0.0%
0.0%
0.0%
0.0%
32.8%
0.0%
3.2%
0.0%
11.6%
0.0%
2.2%
0.2%
0.8%
0.0%
0.1%
0.0%
9.5%
13.9%
5.7%
14.0%
8.4%
0.0%
1.5%
0.3%
0.7%
0.0%
3.2%
0.1%
13.2%
3.2%
11.0%
There has been much talk about developing educational programs for green jobs, i.e., those
dealing with alternative energy, energy conservation, and the like. However, there have been
few of these programs developed so far, although there have been some reports of programs
involving wind turbines, solar panel installation, and environmental studies. The Bureau of
Labor Statistics (BLS) uses a broader definition and estimates that in 2010 there were 3.1
million jobs associated with the production of green goods and services, representing 2.4%
of total employment that year.
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234
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For-profit schools
could play a
leading role in
training for green
jobs
BMO Capital Markets
Nevertheless, we do believe this could be a focus for future program development likely an
area where the for-profit sector could take the lead. One example is privately held Education
Corporation of Americas EcoTech Institute, which opened in Aurora, Colorado in April 2011
and claims it is the first and only college entirely focused on preparing graduates for careers
in the rapidly growing fields of renewable energy, sustainable design, and energy efficiency.
In April 2011, Adecco (ADEN.VX), the worlds largest staffing provider, listed its five
hottest green jobs (see Exhibit 267). While these jobs may not necessarily require a
postsecondary degree, they typically require additional training and certification.
Exhibit 267. Hottest Green Jobs

Solar power contractor
Wind turbine installer
Leadership in Energy & Environmental Design (LEED) certified engineer
Hybrid vehicle technician
Environmental protection specialist
Source: Adecco Staffing.
Potential pitfalls
in education and
As many not-for-profit and for-profit schools have identified the education and healthcare
sectors are areas for future growth, we do have some notes of caution.
healthcare
programs
Education. As shown above, education is the among the most popular degrees provided
within higher education, especially at the graduate level. While graduate schools of education
are dominated by not-for-profit institutions (e.g., Columbia Universitys Teachers College), a
number of for-profit providers offer these programs, including Apollo Groups (APOL)
University of Phoenix, Bridgepoint Educations two schools, Capella Educations (CPLA)
Capella University, and Grand Canyon Educations (LOPE) Grand Canyon University. While
these companies do not break out their exposure to masters of education programs
specifically, education represents roughly 8%, 19%, 21%, and 52% of their enrollments,
respectively.
Alternatives to
However, we have seen evidence of a slowdown in growth for education programs owing to a
number of reasons:
traditional
education training
A member of BMO
A recent increase in alternative teacher training programs, such as Teach for America,
some of which we believe was driven by the recent economic slowdown, which allowed
these trainees to be employed at the onset, without incurring student loan debt. While
data was available only through the 2008-09 school year a year in which overall hiring
fell we note that the percentage of teachers with alternative training rose from virtually
nil in the early 1980s to 1.7% of all elementary and secondary teachers working in US
public schools in the 2007-08 school year (see Exhibit 268). The National Center for
Education Information estimates that nearly one-third of all new teachers are being
trained by alternative methods.
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BMO Capital Markets
Teachers Certified Through Alternative Routes
2.0%
% of total
52,000
1.5%
39,000
1.0%
26,000
0.5%
13,000
0
As % of Publc Elementrary and

Secondary School Teachers
65,000
0.0%
19
8
19 5-1
86 98
19 -1 6
8 98
1 9 7 -1 7
8 98
1 9 8 -1 8
8 98
19 9-1 9
9 99
19 0-1 0
9 99
19 1-1 1
9 99
1 9 2 -1 2
9 99
1 9 3 -1 3
9 99
19 4-1 4
9 99
19 5-1 5
9 99
19 6-1 6
97 99
19 -1 7
9 99
19 8-1 8
9 99
20 9-2 9
0 00
20 0-2 0
01 00
20 -2 1
0 00
2 0 2 -2 2
0 00
2 0 3 -2 3
0 00
2 0 4 -2 4
0 00
20 5-2 5
0 00
20 6-2 6
0 00
20 7-2 7
08 00
-2 8
00
9
No. of Teachers Certified Through

Alternative Routes
Exhibit 268. US Public School Teachers Certified Through

Alternate Routes (1985-862008-09 School Years)
Source: National Center for Education Information and National Center for Education Statistics
According to an April 2013 ED report entitled Preparing and Credentialing the

Nations Teachers, in the 2009-10 school year (latest data available), 69% of teacher
preparation programs were classified as traditional, 21% as alternative but based at
institutions of higher education (IHE), while 10% were alternative programs not based
at IHEs; this latter amount was up from 8% in the prior year. As of 2011, only five states
(North Carolina, North Dakota, Oklahoma, Oregon, and Wyoming) did not have stateapproved alternative routes to teacher certification.
While still
relatively small,
these programs
are growing
This shift can be seen by measuring the number of program completers in teacher
preparation programs. In the 2009-10 school year (latest data available), more than 20%
of those that completed teacher education programs did so via alternative programs up
from 13.4% in the 2000-2001 school year and the highest percentage on record (see
Exhibit 269). Interestingly, more than 59% of those who went the alternative route did so
at programs outside traditional IHEs.
Exhibit 269. Number of Program Completers in Teacher Education

(2000-2001 to 2009-2010 School Years)
Traditional
200,000
Alternative
180,000
Number of Completers
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Source: US Department of Education.
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This shift could continue owing to a spur in funding. For example, in the Race to the Top
competition, points were given to states that provide high-quality pathways for aspiring
teachers and principals including allowing alternative routes to certification. This may
be shifting some funding away from traditional masters programs in education.
More may follow. In May 2013, the Growing Excellent Achievement Training
Academies (GREAT) Teachers and Principals Act (HR 2196/S. 1052) was introduced
with a goal of reducing bureaucracy and red tape for new kinds of teacher and principal
training academies that are held accountable to high standards. It is expected that this bill
(or something similar) could eventually be included in the reauthorized Elementary and
Secondary Education Act (ESEA).
There has been anecdotal evidence that, owing to budget issues, school systems have cut
some of the financial subsidies typically provided to teachers for taking advanced courses
and/or reduced the amount of salary step-ups upon receiving a master's degree.
Open positions
Healthcare. Much press has been given to the long-term growth components for the
for new nurses
healthcare workforce (e.g., aging population, aging caregivers), along with the expected boost
from the Affordable Care Act (e.g., increase in the number of insured should increase demand
for healthcare services, which, in turn, should increase demand for healthcare workers). While
we agree, we caution investors that the number of open positions for new nurses - the largest
component of the healthcare workforce (2.63 million registered nurses and roughly 719,000
licensed practical nurses together represented 44% of the 7.65 million healthcare practitioner
and technical occupations as of May 2012, according to the BLS) - was severely affected by
the Great Recession and its aftermath.
under pressure
We believe this emanated from a number of variables, including the following:
Aging of nurse
population has
recently slowed
owing to an influx
of younger nurses
A member of BMO
Less demand from healthcare providers that had seen their own census trends suffer as
potential patients deferred elective procedures and sometimes even necessary procedures
owing to cost concerns.
An increased number of shifts being taken by nurses who had been working part-time or
even those who had not been working, but had returned to the workforce.
An influx of new nurses into the workforce, likely owing to the increased exposure of the
nursing shortage and the fact that healthcare employment continued to increase even
during the Great Recession.
The latter trend is supported by recent data showing a growing younger demographic among the
RN population. A December 2011 article (latest data available) in Health Affairs entitled
Registered Nurse Supply Grows Faster Than Projected Amid Surge in New Entrants Ages 2326, the authors cite that the number of full-time-equivalent RNs aged 23-26 increased by 62%
to roughly 165,000 a level not seen since the late 1980s (see Exhibit 270). This is likely due to
the attractive characteristics of the profession (e.g., ability to work part-time, strong long-term
growth characteristics) and publicity about the nursing shortage enticing more to enter the field.
Financial Group
237
September 2013
BMO Capital Markets
Exhibit 270. Number of RN FTEs Ages 23-26 (1973-2009)

200,000
180,000
FTEs
160,000
140,000
120,000
100,000
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
80,000
Note: Shaded areas indicate recessionary periods. Source: Registered Nurse Supply Grows Faster Than
Projected Amid Surge in New Entrants Ages 23-26 Health Affairs: December 2011 and BMO Capital
Markets.
. . . and career
changers
In addition, the article cites that, in recent years, there has also been an influx of new, relatively
older RNs into the field. As shown in Exhibit 271, while there has typically been additional RNs
as different cohort of nurses age from 25 to 29, the size of that age group has been increasing.
The authors suggest that additional training options (e.g., accelerated bachelor's programs) have
enticed some career changers into the field as well. Owing to this and other data, if these trends
continue, the authors project that it may be some time (as late as 2030 in one scenario) that the
historical components of the nursing shortage reappear.
Exhibit 271. Number of RN FTEs at Age 25 and Additional RNs

Four Years Later: Cohorts of Birth (1956-1984)
50,000
FTE at age 25
Added FTE by age 29
45,000
40,000
35,000
FTEs
30,000
25,000
20,000
15,000
10,000
5,000
1956
1960
1964
1968
1972
1976
1980
1984
Note: Shaded areas indicate recessionary periods. Source: Registered Nurse Supply Grows Faster Than
Projected Amid Surge in New Entrants Ages 23-26 Health Affairs: December 2011 and BMO Capital
Markets.
More nurses
entering school
A member of BMO
Additionally, we believe increasing enrollment in entry-level baccalaureate nursing programs

may have also alleviated supply concerns. While annual growth slowed to 2.7% in 2012 (see
Exhibit 272), new nursing enrollment has nevertheless outpaced most other sectors.
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238
September 2013
BMO Capital Markets
Exhibit 272. Enrollments in Entry-Level Baccalaureate Nursing

Programs (1994-2012)
180,000
20%
% chg y/y
15%
150,000
10%
120,000
5%
0%
90,000
% chg y/y
Enrollment
Students
-5%
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
-10%
1994
60,000
Note: Shaded area indicates recessionary period.

Source: American Association of Colleges of Nursing.
Supply is
artificially
constrained
owing to capacity
of education
However, the current nursing education market is very capacity constrained. As shown in
Exhibit 273, the number of qualified applicants being turned away from nursing programs has
increased dramatically since 2003, reaching over 58,000 in both 2011 and 2012 over 25% of
the total applicant base each year. According to the American Association of Colleges and
Nursing, these applicants were turned away owing to lack of faculty or other resource
constraints. A December 2009 study (latest available) by the Carnegie Foundation ("Educating
Nurses: A Call for Radical Transformation) concluded that nursing education programs would
need to increase capacity by 90% to meet future nurse demand.
Exhibit 273. Qualified Applications Turned Away From Entry-Level

Baccalaureate Nursing Programs (2003-2012)
Applicants Turned Away
30%
% of Total
50,000
25%
40,000
20%
30,000
15%
`
20,000
10%
10,000
5%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Note: Shaded area indicates recessionary period.

Source: American Association of Colleges of Nursing.
Nursing shortage
may reappear
Healthcare IT
strong demand
A member of BMO
In addition, more nurses may be leaving the industry. In an April 2012 entitled Registered Nurse
Labor Supply and the Recession Are We in a Bubble? , the authors conclude that, historically,
the supply of RNs has increased more than expected when the unemployment rate rose and
decreased more than expected when the unemployment rate fell. Given the recent and expected
trends of declining unemployment rates, we could start hearing once again about the nursing
shortage, which could drive further demand for such education.
Another area of potential education growth combines both healthcare and information
technology (IT) healthcare information technology management. On February 17, 2009,
President Barack Obama signed the American Recovery and Reinvestment Act (ARRA). Title
XIII of ARRA - called the Health IT for Economic and Clinical Health Act (HITECH) allocated $19.2 billion toward healthcare IT to improve the delivery of healthcare in the US.
Financial Group
239
September 2013
As % of Total
Applicants Turned Away
60,000
BMO Capital Markets
With various provisions and regulations, the Act provided assistance, tools, and resources to
providers to allow for implementation and utilization of electronic health records. This
included funding for training - much of which is being used by postsecondary institutions to
develop programs, certificates, and degrees for this purpose.
This, along with the October 2013 deadline to convert to the new ICD-10 coding system, is
helping to spur demand for workers with knowledge in both areas something that could
benefit education providers. Given the for-profit sectors history of providing many programs
in both healthcare and IT, we believe for-profits could be leaders in this niche.
In Exhibit 274, we provide a list of major program offerings for the publicly held for-profit
providers.
Exhibit 274. Select For-Profit Postsecondary School Operators Fields of Study Offered
(as Percentage of Enrollments)
Company Name
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Strayer Education
Washington Post
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
Criminal Justice
Art & Auto Tech/
Legal, Public
Culinary/
Electronics
Health & Human
Design
Trades
Business Service & Safety Hospitality Education & Engineering
Services
24%
18%
1%
26%
59%
8%
6%
40%
19%
21%
13%
49%
11%
20%
9%
23%
22%
43%
29%
21%
21%
29%
41%
X
32%
43%
9%
5%
11%
2%
17%
20%
52%
14%
25%
20%
X
20%
5%
38%
6%
9%
35%
38%
41%
70%
100%
X
X
X
X
IT
9%
11%
Social
Sciences Other
22%
8%
8%
19%
1%
7%
3%
X
24%
1%
2%
12%
14%
30%
X
8%
13%
12%
14%
17%
Note: X- offers programs although percentage of enrollment not available. N.A. Not Available. Source: BMO Capital Markets and company
reports.
Postsecondary Schools Persistence/Retention/Attrition Rate

Trends
Attrition/retention
gaining greater
investor focus
Attrition (i.e., drop-out) rates and their complementary retention rates (100% minus the
attrition rate) began to garner greater investor attention in early 2006, after a number of
companies cited higher attrition rates as one of the reasons for their decelerating growth. It
has continued to gain focus not only because of regulatory pressures, but owing to the
beneficial impact on profitability if students remain longer in their programs. Although
definitions vary, we will use the following terms in our analysis:
Persistence rates describe the percentage of students still enrolled intra-year (i.e., from
semester to semester).
Retention rates describe the percentage of students still enrolled from school year to
school year.
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Attrition (drop-out) rates describe the complements (i.e., 100% minus the rate) for both
retention and persistence rates.
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BMO Capital Markets
Persistence better
Persistence rates. There is little historical data for the industry on persistence rates, i.e.,
at four-year
from semester to semester. However, every two years, Noel-Levitz releases its Student
Retention Indicators Benchmark Report, which includes a measurement of mid-year
persistence (latest data available is for the 2011-12 school year). As shown in Exhibit 275,
persistence rates tend to be higher at four-year institutions relative to their two-year
counterparts, likely owing to more students going full time. In addition, persistence tends to
improve as students stay longer in their programs, i.e., better for second year undergraduates
relative to first-year undergraduates.
schools relative to
two-year schools
and improves as
students stay
longer
Exhibit 275. Persistence Rates (2011-12 School Year)

First-year
Second-year
Undergraduates Undergraduates
Four-year institution
Two-year institution
89.4%
80.8%
93.1%
85.3%
91.8%
94.4%
Source: Noel-Levitzs Student Retention Indicators Benchmark Report.
Persistence at forprofit institutions

higher than that at
two-year public
A survey from the National Student Clearinghouse Research Center using a different
database, shows similar trends but includes data for for-profit institutions. In 2010 (latest data
available), persistence at for-profit institutions was below that to all schools except two-year
public institutions (i.e., community colleges; see Exhibit 276).
institutions
Exhibit 276. Persistence Rates (Fall 2010)

All
Postsecondary
Students
Private for-profit:
All schools
90.3%
74.9%
91.4%
87.2%
83.2%
83.1%
84.7%
Source: National Student Clearinghouse Research Center.
Sequential
persistence rates
for the publicly
held companies
We have provided the available sequential persistence rates for the publicly held companies in
Exhibit 277. As the sequential persistence rates may be somewhat seasonal (we have
calendarized the data to make comparisons more meaningful), trends have been somewhat
lumpy, but have begun to rise in recent quarters.
have begun to
rise in recent
quarters
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Exhibit 277. Publicly Held For-Profit Postsecondary School Operators Sequential

Persistence Rates (CY1Q10-CY2Q13)
Company
Apollo Group
Career Education
Corinthian Colleges
DeVry
MEDIAN
Y/Y change
Ticker
APEI
APOL
BPI
CECO
COCO
DV
ESI
LINC
NAUH
UTI
FYE
12
8
12
12
6
6
12
12
5
9
1Q10
84.5%
81.5%
77.3%
73.5%
74.0%
76.3%
76.1%
74.4%
85.6%
79.6%
76.8%
1.5%
2Q10
76.5%
83.4%
74.9%
67.5%
65.8%
91.1%
74.5%
69.6%
78.9%
74.5%
74.7%
1.1%
3Q10
82.6%
79.5%
78.5%
71.4%
68.0%
75.3%
72.4%
67.3%
81.9%
76.1%
75.3%
0.2%
4Q10
82.3%
81.1%
80.7%
74.1%
69.6%
82.2%
76.1%
69.2%
85.6%
76.2%
76.2%
-1.7%
1Q11
89.9%
81.5%
77.9%
70.1%
69.7%
77.8%
73.5%
71.2%
85.9%
76.7%
77.2%
0.4%
2Q11
73.4%
84.5%
74.2%
69.7%
66.1%
91.8%
73.1%
67.7%
80.5%
73.4%
73.4%
-1.4%
Calendar Year
3Q11
4Q11
80.9%
81.6%
80.2%
81.3%
81.1%
80.7%
66.2%
68.8%
68.2%
72.6%
82.1%
80.9%
71.5%
73.4%
63.1%
68.6%
82.5%
83.9%
74.1%
75.7%
74.1%
75.7%
-1.2%
-0.5%
1Q12
84.0%
82.3%
81.5%
74.6%
71.8%
85.9%
72.4%
68.4%
83.1%
74.6%
78.0%
0.8%
2Q12
72.6%
82.9%
77.3%
71.5%
69.5%
91.5%
71.3%
69.3%
76.0%
72.4%
72.5%
-0.9%
3Q12
85.0%
79.6%
76.5%
74.6%
66.8%
74.8%
69.8%
68.2%
77.7%
73.8%
74.6%
0.5%
4Q12
80.3%
80.9%
79.4%
75.3%
70.6%
78.9%
72.6%
70.4%
78.5%
73.5%
75.3%
-0.4%
1Q13
86.0%
81.9%
80.0%
78.6%
68.8%
87.9%
71.5%
73.4%
81.7%
75.7%
79.3%
1.3%
2Q13
74.4%
82.6%
77.5%
74.8%
64.9%
90.0%
68.4%
67.4%
78.5%
72.9%
74.6%
2.1%
Source: BMO Capital Markets estimates and company reports. N.A. Not Available. Note: We have attempted to remove the estimated impact of
acquisitions to calculate sequential persistence for these companies.
Online programs
have mostly lower
persistence rates
than campusbased programs
We believe online programs tend to have lower persistence rates than campus-based
programs, as many online students prefer that mode owing to its flexibility (i.e., can take
classes based on their schedules, not the schools). In a 2012 presentation at the annual
APSCU convention, a speaker from Collegiate Admission & Retention Solutions cited rates
roughly 10%-20% lower. Unfortunately, none of the publicly held companies provide both
starts and enrollment data for its online and campus-programs, though Career Education
(CECO) did so until 4Q09. Therefore, we are using CECOs results from 2Q08 (as restated)
through 4Q09 as a proxy for the group. As shown in Exhibit 278, CECOs online campuses
had mostly lower sequential persistence rates than its campus locations (although that was not
the case in 2Q09, likely owing to continued issues at some of its campus locations). APOL
management has stated in the past that the difference in persistence between its online and
campus locations is a couple of percentage points.
Exhibit 278. Career Education Sequential Persistence Rates

(2Q08-4Q09)
Sequential persistence rate
90%
Online
Campus
80%
70%
60%
50%
40%
30%
20%
10%
0%
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Note: This analysis begins with 2Q08 as numerous restatements make historical analysis a bit more difficult.
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Since 1984-85,
Retention/attrition rates. The first year of student programs is typically when retention rates
retention has
are the lowest, or conversely, when attrition/drop-out rates are the highest. According to ACT,
the average retention rate from freshman to sophomore year in the 2012-13 school year for
public not-for-profit institutions was 63.1% (55% for two-year institutions and 64.4% for
four-year institutions) while that for private not-for-profit institutions was 70.9% (56.4% for
two-year institutions and 67.4% for four-year institutions). Over the past 25 years or so, rates
had been inching up slightly at public not-for-profit schools, though moving down slightly at
private-not-for-profit institutions (see Exhibit 279).
increased slightly
at public not-forprofits and fallen
a bit at private
not-for-profits
Exhibit 279. Postsecondary School Retention Rates, Freshman to

Sophomore Year (1984-85 to 2012-13 School Years)
80%
Retention Rate
75%
70%
65%
60%
13
11
20
12
-
09
20
10
-
07
20
08
-
05
20
06
-
03
20
04
-
01
20
02
-
99
20
00
-
97
19
98
-
95
19
96
-
93
19
94
-
91
19
92
-
89
19
90
-
87
19
88
-
19
86
-
19
84
-
85
55%
Note: Shaded areas represent recessionary periods. The drop in total retention in the 2005-2006 school year
at public not-for-profit schools appears to be a statistical fluke, as retention rates increased at both two and
four-year institutions (i.e., mix shift toward two-year schools). Source: Analysis of ACT Institutional Data File
as compiled by Postsecondary Education Opportunity.
Noel Levitz recently asked its institutional clients when their students are most likely to leave.
As shown in Exhibit 280, students are more likely to leave between academic years, as
opposed to intra-year. The highest rate were at two-year public institutions between the first
term of the first enrollment year and the first term of the second enrollment year.
Exhibit 280. Median Attrition Rate by Institution Type (Fall 2010)

Between
First term, first enrollment
Second term, first enrollment
year
year
First term, first enrollment
First term, second
year
enrollment year
First term, second
Second term, second
enrollment year
enrollment year
First term, second
First term, third enrollment
enrollment year
year
Institution Type
Two-year Four-year Four-year
public
public
private
18.8%
8.9%
8.8%
44.8%
26.2%
24.2%
14.3%
7.0%
5.8%
N.A.
16.7%
16.3%
N.A. Not Applicable. Note: Periods measured at census day near the beginning of each term. Data not
provided for for-profit institutions. Source: Noel Levitz Mid-Year Retention Indicators Report.
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The NCES has recently begun to publish annual retention rates as part of its annual overview
of enrollment at postsecondary institutions. As shown in Exhibit 281, while students attending
four-year for-profit institutions tend to have much lower retention rates than those attending
their not-for-profit counterparts, retention rates are relatively higher for those attending twoyear for-profit institutions.
When compared
to not-for-profits,
for-profit schools
have much lower
retention rates at
four-year schools
Exhibit 281. Postsecondary Schools Retention Rates After One

Year (Fall 2010 to Fall 2011)
but higher at twoyear institutions
Part-time
Students
41.9%
Full-time
Students
71.7%
Private for-profit
41.9%
51.3%
43.8%
32.0%
78.9%
79.3%
80.2%
53.8%
Private for-profit
41.9%
41.7%
49.0%
52.0%
59.9%
58.9%
61.1%
66.7%
All schools
N.A. Not Available. Source: National Center for Education Statistics Digest of Education Statistics 2012
Table 378.
However, we believe it is a bit misleading to compare retention rates across sectors specifically at four-year institutions - given the open enrollment policy (i.e., accepts all
students) at virtually all for-profit institutions relative to the more selective admissions
requirements at their not-for-profit peers. As shown in Exhibit 282, in the fall 2011 school
year (latest data available), the retention rate for students at open enrollment for-profit twoyear and four-year institutions was only slightly below the rates at their public not-for-profit
and private not-for-profit peers.
Retention for
more similar to
those at open
enrollment notfor-profit
institutions
Exhibit 282. Postsecondary Schools Retention Rates After One Year Based on
Admissions Standards (Fall 2010 to Fall 2011)
All
Open
Institutions Admissions
90% or
More
Accepted
75% or
More 50%-74.9% 25%-49.9%
Accepted Accepted Accepted
Less than
25%
Accepted
Four-year schools:
All institutions
Private for-profit
71.7%
79.3%
80.2%
53.8%
61.6%
62.7%
55.0%
72.6%
69.8%
52.6%
77.3%
77.8%
52.9%
80.9%
78.5%
53.8%
85.0%
85.9%
54.6%
95.0%
96.0%
N.A.
Two-year schools:
All institutions
Private for-profit
41.9%
51.3%
43.8%
32.0%
41.6%
40.9%
36.5%
56.5%
37.7%
22.3%
50.5%
47.9%
21.9%
53.4%
45.1%
32.0%
58.8%
49.3%
31.9%
81.4%
79.8%
N.A.
N.A. Not Available. Source: National Center for Education Statistics (Condition of Education 2012).
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Retention rates at
for-profit schools
have been
improving
BMO Capital Markets
Retention rates at for-profit schools have been improving. As shown in Exhibit 283, while
those at most institutions have been relatively flat, retention for first-time, degree-seeking
undergraduates at for-profit institutions have increased from 55.3% from the 2006 to 2007
school years to 63.1% in the 2010 to 2011 school years. We note, however, that they still
remain below the levels generated at their not-for-profit peers.
Exhibit 283. Postsecondary Schools Retention Rates After One

Year (2006-07 to 2010-2011 School Years)
2006 to 2007
85%
2007 to 2008
2008 to 2009
2009 to 2010
2010 to 2011
80%
Retentikon rate
75%
70%
65%
60%
55%
50%
Private for-profit
All institutions
N.A. Not Available. Source: National Center for Education Statistics.
Over a longer
period, students
at for-profit
schools may have
higher attrition
(drop-out) rates
A longer time period was examined in the July 2008 report Descriptive Summary of 2003-04
Beginning Postsecondary Students: Three Years Later published by the NCES that measured
retention rates for postsecondary students after three years. Based on this data, it appears that
students attending for-profit schools have relatively higher attrition (i.e., drop-out) rates than
those attending not-for-profit institutions across all types of schools, although this may be
misleading.
across all types of

schools . . . but
this may be
misleading
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As shown in Exhibit 284, anywhere from 41.5% (at less than two-year institutions) to 52.6%
(at two-year institutions) of students at for-profit schools had no degree and were not enrolled
after three years (no degree - not enrolled), the highest attrition rate of any school type. On
a positive note, the students from the for-profit schools have the highest graduation rates
(attained degree - not enrolled) as well. This may be partially attributed to a greater portion
of students entering these schools with prior credits (we discuss graduation rates in the next
section). Additionally, as this research follows students three years following enrollment, it
may be skewed as students attending four-year programs would be excluded in the graduation
rates (i.e., the rate of students with no degree but who are still enrolled after three years is
considerably higher at not-for-profits).
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Exhibit 284. Postsecondary Schools Retention Rates After Three

Years (entered in 2003-04 School Year)
All schools
Less than two-year institution
Private for-profit:
Attained
degree, not
enrolled
8.9%
Attained
degree, still
enrolled
7.0%
No degree,
still enrolled
50.7%
No degree,
not enrolled
33.5%
3.2%
5.5%
51.8%
2.4%
10.1%
11.3%
77.2%
39.8%
6.9%
17.3%
44.6%
30.0%
4.0%
18.3%
N.A.
3.1%
12.7%
N.A.
76.8%
29.6%
N.A.
16.1%
39.3%
N.A.
8.5%
25.6%
41.3%
9.7%
8.5%
9.0%
34.3%
13.2%
8.2%
47.6%
52.6%
41.5%
N.A. Not Available. Source: National Center for Education Statistics (NCES 2008-174) Descriptive
Summary of 2003-04 Beginning Postsecondary Students: Three Year Later.
For-profit
institutions serve
a disproportionate
number of high
risk students
Given the lower quality demographic of its student base, it is not surprising that the forprofit sector compares unfavorably on many persistence/retention metrics relative to its notfor-profit peers. In March 2010, The Parthenon Group released a study entitled Private
Sector Post-Secondary Schools Do They Deliver Value to Students and Society? The
group compared the student mix at for-profit versus not-for-profit (both public and private)
schools (using the NCES BPS 2004-2006 database) and concluded that 54% of students at
for-profit schools would be considered high risk versus only 36% of those at not-for-profit
institutions. The high risk definition applies to students that meet three or more of the risk
factors identified by the ED (see Exhibit 285). This relationship held across nearly every
measure of underrepresentation (e.g., inner-city residents, low-income households).
Exhibit 285. Factors to Identify High Risk Postsecondary

Students
Delayed enrollment
No high school diploma
Part-time enrollment
Financially independent
Have dependents
Single parent status
Working full-time while enrolled
Source: US Department of Education via The Parthenon Group.
There are a number of companies that specialize in helping schools improve their retention
rates. Among the more widely known is privately held InsideTrack, which claims it has
worked with more than 350,000 students at more than 50 schools. The company charges
anywhere from $30-$120 per month per student who receives coaching.
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For-profit
retention rate
trends appear
somewhat
countercyclical
BMO Capital Markets
We were unable to find trend data for retention rates of not-for-profit schools. However, the
Accrediting Council for Independent Colleges and Schools (ACICS) provides retention rates
for the schools that it accredits. As the bulk of ACICS-accredited schools are for-profit
providers, we use this as a proxy for trends in the for-profit sector. We believe there is some
countercyclicality to this measure, albeit on a bit of a lag, as it tends to rise when the
employment market is weak (e.g., following the 2001 recession and toward the tail end of the
most recent recession), while falling when the employment market strengthens (e.g., 20042007). We believe the spike in fall 2009 to 75% was due to the weak job market caused by the
Great Recession, as the rate has since decreased to 72% in 2011 (latest data available; see
Exhibit 286).
Exhibit 286. Annual Retention Rates for ACICS-Accredited

Schools (Fall 1997Fall 2011)
75%
75% 75%
75%
74%
74% 74%
73% 73%
73%
Retention Rates
72%
72%
71% 71% 71%
71%
70%
65%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Note: Shaded area represents recessionary period. Source: Accrediting Council for Independent Colleges
and Schools (ACICS), Annual Summary of Key Operating Statistics.
For-profit
retention rates
improved
dramatically
across all
programs in 2009,
though have
A deeper analysis of this data (see Exhibit 287) shows that ACICS retention rates had been
improving somewhat in recent years for the lower-end programs such as non-degrees (i.e.,
diploma/certificate) and associates degrees, while retention rates for higher-end bachelorsand masters-degree programs had dropped somewhat. However, retention rates improved
dramatically in 2009 across all programs, showing the economic environment had affected all
types of students. Retention rates have since decreased in 2011 for all degree levels excluding
Masters degrees, likely owing to an improving job market, in our view.
decreased in 2011
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Exhibit 287. Retention Rates for ACICS-Accredited Schools by

Classification (Fall 2001Fall 2011)
80%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
78%
Retention Rates
76%
74%
72%
70%
68%
66%
64%
62%
Non-Degree
Occupational
Academic
Bachelor's Degree
Associate's Degree Associate's Degree
Master's Degree
Source: Accrediting Council for Independent Colleges and Schools (ACICS), Annual Summary of Key
Operating Statistics.
Common reasons
for attrition
At the June 2008 National Dialog on Student Retention held by Education Dynamics, Dr.
George Kuh, director, Center for Postsecondary Research, Indiana University, highlighted
some of the common factors that drive higher attrition rates (see Exhibit 288).
Exhibit 288. Factors That Threaten Retention and Graduation

From College
Academically underprepared for college-level work
First-generation college student
Gap between high school and college
30+ hours working per week
Part-time enrollment
Single parent
Financially independent
Children at home
Source: Education Dynamics National Dialog on Student Retention.
Finances are a
main reason why
younger students
drop out
In 2009, Public Agenda, in conjunction with the Bill and Melinda Gates Foundation published
With Their Whole Lives Ahead of Them a survey of young adults with at least some college
coursework, to determine why they did not complete their program. As shown in Exhibit 289,
financial issues were by far the top two reasons cited.
Exhibit 289. Why Young Adults Did Not Complete College (2009)
Issue
I needed to go work and make money
I just couldn't afford the tuition and fees
I needed a break from school
I had to take too many classes that I did not think were useful
I didnt have enough time for my family
I thought many of the classes were boring
It just didnt seem to be worth the money I was paying
I didnt like sitting in class
some of the classes were too difficult
Major reason Minor reason

54%
17%
31%
21%
21%
33%
16%
27%
16%
25%
14%
31%
14%
21%
11%
27%
10%
24%
Source: Public Agenda survey.
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Finances are also

a concern for nontraditional
BMO Capital Markets
In 2012, the Apollo Research Institute surveyed nontraditional students as to the issues they
faced when attempting to complete their degrees. While the focus was more on psychosocial
issues, financial related issues was also cited as a top reason (see Exhibit 290).
students
Exhibit 290. Issues Non-Traditional Students Face When Trying

Complete a Degree (2012)
Anxiety/stress over collegerelated expenses
71.3%
Anxiety about not spending

time w ith loved ones
58.5%
Worrying about intellectual

ability to complete
coursew ork
51.5%
Experiencing stress because

classes interfere w ith normal
routine
49.1%
Fearing that earning a degree

is needed to prove
competence to others
42.0%
Resentment over dong

coursew ork instead of
something more interesting
40.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: Apollo Research Institute survey.
Attrition is higher
earlier in student
lifecycle
Many schools have realized the importance of reducing attrition rates - not just from the
perspective of student outcomes, but also from a revenue and profit perspective. In a May
2007 article in Career College Central it was estimated lost revenue from attrition can be as
much as $3,000 per student if the student drops out in the first quarter. Most research
concludes that retention rates increase over the life of a student (i.e., the longer a student
matriculates, the greater the chance that he or she will continue to be enrolled); in a May 2008
survey of higher education administrations by Education Dynamics, 70% said the retention
challenge is greatest during the first year of any program.
Unfortunately, only two companies (Career Education and Education Management) disclose
their retention/attrition rates on an annual basis (see Exhibit 291).
Exhibit 291. Select For-Profit Postsecondary School Operators Annual Retention Rates
(FY2003-FY2013)
Company
Career Education
Education Management (all schools)
Ticker
CECO
EDMC
2003
67.3%
70.2%
2004
65.9%
68.0%
2005
65.2%
67.4%
2006
66.2%
72.3%
2007
67.7%
71%
2008
66.7%
68%
2009
70%
67%
2010
67%
64%
2011
63%
60%
2012
65%
57%
2013
N.A.
60%
Source: BMO Capital Markets and company reports. Note: Data represents fiscal years. N.A. Not Available.
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Common methods
to improve
retention
BMO Capital Markets
Owing to increased student-acquisition costs, both not-for-profit and for-profit providers have
been paying more attention to improving their retention rates as a means to spread student
acquisition costs over a longer period (potentially increasing margins for the for-profit providers).
While there is no panacea, among the common methods being implemented are these:
Improving data analysis to determine which entry variables lead to higher retention
rates (e.g., SAT scores, financing needs).
Establishing college readiness programs to better prepare students for college (both
academically and socially). A high profile example in Apollo Groups (APOL)
University of Phoenixs (UOP) University Orientation program, launched on a pilot basis
in FY2010 and university wide in November 2010. This program is a free, three-week
orientation program designed to provide students who have limited or no college
experience a better understanding of what is required to be successful at UOP before
beginning their program and potentially incurring any student loans or other financial aid
obligations. Many others in the space have since rolled out similar programs. While
having a negative impact on operating profit in the near term, should these programs be
successful we believe they will help the sector enhance the quality of its student base,
improve retention rates, and potentially the lifetime return to and on its students.
Improving the onboarding process when students first start classes to ensure they are
comfortable and not isolated from a schools bureaucracy.
Making first-year students have mandatory meetings with academic advisors.
Better tracking of students while they are enrolled to improve identifying at-risk
students (i.e., an early warning system).
Improving communication between students and administration.
Better use of technology (e.g., making lectures available online to help students who may
have missed class).
Improving data analysis to determine which entry variables lead to higher retention
rates (e.g., SAT scores, financing needs).
Creating a position of responsibility for retention (e.g., director of retention).
A listing of key retention metrics can be found in Exhibit 292.
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Exhibit 292. Key Persistence/Retention Metrics to Watch

Term
Definition
Postsecondary Norms
For-Profit Norms
Persistence rate
Measures how successful schools

are at retaining students between
semesters;
provides
important
insight into the effectiveness of the
programs.
All institutions (1): 84.7%
Private for-profit (1):
Public not-for-profit (1):


For-profit public companies most

recent annual average (2): 75.9%
Private not-for-profit (1):

Retention rate (3)
Measures how successful schools

are at retaining students (typically
measured annually for two- and fouryear schools); provides important
insight into the effectiveness of the
programs.
All institutions: 71.7% (full-time);

41.9% (part-time)
4-year institutions: 52.8% (fulltime); 32% (part-time)

4-year institutions: 79.3% (fulltime); 51.3% (part-time)

Attrition rate (after

three years) (4)
Students no longer enrolled who Public not-for-profit:

have not attained a degree
All 4-year institutions: 17.3%

41.5%

30%
N.A.
Source: (1) National Student Research Clearinghouse Center (Fall 2010), (2) Average for last four quarters for publicly held providers that provide
both total and new enrollment data each quarter; (3) National Center for Education Statistics Digest of Education Statistics 2012 Table 378 );
(4) National Center for Education Statistics (NCES 2008-174) Descriptive Summary of 2003-2004 Beginning Postsecondary Students Three
Years Later. Data include students who transferred to another institution and may have completed their degrees at that location.
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Postsecondary Schools Completion/Graduation Rate Trends

Just over half of
all students
complete their
bachelor degrees
Most investors in this group have become more aware that a large portion of students who
enroll at postsecondary institutions whether they are for-profit or not-for-profit do not
actually complete their programs. A historical analysis of completion rates (i.e., graduation
rates) is somewhat difficult, owing to classification changes made by the Census Bureau in
the early 1990s. Nevertheless, completion rates for those in school four years or more
remained within a narrow 49%-54% range from 1964 to 1991. Using the more recent
classification (based on degree completion and not time in school), bachelor degree
completion rates (typically four-year programs) increased to a record high of 53.4% in 2012
from a low of just under 45% in 1994 (see Exhibit 293).
Exhibit 293. Postsecondary Schools Bachelor Degree Completion

Rates by Age 25-29 (1964-2012)
Completion rate
55%
50%
45%
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
40%
4 Years or More
Bachelor's or More
Note: Shaded areas represent recessionary periods. Prior to 1992, the Census Bureau measured educational
attainment in terms of time in school; completing four years of college constituted graduating from college with
a bachelor degree for this analysis. Since 1992, educational attainment has been measured in terms of
highest degree completed.
Source: Analysis of US Census Bureau data as compiled by Postsecondary Education Opportunity.
International
graduation rates
vary and may
often be higher
than US rates
A member of BMO
Graduation rates vary substantially across countries. We believe this is a function of the
support given to students by their respective countrys educational system, the characteristics
of the programs, and their costs. While it is frequently argued that US programs are often
ahead of the curve in terms of teaching efficiency and student services, the US also has the
highest cost of education: according to a recent UNESCO study, the annual cost of roughly
$25,576 per tertiary student in the US (2011 school year) is the highest among the OECD
countries. However, graduation rates for US higher education students (per OECD data) at
39% are just below the OECD average of 40% for the 2011 school year (latest data available;
see Exhibit 294).
Financial Group
252
September 2013
BMO Capital Markets
Exhibit 294. International Graduation Rates (2011 School Year)

60%
50%
Graduation Rate
40%
30%
20%
10%
Ic
el
U
a
ni
te Po nd
d
la
K
N in nd
ew gd
Ze om
a
Au lan
st d
D ral
en ia
m
Sl
ov F ar
ak in k
R lan
ep d
ub
l
Ja ic
p
Ire an
la
n
N N d
C eth orw
ze e a
ch rla y
EU Re nd
21 pu s
av blic
er
a
S
O
w ge
EC
ed
e
D
AV Isr n
ER ae
U
l
N
IT P AG
ED or E
tu
ST ga
A l
Sl TES
ov
e
Au nia
st
C ria
an
ad
a
Ita
Sw S ly
itz pain
e
G rlan
er d
m
H an
un y
ga
r
C y
h
Tu ile
rk
M ey
ex
ic
o
0%
Source: OECD (Organisation for Economic Cooperation and Development).
Comparing completion rates across schools can be somewhat misleading given that many
students do not complete their degrees at the institutions where they first begin. In addition, a
number of different studies are available, many with conflicting data when analyzed by school
type.
For-profit
completion rates
have been getting
worse according
to one ED study,
although still
better than those
at community
colleges
A member of BMO
Among the most current data is an analysis by school and degree type for first-time students
who began their studies between 2004-2008 that were followed over a five-year period. Their
completion data was compared with two previous cohorts (1990-1994 and 1996-2000).
Unfortunately, over that time period, completion rates for students at for-profit institutions
decreased significantly; only 42.9% of those students in the 2004-08 group attained a degree
within five years well below the 60.1% and 63.9% for the prior two cohorts (see Exhibit 295).
Nevertheless, across all time periods, the degree completion rates at for-profit institutions were
better than those achieved at two-year public not-for-profit institutions (i.e., community
colleges).
Financial Group
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September 2013
BMO Capital Markets
Exhibit 295. Completion Rates by Degree Type by Institution Type

(various years)
Cohort Year and Institution
Type
1990-1994:
All institutions
Public not-for-profit two-year
Public not-for-profit four-year
Private for-profit
Highest Degree Type

Attained
Degree Certificate Associate's Bachelor's
No Degree,
No Degree,
Still Enrolled Dropped Out
51.2%
39.1%
54.9%
72.0%
63.9%
13.1%
14.7%
3.5%
3.0%
48.1%
11.6%
17.1%
5.9%
3.1%
13.0%
26.5%
7.3%
45.5%
65.9%
2.8%
13.3%
14.0%
19.0%
8.1%
1.1%
35.5%
46.9%
26.1%
19.9%
35.0%
1996-2000:
All institutions
Private for-profit
47.3%
32.9%
53.5%
69.9%
60.1%
11.9%
9.7%
2.6%
1.6%
50.0%
10.3%
16.5%
4.1%
2.9%
8.7%
25.1%
6.7%
46.8%
65.4%
1.4%
17.1%
18.8%
23.0%
12.5%
4.5%
35.6%
48.3%
23.5%
17.6%
35.5%
2004-2008:
All institutions
Private for-profit
41.3%
26.4%
52.3%
62.2%
42.9%
8.8%
7.4%
1.2%
1.3%
30.1%
8.4%
13.1%
2.9%
3.4%
9.6%
24.1%
5.9%
48.2%
57.5%
3.1%
19.9%
23.0%
23.9%
16.9%
7.6%
38.7%
50.6%
23.8%
20.9%
49.5%
Source: BMO Capital Markets and US Department of Educations National Center for Education Statistics
(NCES 2012-254).
The gap narrows

when compared
to not-for-profit
institutions with
open enrollment
Similar to the discussion regarding retention rates, we believe this type of analysis unfairly
penalizes for-profit institutions given their open enrollment status. When analyzing a smaller
subset (the 2004 cohort for students at four-year institutions and the 2007 cohort for students at
two-year institutions; latest data available), those attending open enrollment for-profit
institutions still had the lowest graduation rates, although the gap was not as extreme when
compared with their not-for-profit peers with open admissions standards (see Exhibit 296).
Exhibit 296. Postsecondary Schools Graduation Rates Based on

Admissions Standards (Fall 2010)
All institutions
Private for-profit
All
Open 75% or More
Institutions Admissions
Accepted
58.3%
29.2%
54.5%
56.0%
28.8%
53.0%
65.4%
36.4%
58.9%
28.4%
23.0%
38.0%
50%-74.9%
Accepted
60.7%
59.9%
63.8%
32.9%
25%-49.9%
Accepted
70.3%
62.2%
79.3%
32.9%
Less than
25%
Accepted
87.2%
82.2%
90.5%
N.A.
Note: Data measures graduation rates for the 2004 cohort for four-year institutions and the 2007 cohort for
two-year institutions. N.A. Not Available. Source: National Center for Education Statistics (Condition of
Education 2012).
When including
transfers, forprofit graduation
rates are slightly
higher
A member of BMO
In November 2012, the National Student Clearinghouse Center published Completing College:
A National View of Student Attainment Rates in which it analyzed the accomplishments of
first-time degree-seeking postsecondary students that began in fall 2006. As shown in Exhibit
297, over the next six years, 54.1% had completed their degrees. Results were mixed for those
attending for-profit institutions, as only 42.8% of those who had enrolled at four-year
institutions had completed their degree, while 61.8% of those attending two-year institutions did
the same (although one would expect that percentage to be relatively higher, assuming the
shorter-term nature of those programs). We note these metrics include students who transferred
to other institutions.
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September 2013
BMO Capital Markets
Exhibit 297. Six-Year Completion and Attrition Rates by Institution Type (2006-07 Cohort
through 2012)
All institutions
Private for-profit:
Total
Completion
Rate
Completed
at Starting
Institution
54.1%
42.0%
60.6%
36.3%
48.7%
23.9%
8.7%
9.4%
71.5%
54.2%
58.6%
42.6%
42.8%
61.8%
37.8%
58.1%
Completed at Different
Institution
Four-Year
Two-Year
9.1%
3.0%
Still Enrolled Not Enrolled

at Any
at Any
Institution
Institution
16.1%
29.8%
3.2%
3.0%
16.0%
20.1%
23.4%
43.6%
10.5%
8.6%
2.4%
3.0%
10.0%
13.5%
18.5%
32.3%
3.0%
2.4%
2.0%
1.2%
13.8%
8.4%
43.4%
29.8%
Source: Source: BMO Capital Markets and National Student Clearinghouse Center.
relatively higher
When drilling down a bit further (and using a different data set), for-profit schools seem to do
a relatively better job graduating their students at their shorter institutions (i.e., less than
two-year and two-year institutions) than at their four-year institutions (see Exhibit 298). This
may be because for-profits tend to have a disproportionate number of lower-income students
who, for financial reasons, may find it exceedingly hard to complete these longer programs. In
addition, we note the 62.7% graduation rate for students attending for-profit two-year
than at
institutions is much higher than the 21.9% rate at public not-for-profit institutions
community
(i.e., community colleges).
For-profit
graduation rates
are higher at their
shorter
institutions; also
colleges
Exhibit 298. Graduation Rates by School Type (Cohort Years 2005

and 2008)
Private for-profit
Total
Less than 2-year

institutions (cohort
year 2008)
69.3%
76.7%
65.6%
66.4%
2-year institutions
(cohort year 2008)
21.9%
56.3%
62.7%
34.0%
4-year institutions
(cohort year 2005)
54.2%
64.2%
39.5%
56.1%
Note: Data measures graduation rates within 150% of normal time, i.e., three years for two-year programs
and six years for four-year programs. Source: BMO Capital Markets and US Department of Educations
National Center for Education Statistics (publication 2012-174rev).
Another study
shows even
worse for-profit
Another study shows even worse graduation rates at for-profit four-year institutions. As of
spring 2011, graduation rates within four, five, and six years of entering a for-profit institution
were typically less than half those at their not-for-profit peers (see Exhibit 299).
graduation rates
at four-year
institutions
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Exhibit 299. Graduation Rates at Four-Year Institutions by School

Type (Cohort Year 2004)
Private for-profit
Total
Four-year
Five-year
Six-year
Graduation Rate Graduation Rate Graduation Rate
31.3%
50.6%
56.0%
52.4%
62.9%
65.4%
20.4%
25.8%
28.4%
37.9%
53.9%
58.3%
Source: BMO Capital Markets and US Department of Education (Condition of Education 2012 Indicator 45).
Higher completion
rates at for-profit
schools within
three years of
enrollment
However, for-profit schools appear to have an advantage among students who complete
programs of shorter duration. Data that looked at attainment levels for a 2003-04 cohort of
students three years after they enrolled found that students who attended associates and
certificate programs at two- and four-year institutions were more likely to have completed
these programs at for-profit schools (see Exhibit 300). We believe this makes sense
considering for-profits generally have been more aggressive in expanding their range of
offerings of certificate- and associate-level programs.
Exhibit 300. Percentage of Students Who Received Degree/

Certificate After Three Years by School Type (Cohort Year 2003)
Any
Program Type
Certificate Associate's
Institution
4-year institution:
Public
Private for-profit
5.5%
7.1%
18.2%
0.6%
1.0%
1.3%
2.4%
3.6%
15.9%
2-year institution:
Public
Private for-profit
15.5%
31.0%
34.1%
5.5%
10.2%
15.8%
10.0%
20.8%
18.4%
Less-than-2-year institution:
Public
Private for-profit
63.1%
50.3%
62.3%
50.2%
0.6%
0.1%
Note: Data measures degree/certificate attainment rates of students as of June 2006 who entered an
educational program in the 2003-2004 school year. Source: BMO Capital Markets and US Department of
Educations National Center for Education Statistics (publication 2008-174).
Higher completion
rates at for-profit
Another study showed that students attending certificate programs at for-profit institutions
completed at higher rates across virtually all subcategories (see Exhibit 301).
schools for
certificate
programs across
all subcategories
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BMO Capital Markets
Exhibit 301. Percentage of Students Who Received Certificate

Within Six Years by School Type (Cohort Year 2003)
Public TwoYear
Institution
Gender:
Male
Female
Age when first enrolled:
18 or less
19
20-23
24-29
30 or more
Race:
White non-Hispanic
Hispanic
Black
Other:
Dependent
Independent
Low income
Risk factors when first enrolled:
None
1
2 or 3
4 or more
For-Profit
Institution
8%
9%
21%
35%
6%
7%
8%
13%
12%
29%
34%
32%
33%
27%
9%
10%
8%
25%
29%
43%
6%
12%
6%
32%
30%
36%
5%
8%
9%
12%
29%
32%
35%
28%
Note: Data measures degree/certificate attainment rates of students as of Spring 2009 who entered an
educational program in the 2003-2004 school year. Source: BMO Capital Markets and GAO citing US
Department of Educations National Center for Education Statistics (publication 2011-152).
However, lower
completion rates
However, that same study showed the performance was not as strong for those students that
attended bachelors programs at for-profit institutions (see Exhibit 302).
at for-profit
schools for
Bachelors
Exhibit 302. Percentage of Students Who Received Bachelors

Degree Within Six Years by School Type (Cohort Year 2003)
programs across
all subcategories
Independent
Low income
Delayed enrollment
Four or more risk factors
Public TwoYear
Institution
4%
13%
17%
2%
Public FourYear
Institution
21%
49%
64%
14%
Private
Nonprofit
Four-Year
Institution
26%
56%
70%
24%
For-Profit
Institution
3%
3%
5%
4%
Note: Data measures degree/certificate attainment rates of students as of Spring 2009 who entered an
educational program in the 2003-2004 school year. Source: BMO Capital Markets and GAO citing US
Department of Educations National Center for Education Statistics (publication 2011-152).
A member of BMO
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September 2013
For-profits have
increased their
share of
degrees provided
BMO Capital Markets
Given the strong enrollment growth in the for-profit sector, it is not surprising that the
industry has also gained share in the number of degrees provided. However, most of that
share gain has come at the higher-end degree programs, rather than at the non-degree
programs. As shown in Exhibit 303, from the 1995-96 to 2010-2011 school years, the forprofit sector slightly increased its share of diploma/certificates (to 46% from 45%), but saw
larger gains in associates degrees (to 21% from 9%), bachelors degrees (to 7% from 1%),
masters degrees (to 11% from 1%), and doctoral degrees (to 3% from 1%).
Exhibit 303. Degrees Provided by Program and School Type (1995-96 to 2009-10 School
Years)
DegreeNon DegreeGranting Inst. Granting Inst.
Number of awards
Diploma/certificates:
Private for-profit
All schools
Associates Degrees
Private for-profit
All schools
Bachelors Degrees
Private for-profit
All schools
Masters Degrees
Private for-profit
All schools
Doctors Degrees
Private for-profit
All schools
Percentage of Total
Diploma/certificates:
Private for-profit
All schools
Associates Degrees
Private for-profit
All schools
Bachelors Degrees
Private for-profit
All schools
Masters Degrees
Private for-profit
All schools
Doctors Degrees
Private for-profit
All schools
Total
CAGR: 1995-1996 to 2010-2011
Total
Total
181,340
13,428
45,808
240,576
126,018
20,831
233,244
380,093
307,358
34,259
279,052
620,669
452,179
20,507
187,294
659,980
67,491
16,006
286,080
369,577
519,670
36,513
473,374
1,029,557
6.3%
2.9%
9.8%
7.0%
-4.1%
-1.7%
1.4%
-0.2%
3.6%
0.4%
3.6%
3.4%
454,291
50,678
50,247
555,216
161
571
1,910
2,642
454,452
51,249
52,157
557,858
696,788
51,969
193,570
942,327
9
0
0
9
696,797
51,969
193,570
942,336
2.9%
0.2%
9.4%
3.6%
-17.5%
-100.0%
-100.0%
-31.5%
2.9%
0.1%
9.1%
3.6%
774,070
379,916
10,806
1,164,792
194
1,855
122
2,171
774,264
381,771
10,928
1,166,963
1,088,297
513,106
114,510
1,715,913
0
0
0
0
1,088,297
513,106
114,510
1,715,913
2.3%
2.0%
17.0%
2.6%
-100.0%
-100.0%
-100.0%
-100.0%
2.3%
2.0%
17.0%
2.6%
227,179
175,263
3,859
406,301
0
1,435
42
1,477
227,179
176,698
3,901
407,778
339,250
313,200
78,185
730,635
0
0
0
0
339,250
313,200
78,185
730,635
2.7%
3.9%
22.2%
4.0%
N.A.
-100.0%
-100.0%
-100.0%
N.A.
3.9%
22.1%
4.0%
29,516
14,853
283
44,652
0
55
23
78
29,516
14,908
306
44,730
81,938
76,608
5,219
163,765
0
0
0
0
81,938
76,608
5,219
163,765
7.0%
11.6%
21.4%
9.0%
N.A.
-100.0%
-100.0%
-100.0%
N.A.
11.5%
20.8%
9.0%
75%
6%
19%
100%
33%
5%
61%
100%
50%
6%
45%
100%
69%
3%
28%
100%
18%
4%
77%
100%
50%
4%
46%
100%
82%
9%
9%
100%
6%
22%
72%
100%
81%
9%
9%
100%
74%
6%
21%
100%
100%
0%
0%
100%
74%
6%
21%
100%
66%
33%
1%
100%
9%
85%
6%
100%
66%
33%
1%
100%
63%
30%
7%
100%
N.M.
N.M.
N.M.
N.M.
63%
30%
7%
100%
56%
43%
1%
100%
0%
97%
3%
100%
56%
43%
1%
100%
46%
43%
11%
100%
N.M.
N.M.
N.M.
N.M.
46%
43%
11%
100%
66%
33%
1%
100%
0%
71%
29%
100%
66%
33%
1%
100%
50%
47%
3%
100%
N.M.
N.M.
N.M.
N.M.
50%
47%
3%
100%
N.M. Not Meaningful. Source: US Department of Educations National Center for Education Statistics and BMO Capital Markets.
A member of BMO
Financial Group
258
September 2013
Time to complete
correlates with
program level
BMO Capital Markets
The lower one is on the ladder (i.e., in a non-degreed program), the faster one would expect to
complete their programs. As shown in Exhibit 304, for those surveyed in 2004 (latest data
available) with certificates (i.e., non-degree) from vocational programs, it had taken them on
average 1.7 years to complete their program, versus 9.8 years for those with doctoral degrees.
Given that higher-end degrees generally skew toward older students who are more likely to
attend part-time, this makes intuitive sense to us. Interestingly, when compared with 1996,
time-to-complete rates were fairly stable, except for vocational programs, where we believe a
number of shorter-term offerings (e.g., medical assistant) have increased.
Exhibit 304. Time to Complete by Program Type (1996 and 2004)

1996
10
9.7 9.8
2004
Time to Complete (yrs.)
9
8
7.0 7.1
7
5.8
5.6
5.2
6.0
4.6 4.4
5
4
3
2
2.6
1.7
1
0
Vocational
certificate
Associate
Bachelor's
only
Bachelor's
plus
Master's
Professional
Doctorate
Note: Bachelor data not available for 1996. Source: BMO Capital Markets and Postsecondary Education
Opportunity (Number 189).
For-profits appear
to have relatively
quicker completion
rates . . .
A member of BMO
Nevertheless, according to information compiled by APSCU (see Exhibit 305), the for-profit
postsecondary sector's trade association, and using data from the NCES 2003-04 Beginning
Postsecondary Students Longitudinal Study (latest data available), students in these shorterterm programs have a better chance of faster completion at a for-profit school (13.5 months
for a certificate, 25.8 months for an associate degree) than both a public not-for-profit school
(22.1 and 32.7 months, respectively) and a private not-for-profit school (24.7 and
28.3 months, respectively).
Financial Group
259
September 2013
BMO Capital Markets
Exhibit 305. Average Timeframe to Complete an Associates and

Certificate Program (Students Entering in 2003-2004 School Year)
35
Certificate
32.7
Number of Months
30
Associates
28.3
25.8
24.7
25
22.1
20
13.5
15
10
5
0
Public
Private for-profit
Source: Imagine America Foundation.
In addition (using an older data series), students at for-profit schools also complete their
bachelors program faster than those at not-for-profit schools regardless of the measurement
period (see Exhibit 306). We believe this may reflect the fact that students at for-profit
schools skew older and likely have earned some college credits prior to entering these
institutions.
Exhibit 306. Average Months to Complete Bachelors Degree

(Cohort Year 2000)
Time to degree attainment (months)
70
Private for-profit
65
61
60
55
50
49
50
40
30
29
30
33
26
20
10
0
Four year rate
Five year rate
Six year rate
Note: Rate measures the total number of completers within the specified time to degree attainment divided by
the revised cohort minus any allowable exclusions. Source: US Department of Education National Center for
Educational Statistics.
A member of BMO
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260
September 2013
. . . despite
enrolling riskier
students
BMO Capital Markets
Nevertheless, we find this interesting, as it appears that for-profit schools attract riskier
students than their not-for-profit peers. In addition, this gap may be widening. The NCES
recently published a study analyzing the number of first-time beginning postsecondary
students when measured by the five major risk factors for degree completion low income
dependents, parents did not attend college, students with dependents, students working fulltime, and black or Hispanic. As shown in Exhibit 307, the proportion of students attending
for-profit schools with any of those risk factors has increased at a faster rate than their relative
total enrollment.
Exhibit 307. Entering Students with Risk Factors (1989-1990,

1995-1996 and 2003-2004 School Years)
Percentage of for-profit students
30%
1989-90
1995-96
2003-04
25%
20%
15%
10%
5%
0%
All first-time
beginners
Low income
dependent
Parents did not With dependents Working full-time

attend college
Black or
Hispanic
Source: National Center for Education Statistics (NCES 2005-156).
A listing of key completion/graduation metrics can be found in Exhibit 308.
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BMO Capital Markets
Exhibit 308. Key Completion/Graduation Metrics to Watch

Term
Definition
Postsecondary Norms
For-Profit Norms
Completion/
graduation
rate (1)
Measures the percentage of

students that complete the program;
in non-degree programs students
receive a certificate or diploma; in
associate and bachelor programs
they receive a degree. Data
measures graduation rates within
150% of normal time (i.e., three
years for two-year programs and six
years for four-year programs).
Public not-for-profit less than twoyear institutions: 69.3%
Private for-profit less than twoyear institutions: 65.6%
Private not-for-profit less than

two-year institutions: 76.7%
institutions: 21.9%
Private not-for-profit two-year
institutions: 56.3%
institutions: 54.2%
institutions: 64.2%
Time to complete (2) Time period (in years) between a

student beginning a program and
completing it.
Private for-profit two-year

institutions: 62.7%
Vocational certificate: 1.7
Private for-profit four-year

institutions: 39.5%
N.A.
Associates degree: 4.4

Bachelors only: 5.8
Bachelors plus: 5.2
Masters: 7.1
Professional: 6
Doctorate: 9.8
N.A. Not Available. Source: BMO Capital Markets and (1) US Department of Educations National Center for Education Statistics Report 2012174rev Enrollment in Postsecondary Institutions (Data measures cohort year 2008 for attendees at less than two-year institutions and at two-year
institutions and cohort year 2005 for attendees at four-year institutions); and (2) Postsecondary Educational Opportunity (Number 189).
Postsecondary Schools Placement Rate, Salary, and Other JobRelated Trends

One of the selling points that for-profit providers have over their not-for-profit counterparts is
a focus on preparing students to get jobs once they have finished their programs. That is not to
say that students graduating from not-for-profit institutions are not ready for the working
world, but that for-profit schools tend to stress job placement rates as a selling point to
potential students, which is something rarely seen in the not-for-profit sector (though
becoming more commonplace in the current environment). This metric may become more
important as the latest reauthorization of the Higher Education Act (HEA), along with
upcoming potential rule changes, stresses accountability metrics for all for-profit and not-forprofit schools.
Oversight lies
with accrediting
agencies and
states
A member of BMO
For the most part, the federal government leaves it up to accrediting agencies and states to
create the standards that for-profit institutions use to calculate placement rates, as well as their
oversight. The only exception is for short-term job training programs, which must have
placement rates of at least 70% to remain eligible to participate in Title IV funding. In
addition, most nationally accredited programs must meet the minimum 70% placement rate
threshold.
Financial Group
262
September 2013
BMO Capital Markets
It was difficult to obtain placement information across the postsecondary landscape because
of various definitions of the metrics. In addition, few of the publicly held companies disclose
placement rates. Furthermore, for companies such as Apollo Group (APOL) and Strayer
Education (STRA), placement rates were historically somewhat meaningless, given that
working adults make up the bulk of their student bodies and are pursuing their education not
necessarily to get a job, but rather to advance at their current place of employment (this is
changing as well).
Placement rate
trends appear to
be cyclical, but
generally are
trending down,
despite the
increase in 2009
We were unable to find trend data for placement rates for not-for-profit schools. However, the
Accrediting Council for Independent Colleges and Schools (ACICS) provides placement rates
for the schools that it accredits. As the bulk of ACICS-accredited schools are for-profit
providers, we use this as a proxy for trends in the for-profit sector. As shown in Exhibit 309,
placement rates for ACICS-accredited schools fell just after the 2001 US recession (MarchNovember 2001), and continued to decline through 2003 owing to what we believe was the
jobless recovery. Placement rates improved some in the mid-2000s as the economy
strengthened but have been weak the past several years, coinciding with the Great Recession
and continued economic weakness. The 2011 70% placement rate is the lowest we have on
record.
Exhibit 309. Annual Placement Rates for ACICS-Accredited

Schools (1997-2011)
85%
82%
83%
81%
82%
80%
Placement Rates
80%
77%
76%
77%
78%
74%
75%
74%
72%
71%
71%
70%
70%
65%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Note: Shaded area represents recessionary period. Source: Accrediting Council for Independent Colleges
and Schools (ACICS), Annual Summary of Key Operating Statistics.
Placement rates
are highest for
masters degrees
and lower for nondegree programs
A member of BMO
A deeper analysis of this data (see Exhibit 310) shows that when measured by credential
levels, placement rates tend to be higher for masters degrees and lower for non-degree
programs. Since peaking in 2007, placement rates have fallen across all credential levels,
though have remained fairly steady for occupational associate degree students since 2008, but
have been decreasing over the past two years for bachelors degree and Masters degree
students.
Financial Group
263
September 2013
BMO Capital Markets
Exhibit 310. Placement Rates for ACICS-Accredited Schools by

Classification (2001-2011)
100%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
90%
Placement rate
80%
70%
60%
50%
40%
30%
20%
10%
0%
Non-Degree
Occupational
Associate's
Degree
Academic
Associate's
Degree
Bachelor's
Degree
Master's Degree
Source: Accrediting Council for Independent Colleges and Schools (ACICS), Annual Summary of Key
Operating Statistics.
A list of the placement metrics for the for-profit companies that disclose this data can be
found in Exhibit 311. As shown, placement rates increased for most companies for much of
last decade following the 2001 recession, though have fallen in the aftermath of the Great
Recession.
Exhibit 311. Publicly Held For-Profit Postsecondary School Operators Annual

Placement Rates (20022012)
Company
Career Education
Corinthian Colleges
DeVry
MEDIAN
Ticker
CECO
COCO
DV
EDMC
ESI
LINC
NAUH
UTI
2002
94.1%
82.0%
82.3%
87.3%
73%
83.3%
N.A.
90%
83.3%
2003
93.0%
81.0%
83.4%
88.9%
69%
84.6%
N.A.
87%
84.6%
2004
N.A.
79.4%
84.7%
87.8%
71%
86.7%
N.A.
89%
85.7%
2005
N.A.
82.0%
88.1%
89.1%
76%
N.A.
N.A.
91%
88.1%
2006
N.A.
84.0%
91.9%
89.6%
81%
N.A.
N.A.
91%
89.6%
2007
N.A.
83.7%
92.8%
90.1%
82%
N.A.
N.A.
91%
90.1%
2008
N.A.
78.1%
91.0%
89.1%
77%
N.A.
N.A.
87%
87.0%
2009
N.A.
73.1%
88.6%
87%
73%
N.A.
N.A.
81%
81.0%
2010
N.A.
67.6%
89%
85%
N.A.
N.A.
84%
85%
85.0%
2011
N.A.
68.1%
86%
82%
N.A.
N.A.
81%
82%
82.0%
2012
N.A.
69.0%
90%
75%
N.A.
N.A.
79%
N.A.
N.A.
N.A. Not Available. Note: Data represents calendar year for most companies. Source: BMO Capital Markets and company reports.
Starting salaries
for bachelors
degrees rose 1.7%
on average for
class of 2012;
engineering and
Each year, the National Association of Colleges and Employers tracks starting salaries for
graduates of selected programs through its annual Salary Survey. Unfortunately, these data
are not segmented by school type. As shown in Exhibit 312, salaries across a number of
bachelor's degrees averaged roughly a 1.7% annual increase between the classes of 2011 and
2012. The highest average salaries were earned by those majoring in engineering and
computer sciences.
computer
sciences are
highest
A member of BMO
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September 2013
BMO Capital Markets
Exhibit 312. Average Starting Salaries by Discipline: Selected

Degrees (Class of 2011 and 2012Fall 2011)
Bachelors Degree
Business
Communications
Computer Science
Education
Engineering
Health Sciences
Humanities and Social Sciences
Math and Sciences
Class of
2011
$43,521
50,446
41,367
59,234
38,461
59,496
45,903
36,319
42,002
Class of
2012 % change
$44,259
1.7%
51,541
2.2%
42,286
2.2%
60,038
1.4%
39,080
1.6%
60,639
1.9%
46,567
1.4%
36,824
1.4%
42,355
0.8%
Note: change of methodology made prior historical comparisons misleading Source: BMO Capital Markets
and National Association of Colleges and Employers.
As many of the companies in this industry serve the working adult sector, they do not disclose
typical starting salary data. However, we were able to obtain some data for those companies
that specialize in career-oriented programs and degrees (see Exhibit 313).
Exhibit 313. Select For-Profit Postsecondary School Operators Average Starting

Salaries (2003-2012)
Company
DeVry (undegraduate only)
Ticker
DV
EDMC
ESI
FYE
6
6
12
2003
N.A.
28,500
26,940
2004
N.A.
27,500
27,453
2005
$39,000
28,700
28,700
2006
$41,348
29,500
31,000
Year of Salary Data

2007
2008
$43,635
$45,486
30,600
30,200
32,400
32,800
2009
$43,605
30,000
32,400
2010
$43,035
30,000
31,600
2011
$42,626
31,000
31,300
2012
$43,539
30,000
32,061
Source: BMO Capital Markets and company reports. N.A. Not Available.
Average
compensation
increase lowest
for graduates of
private sector
schools
potentially due to
lower quality
In a December 2010 Inavero/CareerBuilder survey, recent college graduates were asked to

provide the average gain in their compensation in the 12 months following the completion of
their degrees. As expected, the greatest gains were made by those who attended four-year
public and private universities (see Exhibit 314). We believe the relatively smaller increases
for those attending for-profit schools (called private sector in this survey) may be due
somewhat to the lower quality of their demographics, although - as a sizeable portion of
students at for-profit schools are working adults (i.e., work while they are enrolled) - the net
increase in salaries may be relatively smaller.
demographics
A member of BMO
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September 2013
BMO Capital Markets
Exhibit 314. Survey ResultsAverage Gain in Compensation in 12

Months Following Completion of Degree
$12,000
$11,198
$10,584
10,000
$8,829
$8,538
8,000
$7,424
6,000
4,000
2,000
0
Private Sector 2-Year
Degree
2-Year Community
College
Private Sector 4-Year

Degree
4-Year Public
University
4-Year Private
Nonprofit University
Highest return on
degrees in health
and education
sectors; lowest
premiums in the
trades sector
The relative earnings increase can vary by field of study. In a December 2012 analysis
entitled The Economic Benefit of Postsecondary Degrees performed by the State Higher
Education Executive Officers (SHEEO) and the National Center for Higher Education
Management System, the authors compiled median income levels in various fields based on
degree type. While those working in all fields generated earnings premiums with more
education, the highest premiums were generated by those in the health and education fields;
we believe the former can be explained as differences between low-skilled and high-skilled
health occupations (i.e., medical assistant versus physician). The lowest earnings premiums
were for those working in the trades (see Exhibit 315).
Exhibit 315. Median Income by Degree Type and Field of Study (2006-2010 average)
Median income:
High school diploma
Associates degree
Bachelors degree
Graduate degree
Arts &
Humanities
Business and
Comm.
$25,399
32,244
39,297
61,876
$29,655
37,422
51,564
76,314
Education
Health
$18,796
23,175
40,305
55,419
$25,262
43,934
56,427
95,502
Social &
Behavioral
$26,730
36,095
42,768
69,095
STEM
$32,076
45,343
62,605
80,610
Trades
$28,818
38,290
40,305
46,130
Total
$29,423
38,607
50,360
68,064
Earnings premium over high school diploma:

Associates degree
27%
Bachelors degree
55%
Graduate degree
144%
26%
74%
157%
23%
114%
195%
74%
123%
278%
35%
60%
158%
41%
95%
151%
33%
40%
60%
31%
71%
131%
Earnings premium over associates degree:

Bachelors degree
22%
Graduate degree
92%
38%
104%
74%
139%
28%
117%
18%
91%
38%
78%
5%
20%
30%
76%
Earnings premium over bachelors degree:

Graduate degree
57%
48%
37%
69%
62%
29%
14%
35%
Source: State Higher Education Executive Officers (SHEEO) and the National Center for Higher Education Management System.
A member of BMO
Financial Group
266
September 2013
Associates
were more likely
to be employed
when compared
with those at notfor-profit schools,
though at lower
BMO Capital Markets
In January 2012, the ED published a report entitled Beginning Subbaccalaureate Students

Labor Market Experiences, which analyzed employment related data as of spring 2009 for
students who first entered postsecondary education in the 2003-04 school year. While the US
was still in the midst of the Great Recession during the period measured, we still believe the
analysis to be meaningful. As shown in Exhibit 316, students who complete their programs
are more likely to be employed and have higher salaries than those that do not, though the
salary impact was not that large for those who attended for-profit institutions. However, those
that attend associates degree programs at for-profit institutions were more likely to be
employed when compared with their peers who attended not-for-profit institutions.
salaries
Exhibit 316. Percent Employed and Salaries Six Years After

Beginning Program (Spring 2009)
Completer
Non-Completer
Associates
Associates
Certificate
Degree Certificate
Degree
Public less than two-year institution:
Percent in labor force
Percent employed
Percent employed full-time
Median salary
90.7%
80.3%
61.2%
$28,000
N.A.
N.A.
N.A.
N.A.
82.4%
69.7%
54.5%
$25,000
N.A.
N.A.
N.A.
N.A.
Public two-year institution:

Percent employed
Median salary
96.0%
82.1%
70.7%
$30,300
95.0%
84.5%
69.8%
$30,000
88.0%
65.0%
46.2%
$26,000
90.1%
76.9%
60.2%
$25,200
For-profit institution:
Percent employed
Median salary
92.1%
71.8%
58.6%
$23,900
98.3%
85.2%
71.9%
$24,000
86.1%
59.2%
40.2%
$23,800
91.6%
71.1%
57.0%
$24,000
N.A. Not Available. Source: National Center for Education Statistics Beginning Subbaccalaureate
Students Labor Market Experiences (NCES 2012-273).
In December 2011, the Government Accountability Office (GAO) published an analysis in

which it compared results on licensing exams for students by institution type. According to
the GAO, several experts and higher education association officials agreed that licensing
exam pass rates are one reasonable measure of the quality of school programs. The
organization noted that on 9 of the 10 licensing exams it reviewed Registered Nurses (RNs),
Licensed Practical Nurses (LPNs), Radiographers, Emergency Medical Technicians (EMTs),
Paramedics, Surgical Technologists, Massage Therapists, Lawyers, and Cosmetologists
graduates of for-profit institutions generally had lower pass rates over the 2008-10 period.
(Students at for-profit schools outperformed only on the Funeral Director licensing exam.) We
have summarized their findings in Exhibit 317.
A member of BMO
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September 2013
BMO Capital Markets
Exhibit 317. Pass Rates on Licensing Exams (2008-10)
Bar exam: California

Bar exam: Florida
Bar exam: Georgia
Cosmetologist: California
Cosmetologist: Florida
Cosmetologist: North Carolina
Cosmetologist: Texas
Emergency Medical Technician
Funeral Director
Licensed Practical Nurse
Massage Therapist: Florida MBLEx exam
Massage Therapist: Florida NCETM/B exam
Massage Therapist: New York (state exam)
Massage Therapist: North Carolina MBLEx exam
Massage Therapist: North Carolina NCETM/B exam
Massage Therapist: Ohio (state exam)
Paramedic
Radiographer
Registered Nurse (associates degree)
Registered Nurse (bachelors degree)
Surgical Technologist
Public
Not-ForProfit
85%
82%
95%
81%
72%
82%
75%
67%
77%
91%
75%
69%
86%
92%
77%
82%
69%
94%
88%
90%
72%
Private
Not-ForPrivate
Profit For-Profit
71%
45%
80%
79%
92%
73%
N.A.
72%
N.A.
61%
N.A.
72%
N.A.
69%
71%
57%
84%
85%
81%
81%
N.A.
65%
N.A.
54%
N.A.
84%
N.A.
80%
N.A.
66%
N.A.
60%
63%
43%
94%
84%
85%
79%
87%
85%
N.A.
29%
N.A. Not Available. Source: BMO Capital Markets and GAO (publication 12-143).
A listing of key placement and salary metrics can be found in Exhibit 318.
Exhibit 318. Key Placement, Salary, and Other Job-Related Metrics to Watch
Term
Definition
Postsecondary Norms
For-Profit Norms
Placement rate
Measures the percentage of students N.A.

that obtain employment in their field
of study within six months of
graduation.
All institutions: 70% (1)
Starting salary (3)
Class of 2012 average starting salary Bachelors degree: $44,259

and % change from Class of 2011
(1.7%)
N.A.
Average salary
increase (4)
Average increase in compensation in

12 months following degree
completion
Publicly held companies: 82% (2)

institutions: $8,538
Private for-profit two-year


Private for-profit four-year


Note: (1) For ACICS accredited institutions (2011); (2) Based on median of publicly traded for-profit institutions that reported placement rates in 10K (2011 calendar year for most companies). (3) Based on data compiled from the National Association of Colleges and Employers annual Salary
Survey. (4) Based on data compiled from December 2010 Inavero/CareerBuildersurvey. N.A. Not Available.
Sources: (1) ACICS, (2) Company reports, (3) National Association of Colleges and Employers, (4) Inavero/CareerBuilder.
A member of BMO
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268
September 2013
BMO Capital Markets
Postsecondary Schools Legal and Regulatory Issues

The US postsecondary education market is highly regulated. Most postsecondary schools must
meet the requirements of three regulatory bodies to be eligible for Title IV funding (i.e., federal
financial aid): regional or national accreditation for degree programs, state approval for
licensing, and federal regulations regarding financial aid eligibility.
Navigating
through
regulations could
be barrier to entry
Navigating these regulations poses both an entry barrier to new competition and a competitive
edge for schools that can do so successfully. However, it also creates additional investment risk
for investors and can add to stock volatility as new regulations and/or changes to existing
regulations are proposed or passed by legislative bodies. In this section, we summarize the major
regulations affecting this sector.
Accreditation and degree approval. Accreditation is a process in which a school submits to
ongoing reviews by an organization of peer institutions (commissions) to examine the

schools academic quality and its administrative and financial operations. Importantly,
accreditation is necessary for a school to have access to federal student loans, and is viewed as
confirmation that it meets generally accepted academic standards and has the resources
necessary to perform its educational mission. Typically, accreditation is given for a 10-year
period, and a thorough review is conducted near the end of the period before accreditation is
renewed.
A list of officially recognized accrediting agencies can be found in Exhibit 319.
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Exhibit 319. Accrediting Agencies Recognized by the US Department of Education

Category
Regional Accrediting Agencies
Accrediting Agency
Middle States Association of Colleges and Schools, Commission on Higher Education (MSCHE)
New England Association of Schools and Colleges (NEASC)
Commission on Institutions of Higher Education
North Central Association of Colleges and Schools (NCACS)
Commission on Institutions of Higher Education
Commission on Accreditation and School Improvement
Northwest Commission on Colleges and Universities (NWCCU)
Southern Association of Colleges and Schools, Commission on Colleges (SACS)
Western Association of Schools and Colleges (WASC)
Accrediting Commission for Community and Junior Colleges
Accrediting Commission for Schools
Accrediting Commission for Senior Colleges and Universities
National Accrediting Agencies

Acupuncture and Oriental Medicine
Accreditation Commission for Acupuncture and Oriental Medicine
Art and Design
National Association of Schools of Art and Design, Commission on Accreditation
Bible
Association for Biblical Higher Education, Commission on Accrediting
Career Schools/Occupational
Accrediting Commission of Career Schools and Colleges/Council on Occupational Education
Chiropractic
The Council on Chiropractic Education, Commission on Accreditation
Christian
Transnational Association of Christian Colleges and Schools, Accreditation Commission
Continuing Education
Accrediting Council for Continuing Education and Training
Cosmetology
National Accrediting Commission of Career Arts and Sciences
Dance
National Association of Schools of Dance, Commission on Accreditation
Dental and Dental Auxiliary Programs
American Dental Association, Commission on Dental Accreditation
Dietetics
American Dietetic Association, Commission on Accreditation Approval for Dietetics Education
Distance Education and Training
Distance Education and Training Council, Accrediting Commission
English Language Program
Commission on English Language Program Accreditation
Funeral Service Education
American Board of Funeral Service Education, Committee on Accreditation
Healthcare Management
Commission on Accreditation of Healthcare Management Education
Health Education
Accrediting Bureau of Health Education Schools
Independent Colleges
Accrediting Council for Independent Colleges and Schools
Law
Marriage and Family Therapy
American Bar Association, Council of the Section of Legal Education and Admissions to the Bar
American Association for Marriage and Family Therapy, Commission on Accreditation for Marriage and Family
Therapy Education
Massage Therapy
Commission on Massage Therapy Accreditation
Medicine
Liaison Committee on Medical Education
Midwifery
Accreditation Commission for Midwifery Education; Midwifery Education Accreditation Council
Montessori Education
Montessori Accreditation Council for Teacher Education, Commission on Accreditation
Music
National Association of Schools of Music, Commission on Accreditation
Naturopathic Medicine
Council on Naturopathic Medical Education
Nurse Anesthesia
Council on Accreditation of Nurse Anesthesia Educational Programs
Nursing
Commission on Collegiate Nursing Education; National League for Nursing Accrediting Commission
Nutrition
Academy of Nutrition and Dietetics, Accreditation Council for Education in Nutrition and Dietetics
Occupational Education
Council on Occupational Education
Occupational Therapy
American Occupational Therapy Association, Accreditation Council for Occupational Therapy Education
Optometry
American Optometric Association, Accreditation Council on Optometric Education
Osteopathic Medicine
American Osteopathic Association, Commission on Osteopathic College Accreditation
Pastoral
Association for Clinical Pastoral Education, Inc., Accreditation Commission
Pharmacy
Accreditation Council for Pharmacy Education
Physical Therapy
American Physical Therapy Association, Commission on Accreditation in Physical Therapy Education
Podiatry
American Podiatric Medical Association, Council on Podiatric Medical Education
Psychology
American Psychological Association, Committee on Accreditation
Public Health
Council on Education for Public Health
Rabbinical and Talmudic
Association of Advanced Rabbinical and Talmudic Schools, Accreditation Commission
Radiologic Technology
Joint Review Committee on Education in Radiologic Technology

American Speech-Language-Hearing Association, Council on Academic Accreditation in Audiology and SpeechLanguage Pathology
National Council for Accreditation of Teacher Education/Teacher Education Accreditation Council, Accreditation
Committee
Speech-Language Pathology and Audiology

Teaching
Theater
National Association of Schools of Theatre, Commission on Accreditation
Theology
Commission on Accrediting of the Association of Theological Schools
Veterinary Medicine
American Veterinary Medical Association, Council on Education
Source: BMO Capital Markets and US Department of Education.
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Regional
accreditation is
viewed as the
higher form of
accreditation
A member of BMO
BMO Capital Markets
Exhibit 320 shows the accreditors of schools run by the publicly held for-profit providers. As
shown, most are nationally accredited, as opposed to regionally accredited. Regional
accreditation is typically viewed as a higher standard as the bulk of well-recognized not-forprofit schools (i.e., Ivy League) are regionally accredited institutions. In general, regionally
accredited credits will transfer more easily to regionally accredited schools than will credits
from nationally accredited schools.
Financial Group
271
September 2013
BMO Capital Markets
Exhibit 320. Accrediting Agencies for Selected For-Profit Postsecondary Schools

Company
Ticker
School
APEI
Apollo Group
APOL BPP
The College for Financial Planning Institutes Corp.
The University of Phoenix (including Axia College)
The University of Phoenix/Business
The University of Phoenix/Counseling
The University of Phoenix/Nursing
The University of Phoenix/Teaching
ULA
BPI
American Military University

American Public University
Accrediting Agency
Higher Learning Commission of the North Central Assoc. of Colleges and
Schools (HLC)
HLC
Regional National
UNIACC
Western International University
UK degree granting approval

HLC
HLC
Association of Collegiate Business Schools and Programs (ACBSP)
Council for Accreditation of Counseling and Related Educational Programs
Comm. on Collegiate Nursing Education (CCNE)
Teacher Accreditation Education Council (TEAC)
Federation of Private Mexican Institutions of
Higher Education
Chilean Council of Higher Education (not renewed 2011)
HLC
Ashford University
University of the Rockies
Western Assoc. of Schools and Colleges (WASC)

HLC
X
X
X
X
X
X
X
X
X
X
Capella Education
CPLA Capella University
HLC
Career Education
CECO American InterContinental University

Briarcliffe College
Brooks Institute
Brown College
California Culinary Academy
Harrington College of Design
International Academy of Design & Technology
Le Cordon Bleu (17 locations)
Le Cordon Bleu (5 locations)
Le Cordon Bleu (1 location)
Missouri College
Sanford Brown Institute (23 location)
Sanford Brown Institute (1 location)
HLC
Middle States Association of Colleges and Schools (MSACS)
Accrediting Council for Independent Colleges and Schools (ACICS)
Accrediting Commission of Career Schools and Colleges (ACCSC)
ACCSC/ACICS
HLC
HLC
ACICS
ACICS
ACCSC
HLC
ACICS
ACICS
ACICS
ACCSC
X
X
COCO Everest College - Phoenix (2 locations and online)

Everest College (16 locations)
Everest College (26 locations in us; 14 locations in Canada)
Everest Institute (19 locations)
Everest Institute (7 locations)
Everest University (all locations)
Heald College (12 locations)
WyoTech (all locations)
HLC
ACCSC
ACICS
ACCSC
ACICS
ACICS
WASC Sr.
ACCSC
Corinthian Colleges
DeVry
DV
American University of the Caribbean

Carrington College
Carrington College - California
Chamberlain College of Nursing
DeVry Brasil
DeVry Calgary
DeVry University (associate degree health information technology
programs)
DeVry University (baccalaureate electronics engineering
technology programs)
DeVry University (includes Keller Graduate School)
Accreditation Commission on Colleges of Medicine (ACCM)

ACICS
WASC
HLC
Brazilian Ministry of Education
Canadian Technology Accreditation Board
Commission on Accreditation for Health Informatics and Information
Management Education
Technology Accreditation Commission of ABET
HLC
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
DeVry University (undergraduate and graduate degree programs in Accreditation Council for Business Programs and Schools (ACBSP)
business and accounting)
Ross University
Dominican Medical Board, US Liason Committee on Medical Education
Ross Veterinary School
Government of Federation of St. Christopher and Nevis ("St. Kitts")
Private Argosy University (19 locations)

The Art Institutes of Atlanta and Houston (11 locations)
The Art Institute of Colorado
The Art Institutes of Fort Lauderdale, International Minnesota, New
York City, Phoenix and York, PA (includes 13 Art Institute locations
and 25 Brown Mackie Colleges)
The Art Institutes of Philadelphia and Pittsburgh
The Art Institutes of Portland and Seattle
Brown Mackie College - Salina
Illinois Institute of Art (6 locations)
Miami International University of Art and Design (3 locations)
New England Institute of Art, Boston. MA
South University (includes 11 South University locations and 4 Art
Institutes)
LOPE Grand Canyon University

College of Education
Ken Blanchard College of Business
College of Nursing and Health Sciences
ESI
X
X
X
WASC
Southern Association of Colleges and Schools (SACS)
HLC
ACICS
X
X
X
Middle States Commission on Higher Education (MSCHE)

Northwest Comm. on Colleges and Universities (NWCCU)
HLC
HLC
SACS
New England Association of Schools and Colleges (NEASC)
SACS
X
X
X
X
X
X
X
HLC
Arizona State Board of Education
Association of Collegiate Business Schools and Programs (ACBSP)
Comm. on Collegiate Nursing Education (CCNE), The Commission on
Accreditation of Athletic Training Education
ITT Institutes (All locations)

Daniel Webster College
ACICS
NEASC
17 locations
19 locations
1 locations
3 locations
ACCSC
ACICS
NEASC
Accredited Bureau of Health Education Schools (ABHES)
X
X
X
X
X
LINC
NAUH National American University
HLC
Strayer Education
STRA Strayer University
MSACS
Washington Post (US schools)
UTI

Motorcycle Mechanics Institute
Marine Mechanics Institute
NASCAR Technical Institute
WPO Concord Law School

Kaplan Higher Education
Kaplan Higher Education (32 campuses)
Kaplan University
X
X
X
X
ACCSC
ACCSC
ACCSC
ACCSC
HLC
Various
ACCSC
HLC
Other
X
X
X
X
X
X
X
X
X
X
A member of BMO
Financial Group
272
September 2013
Accreditors under
increasing
scrutiny, system
could be
overhauled
BMO Capital Markets
For many years, accreditation has been a controversial means of regulation. However, scrutiny
and criticism has increased in recent years as student debt levels have ballooned while student
outcomes have remained relatively poor. Several high level reports have been issued in recent
years highlighting perceived faults in the system including:
August 13, 2013; the Department of Education (ED) warned the Accrediting Commission
for Community and Junior Colleges that it was out of compliance with several federal
regulations and could face a possible sanction if the problems were not corrected within 12
months.
November 24, 2009; an EDs Office of Inspector General (OIG) report criticized the
Southern Association of Colleges and Schools Commission on Colleges (SACS) for lacking
a definition for a credit hour.
December 14, 2009; an OIG report found the Middle States Commission on Higher
Education (Middle States) lacked minimum requirements regarding program length and
credit hours.
December 17, 2009; an OIG report accused the Higher Learning Commission (HLC) failed
to accurately define a credit hour when granting accreditation to Career Educations
(CECO) American Intercontinental University (AIU), enabling the school to inflate the
value of its courses.
Additionally, in his 2013 state of the union address, President Obama called on accreditors to
place more emphasis on price and value areas that have historically not been a core concern of
accreditors who have primarily focused on educational content and financial resources. The
president also highlighted the inherent conflict of interest in having accreditors funded by the
schools they accredit.
As accreditors have come under more pressure, several have taken actions to increase scrutiny
of the schools they accredit. This has resulted in more school reviews and longer accreditation
approval processes, requiring stricter student outcome metrics and new rules relating to such
items as governance structure and locations of administrative facilities. We believe the
impending reauthorization of the Higher Education Act (HEOA) could bring substantial changes
to the accrediting system, as many recent congressional hearings have focused on its apparent
flaws.
State licensing. Postsecondary institutions must seek licensing from each state in which they
operate. The intensity of the review process varies by state and can sometimes take more than
one year. Once granted, however, licenses are typically renewed with little fanfare, barring any
major changes, such as to curricula, or the existence of any prior regulatory concerns.
Federal regulation. To have access to federal Title IV aid, schools must meet schools must be
accredited and meet the eligibility requirements of state agencies.
In most cases, the ED certifies Title IV eligibility for three years for provisionally certified
institutions and six years for full certification. However, each school may be subject to special
terms and conditions set forth in its program participation agreement with the ED.
A member of BMO
Financial Group
273
September 2013
Change of
ownership could
lead to loss of
Title IV eligibility
BMO Capital Markets
If a school is being certified for the first time, or has undergone a change of ownership, it will
be placed on provisional certification. We believe the ownership rule has been a key reason
for the lack of M&A in the industry in recent years, as potential acquirers are not willing to
risk losing Title IV eligibility. Provisional certification may also result from failure to satisfy
certain financial or administrative standards.
A school under provisional certification may still participate in the Title IV program; however, it
must also comply with any additional conditions imposed by the ED and must seek approval
before adding a new location or program or making other significant changes. The ED may
revoke Title IV eligibility if it determines the school can no longer meet its prior participation
requirements.
Program reviews
Periodically, the ED conducts program reviews to ensure each institutions continuing

compliance and ability to meet certain criteria. However, other issues, including an increase in
student-aid recipient complaints, can trigger major program reviews by the ED.
Criteria used by the ED to determine Title IV compliance include:
Loan-default ceilings (cohort default rates). Cohort default rates (CDRs) measure the
percentage of borrowers at a school who default on their student loans by the end of the second
year after entering repayment (a student who begins repaying his/her loan in FY2013 and
defaults before the end of FY2014). Stafford loans are considered delinquent after 270 days of
nonpayment, while Direct loans are delinquent after 360 days.
CDRs are reported by Office of Postsecondary Education Identification Number (OPEID)
number, which may refer to one school or several schools within a system. For example, all of
Strayer Educations (STRA) schools are reported under one OPEID, whereas those owned by
Lincoln Educational Services (LINC) are listed under several different OPEIDs. This data is
reported each September with a two-year lag, i.e., the FY2012 data to be released in September
2014 is for borrowers who began repaying their loans between October 1, 2011, and September
30, 2012, and who defaulted before September 30, 2013). Occasionally, the ED will release
draft CDRs earlier in the year.
A school faces various penalties based on whether its CDR exceeds certain thresholds, which
can include loss of Title IV eligibility. The default thresholds for most programs are as set
forth in Exhibit 321.
A member of BMO
Financial Group
274
September 2013
BMO Capital Markets
Exhibit 321. Student-Loan Default Ceilings

Cohort Default Rate
Consequence for Institution
10% or more for one year
Delayed cash disbursements for first-year, first-time

undergraduate students
More than 20% for one year
Must develop a default management plan to reduce defaults;

neither an institution's operations nor its students' ability to utilize
student loans are restricted.
25% or more for three

consecutive years
Becomes ineligible for participation for the fiscal year in which

the ineligibility determination is made and for the two succeeding
fiscal years.
40% or more for one year
Begins immediate limitation, suspension, or termination

proceedings from all federal aid programs.
Note: For Perkins loans, the thresholds are as follows: Between 20%-30%: reduced annual federal
contribution. Greater than 30%: cannot receive any new federal contributions.
Source: US Department of Education Higher Education Act.
Cohort default
rates (CDR)
increasing again
In the early 1990s, high CDRs were common especially in the for-profit sector. But owing to
regulatory and operational changes (see details later in this section), CDRs began to fall
significantly. As shown in Exhibit 322, the average CDRs for all schools fell to 4.5% in FY2003
from 17.8% in FY1991, led by declines at for-profit schools, where the average CDR fell to
7.3% in FY2003 from 26.4% in FY1991. However, the poor job market and record-high debt
levels have led to an increase in CDRs in recent years.
Exhibit 322. National Cohort Default Rates by Institution Type

(FY1991 - FY2010)
30%
25%
20%
17.8%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
26.4%
12.9%
15%
9.1% 8.7%
10%
5%
4.5%
7.3%
8.3%
6.4%
4.3%
5.2%
2.8%
0%
All schools
Private For-Profit
However, we believe the decline in rates through the 2000s was a bit misleading and may have
had more to do with changes to the CDR calculation and how schools help students manage debt
as opposed to an increased ability of students to repay their debt.
A member of BMO
In 1998, Congress extended the default window to 270 days from 180 days, which gave
borrowers more time to repay loans before being considered delinquent.
Financial Group
275
September 2013
BMO Capital Markets
Additionally, we believe schools have been much more aggressive in recent years in
ensuring that students sign up for loan deferments and forbearances prior to defaulting on
a loan. Both deferments and forbearances can allow a debt holder to postpone payments
for intervals up to 12 months at a time and for up to three years which can push
delinquencies beyond the CDR measurement period and effectively lower a schools
CDR.
Alternative repayment methods can also have a positive impact on CDR. These include
loan consolidation and income-based repayment. Anecdotally, an audit released in May
2008 by the EDs Office of Inspector General accused privately held Technical Career
Institute of improperly paying off loans for some of its students to reduce its CDR in
the 2005 school year.
As shown in Exhibit 323, CDRs ha been on an upward trend in recent years, reaching 9.1% in
FY2010 (latest data available). We attribute this primarily to record-high tuition levels in a time
of high unemployment. While CDRs at for-profit schools decreased in FY2010, we believe this
is mostly due to the debt management strategies mentioned above, and not an indication of an
improvement in the ability of students to repay debt.
Exhibit 323. Cohort Default Rates by Institution and School Type (FY1999-FY2010)
Public
Less than 2 years
2-3 years
4 years +
FY1999
5.6%
7.0%
8.8%
4.6%
FY2000
5.9%
8.1%
9.2%
4.8%
FY2001
5.3%
7.2%
8.6%
4.4%
FY2002
5.1%
6.7%
8.5%
4.0%
FY2003
4.3%
5.8%
7.6%
3.3%
FY2004
4.7%
5.7%
8.1%
3.5%
FY2005
4.3%
5.2%
7.9%
3.0%
FY2006
4.7%
6.4%
8.4%
3.4%
FY2007
5.9%
7.5%
9.9%
4.3%
FY2008
6.0%
6.7%
10.1%
4.4%
FY2009
7.2%
9.9%
11.9%
5.2%
FY2010
8.3%
10.0%
13.4%
6.0%
Private
Less than 2 years
2-3 years
4 years +
3.8%
13.4%
6.6%
3.7%
4.0%
14.9%
6.9%
3.8%
3.5%
9.3%
6.8%
3.3%
3.2%
9.7%
6.1%
3.1%
2.8%
7.9%
6.3%
2.6%
3.0%
9.0%
7.4%
2.8%
2.4%
9.0%
6.7%
2.3%
2.5%
10.0%
6.1%
2.4%
3.7%
12.6%
8.1%
3.6%
4.0%
14.1%
8.2%
3.8%
4.6%
14.5%
10.0%
4.5%
5.2%
13.6%
8.5%
5.1%
Proprietary
Less than 2 years
2-3 years
4 years +
9.3%
10.9%
9.1%
8.2%
9.4%
11.0%
9.5%
8.0%
9.0%
10.8%
9.3%
7.4%
8.7%
10.1%
9.2%
7.3%
7.3%
7.9%
8.0%
6.4%
8.6%
8.9%
9.9%
7.3%
8.2%
8.9%
9.3%
7.2%
9.7%
10.9%
11.1%
8.4%
11.0%
12.0%
12.5%
9.8%
11.6%
12.4%
12.6%
10.9%
15.0%
13.7%
14.8%
15.4%
12.9%
11.8%
12.0%
13.6%
Foreign
2.2%
2.6%
2.3%
2.0%
1.8%
1.5%
1.0%
1.2%
2.2%
2.2%
5.5%
2.9%
Total
5.6%
5.9%
5.4%
5.2%
4.5%
5.1%
4.6%
5.2%
6.7%
7.0%
8.8%
9.1%
For-profit schools
tend to have
higher CDRs
Primary drivers of
CDRs
A member of BMO
One reason often given by for-profit institutions as to why they have higher CDRs relative to
nonprofit schools is the relatively higher percentage of low-income and minority students in
attendance. According to a June 2006 report by the National Center for Educational Statistics
(NCES), income level and race (along with the actual size of debt) provide the highest
correlation to CDRs (e.g., the lower ones income, the higher ones CDR). We believe this
theory remains somewhat controversial, and note that a February 2012 report by the Center for
Analysis of Postsecondary Education and Employment (CAPSEE) found default rates at forprofit schools were higher even when controlling for such demographics.
Industry analyst Mark Kantrowitz believes the main drivers of increased CDRs include high
interest rates, low graduation rates and low job placement rates.
Financial Group
276
September 2013
Longer-term
default data
BMO Capital Markets
As CDRs only measure default volume, the ED also releases an annual report that estimates the
total dollar value of defaults (see Exhibit 324).
shows even
higher default
The budget lifetime default rate measures the dollar value of the total student loans
originated in a fiscal year expected to default within 20 years.
The cumulative lifetime default rate measures the volume of loans that have defaulted
through the current fiscal year by loan vintage.
rates
Exhibit 324. Lifetime Cohort Default Rates by Institution and

School Type (FY2006-FY2010)
Budget Lifetime Default Rate
Institutional Category
2 Yr. Non Profit and Public
2 Yr. Proprietary
4 Yr. Freshmen & Sophomores
4 Yr. Juniors & Seniors
Graduate Students
Total
FY2006
32.6%
49.0%
26.7%
11.8%
5.9%
FY2007
33.0%
49.3%
26.7%
12.5%
6.3%
FY2008
32.5%
47.6%
25.8%
12.5%
6.3%
FY2009
31.5%
48.7%
25.8%
12.3%
6.2%
FY2010
31.4%
48.4%
24.2%
11.9%
6.1%
15.9%
16.5%
17.0%
17.9%
17.6%
Cumulative Lifetime Default Rate

Institutional Category
2 Yr Private Non-Profit
2 Yr Proprietary
2 Yr Public
4 Yr Private
4 Yr Proprietary
4 Yr Public
Foreign Schools (FFELP only)
Consolidation
Total
FY2006
22.4%
32.6%
20.4%
5.5%
18.9%
6.3%
2.8%
8.1%
FY2007
26.3%
33.9%
23.5%
8.3%
22.7%
9.2%
4.6%
12.3%
FY2008
27.3%
36.4%
24.3%
9.7%
27.3%
10.3%
5.6%
9.9%
FY2009
20.5%
28.7%
21.8%
7.8%
22.5%
8.8%
5.8%
10.6%
FY2010
13.2%
18.1%
18.7%
5.9%
16.3%
7.4%
2.7%
9.6%
10.1%
14.2%
16.1%
13.6%
10.7%
The US
government
eventually
collects 86%-87%
of Title IV loans
likely more when
As student loans are not dischargeable in bankruptcy, the federal government eventually recoups
many defaulted loans. According to the annual White House budget estimates, lifetime Title IV
default rates average about 16.6% over the past three years (see Exhibit 325), implying roughly
86%-87% of student loans are eventually paid. While some contend student loans are a profit
center for the US government (including interest payments), we have found no data to support
that claim. We also believe for-profit loan defaults may be higher than these average numbers.
including interest
payments
Exhibit 325. Lifetime Title IV Default Rates by Loan Type (FY2012FY2014)

Direct Loans:
Stafford
Unsubsidized Stafford
PLUS
Consolidation
Weighted average
2012
2013
2014
20.18%
16.39%
7.78%
18.43%
16.72%
21.64%
15.19%
7.57%
20.91%
16.67%
21.41%
14.93%
7.49%
20.90%
16.42%
3-year
Average
21.08%
15.50%
7.61%
20.08%
16.60%
N.A. Not Applicable. Source: BMO Capital Markets and US Department of Education.
A member of BMO
Financial Group
277
September 2013
BMO Capital Markets
On July 31, 2008, Congress reauthorized the Higher Education Opportunity Act (HEOA, or HR
4137), which included a provision to extend the CDR measurement period from two to three
years. The change began with the FY2009 cohort, which measured borrowers who entered
repayment between October 1, 2008, and September 30, 2009, and defaulted on or before
September 30, 2011. The transition to three-year rates will be official in the fall of FY2014,
when the FY2011 cohort information is released. By then, there will have been three official
years of three-year CDRs FY2009, FY2010, and FY2011 (see Exhibit 326).
Three-year CDR
measurement
period coming
Exhibit 326. Implementation Dates for Two-Year to Three-Year Cohort Default Rate
Migration
2007
Enter Repayment
10/1/07
2008
2009
Default Before:
9/30/09
FY2008 Cohort
Enter Repayment
10/1/08
FY2009 Cohort
Default Before:
9/30/10
Feb - Draft
Sep - Official
Enter Repayment
10/1/09
FY2010 Cohort
Default Before:
9/30/11
2008
2007
Enter Repayment
10/1/07
Two-Year Cohort Default Rates

2010
2011
Feb - Draft
Sep - Official
Three-Year Cohort Default Rates

2010
2011
Default Before:
Feb - Draft
Sep - Official
9/30/10
2009
FY2008 Cohort
Enter Repayment
10/1/08
Default Before:
9/30/11
FY2009 Cohort
Enter Repayment
10/1/09
FY2010 Cohort
Enter Repayment
10/1/10
2012
2013
2014
2013
2014
Feb - Draft
Sep - Official
2012
Feb - Draft
Sep - Official
Default Before:
9/30/12
FY2011 Cohort
(1st Official Year)
Feb - Draft
Sep - Official
Default Before:
9/30/13
Feb - Draft
Sep - Official
Source: Champion College Solutions.
Under three-year rates, thresholds for penalties are changed as follows:
Not surprisingly,
three-year CDR
rates are higher
than the two-year
rates
A member of BMO
CDRs above 15% results in delayed disbursements (up from 10% for two-year rates).
CDRs above 30% for three years results in exclusion from the Title IV program (up from
25% for two-year rates.
CDRs above 40% for two consecutive years are excluded from Title IV (same as with twoyear rates).
Exhibit 327 compares two-year and three-year CDRs from FY2005 through FY2009. We note
FY2009 was the first official year for three-year CDRs and the prior years are just trial rates that
do not carry sanctions. Not surprisingly, three-year CDRs are much higher than two-year rates
owing to the longer measurement period during which students can default. According to
research published in the Journal of Student Financial Aid, in 2006, most students default in
their second, third, and fourth years of repayment, rather than their first.
Financial Group
278
September 2013
BMO Capital Markets
Exhibit 327. Two and Three-year Cohort Default Rates by School Type (FY2005-FY2009)
Institution Type
All Private:
Private less than 2 year
Private 2 year
Private 2-3 year
Private 4 year
FY2005
FY2006
FY2007
FY2008
FY2009
2 Year 3 Year
CDR
CDR % Chg.
2%
4%
74%
2 Year 3 Year
CDR
CDR % Chg.
3%
5%
76%
2 Year 3 Year
CDR
CDR % Chg.
4%
7%
71%
2 Year 3 Year
CDR
CDR % Chg.
4%
8%
90%
14%
26%
85%
2 Year 3 Year
CDR
CDR % Chg.
5%
8%
63%
15%
23%
59%
6%
12%
104%
7%
13%
102%
9%
16%
86%
2%
4%
73%
2%
4%
75%
4%
6%
70%
4%
7%
65%
5%
8%
62%
6%
10%
64%
8%
13%
69%
8%
14%
66%
10%
16%
63%
3%
5%
61%
3%
5%
61%
4%
7%
64%
All Proprietary:
Proprietary less than 2 year
Proprietary 2-3 year
Proprietary 4 year
8%
17%
115%
9%
19%
100%
11%
21%
All
5%
8%
83%
5%
9%
78%
7%
36%
42%
16%
39%
43%
11%
41%
All Public:
Public less than 2 year
Public 2 year
Public 2-3 year
Public 4 year
Proprietary % of defaults
8%
4%
17%
7%
103%
90%
10%
5%
15%
7%
45%
62%
6%
7%
11%
15%
78%
118%
7%
10%
11%
16%
53%
64%
10%
4%
18%
8%
78%
79%
12%
5%
18%
8%
54%
52%
93%
12%
12%
13%
11%
25%
28%
28%
23%
114%
121%
120%
108%
15%
14%
15%
15%
23%
22%
23%
23%
51%
57%
55%
49%
12%
76%
7%
14%
96%
9%
13%
52%
44%
8%
43%
48%
10%
48%
47%
-2%
We have provided two-year official and three-year unofficial cohort default rates for a number
of publicly held for-profit providers in Exhibit 328.
A member of BMO
Financial Group
279
September 2013
BMO Capital Markets
Exhibit 328. Two- and Three-Year Cohort Default Rates by Institution (FY2006-FY2010)
2-Year CDRs
FY2006 FY2007 FY2008 FY2009 FY2010
OPEID
038193
020988
021715
001881
035453
032673
021136
020757
001123
007351
022202
010148
020552
021603
030314
009795
012877
021160
022052
026150
009420
007481
026164
011647
022023
026149
025693
023522
032103
030226
030068
026167

American Public University System
Apollo Group (APOL)
Western International Univ.
Ashford University
University of the Rockies
Capella University
Maximum
Minimum
Median
American InterContinental University
Atlanta/Buckhead, GA (Atlanta/Dunwoody, GA;
Weston, FL, Los Angeles, CA, Houston, TX;
London, England, Online)
Briarcliffe College, Bethpage, NY
Brooks Institute of Photography, Santa Barbara, CA
Brown College, Mendota Heights, MN
California Culinary Academy, San Francisco, CA
(Colorado Springs & Denver, CO; North Kansas City,
MO; and Sioux Falls, SD; Online)
Gibbs College
Harrington College of Design, Chicago, IL
International Academy of Design & Technology
Chicago, (Chicago & Schaumburg, IL: Troy, MI)
Tampa, FL (Tampa & Orlando, FL; Henderson, NV;
Seattle, WA; Orlando Culinary Academy - Orlando, FL)
Missouri College, Brentwood, MO
Norwalk, CT (Farmington, CT)
Atlanta, GA
Fenton, MO (Collinsville, IL, Hazelwood, St. Peters, MO)
Dallas, (Dallas TX; Garden City, NY)
Vienna, VA (McLean)
Boston, MA
Sanford Brown Institute
Jacksonville, (Tampa & Jacksonville, FL; Iselin, NJ)
Melville, NY (formerly Gibbs, now SBI Campus)
Pittsburgh, (Monroeville, PA)
White Plains, NY
Other Cooking/Hospitality Schools
Le Cordon Bleu (Austin, TX)
Le Cordon Bleu (Chicago, IL)
Le Cordon Bleu (Pasadena, CA)
Le Cordon Bleu (Portland, OR)
Le Cordon Bleu (Pittsburgh, PA)
Le Cordon Bleu (Scottsdale, AZ)
3-Year CDRs
FY2006 FY2007 FY2008 FY2009
N.A.
0.0%
5.2%
4.0%
6.0%
0.0%
3.3%
11.1%
7.2%
7.2%
27.4%
9.3%
18.5%
12.9%
10.7%
18.8%
9.3%
17.9%
7.7%
10.3%
36.9%
15.9%
26.5%
21.2%
16.3%
26.4%
13.7%
4.1%
0.0%
13.3%
0.0%
13.3%
2.5%
15.3%
3.3%
10.2%
4.0%
6.1%
0.0%
17.4%
0.0%
20.0%
2.6%
19.8%
3.3%
1.5%
2.5%
3.3%
6.7%
7.0%
3.7%
5.5%
6.5%
9.7%
14.3%
1.7%
8.0%
14.2%
0.3%
7.3%
13.6%
2.0%
7.8%
18.9%
8.0%
13.5%
21.8%
7.7%
14.8%
27.4%
5.3%
18.3%
32.6%
7.7%
19.7%
31.4%
12.1%
20.4%
31.5%
12.2%
25.7%
8.5%
7.1%
1.7%
6.1%
4.3%
10.4%
8.5%
0.3%
4.9%
4.1%
12.3%
12.1%
4.4%
3.4%
2.4%
18.7%
14.3%
10.6%
12.9%
12.0%
14.1%
12.8%
9.4%
8.5%
15.7%
16.2%
14.7%
4.2%
14.1%
9.4%
19.7%
17.1%
6.7%
14.9%
9.4%
21.6%
20.7%
12.2%
12.9%
15.5%
27.4%
21.5%
16.1%
21.4%
19.8%
11.3%
10.9%
12.4%
16.4%
13.2%
23.8%
22.3%
23.1%
25.0%
1.7%
2.9%
4.1%
8.0%
7.7%
5.3%
7.7%
12.1%
12.2%
7.7%
6.0%
7.7%
17.6%
15.3%
17.0%
15.7%
22.6%
28.6%
6.0%
7.7%
7.7%
3.8%
8.2%
4.1%
16.1%
11.4%
17.0%
10.4%
15.2%
16.9%
17.2%
16.4%
20.2%
20.0%
26.9%
22.2%
7.7%
10.0%
6.2%
9.1%
14.3%
12.5%
10.9%
8.9%
7.4%
9.0%
12.3%
11.2%
13.0%
9.8%
6.9%
12.5%
10.1%
11.4%
12.6%
18.5%
16.2%
16.2%
18.9%
14.2%
14.6%
13.9%
14.0%
10.5%
17.9%
17.7%
17.4%
21.4%
20.2%
18.3%
27.4%
24.9%
20.8%
23.0%
19.7%
25.3%
28.5%
24.8%
21.0%
27.3%
25.5%
22.5%
28.4%
26.9%
23.9%
31.5%
26.3%
6.1%
9.7%
8.0%
12.7%
7.9%
11.0%
9.1%
13.0%
7.9%
13.6%
6.5%
9.2%
16.7%
15.5%
15.0%
15.2%
14.5%
17.5%
14.6%
21.8%
16.3%
21.0%
20.7%
25.5%
20.5%
21.9%
22.3%
24.6%
20.6%
18.7%
15.5%
22.1%
27.5%
26.6%
24.4%
27.7%
8.4%
7.0%
3.7%
5.5%
5.2%
5.1%
7.2%
5.9%
3.2%
5.9%
6.3%
6.7%
6.7%
3.5%
2.0%
5.5%
6.5%
4.8%
15.9%
18.1%
9.6%
12.0%
11.4%
12.2%
18.7%
14.0%
16.2%
13.7%
16.6%
17.8%
19.8%
15.3%
11.1%
14.6%
15.7%
16.6%
13.3%
12.1%
8.4%
12.5%
15.6%
17.0%
22.1%
18.7%
14.9%
19.8%
19.8%
20.1%
28.8%
28.3%
20.7%
23.9%
23.5%
26.4%
N.A. Not Applicable. Note: Draft FY2010 two-year CDRs and FY2009 three-year CDRs provided if disclosed by company. Source: Department of Education and
BMO Capital Markets.
A member of BMO
Financial Group
280
September 2013
BMO Capital Markets
2-Year CDRs
FY2006 FY2007 FY2008 FY2009 FY2010
OPEID
008090
011107
023001
004503
011123
011121
022375
007606
009267
030723
022950
009079
026062
011109
022985
004494
011024
012061
026175
011858
022506
004507
031954
011510
010356
021004
021218
030032
007091
004811
022613
009828
025998
001499
008146
001534
021875
008093
008532
025932
007477
025931
030340
007234
025933
023462
007190
009157
012873

Maximum
Minimum
Median
Everest College
Everest College, Alhambra, CA
Everest College, Anaheim CA
Everest College, Bremerton, WA
Everest College, Colorado Springs, CO (McLean, VA)
Everest College, Gardena, CA
Everest College, Hayward, CA
Everest College ("Las Vegas College"), Henderson, NV
Everest College, Los Angeles, CA
Everest College, Newport News, VA
Everest College, Ontario, CA
Everest College, Phoenix, AZ
Everest College, Portland, OR
Everest College, Renton, WA
Everest College, Reseda, CA
Everest College, Salt Lake City, UT
Everest College, San Bernardino, CA
Everest College, San Francisco, CA
Everest College, San Jose, CA
Everest College, Seattle, WA
Everest College, Skokie, IL
Everest College, Springfield, MO
Everest College, Thornton, CO
Everest College, Torrance, CA
Everest Institute
Everest Institute, Brighton, MA
Everest Institute, Cross Lanes, WV
Everest Institute, Grand Rapids, MI
Everest Institute, Miami, FL
Everest Institute, Miami (Ft. Lauderdale), FL
Everest Institute, Pittsburgh, PA
Everest Institute, Rochester, NY
Everest Institute, San Antonio, TX
Everest Institute, Southfield, MI
Everest University
Everest University, Largo, FL
Everest University, Orlando (North), FL
Everest University, Pompano Beach, FL
Everest University, Tampa, FL
Heald College
Heald College, Concord
Heald College, Fresno
Heald College, Hayward
Heald College, Milpitas
Heald College, Rancho Cordova
Heald College, Roseville
Heald College, Salinas
Heald College, San Francisco
Heald College, Stockton
WyoTech
WyoTech, Daytona/Ormand Beach, FL
WyoTech, Fremont, CA
WyoTech, Laramie, WY
WyoTech, Long Beach, CA
3-Year CDRs
FY2006 FY2007 FY2008 FY2009
18.8%
2.0%
10.4%
22.3%
5.0%
13.7%
35.2%
6.2%
20.7%
29.8%
5.6%
17.7%
11.5%
0.9%
6.2%
42.9%
8.5%
26.4%
42.8%
11.0%
29.3%
54.5%
17.8%
35.6%
37.0%
7.5%
28.6%
12.2%
9.6%
12.3%
12.5%
14.1%
16.1%
16.2%
14.9%
15.7%
16.5%
10.5%
14.9%
12.4%
17.3%
11.9%
13.8%
12.4%
12.8%
8.9%
9.4%
16.9%
16.9%
11.3%
13.5%
9.8%
13.0%
15.7%
18.1%
14.7%
15.6%
16.9%
14.6%
12.6%
13.0%
18.5%
16.8%
11.7%
17.2%
19.9%
15.5%
10.1%
10.4%
11.7%
16.8%
19.6%
12.3%
18.6%
15.0%
13.5%
19.9%
18.2%
20.5%
22.7%
24.9%
20.8%
16.9%
20.4%
23.3%
25.2%
13.0%
24.7%
31.1%
19.1%
12.4%
11.8%
16.0%
27.5%
26.2%
18.1%
22.8%
21.6%
20.1%
21.1%
21.8%
26.8%
25.5%
27.6%
27.1%
23.6%
22.5%
25.5%
29.8%
18.8%
21.8%
20.9%
23.3%
20.2%
15.5%
18.3%
25.0%
27.7%
17.9%
4.5%
10.6%
5.0%
4.8%
2.1%
4.5%
3.9%
6.8%
4.3%
6.1%
6.2%
6.3%
5.1%
5.1%
3.7%
6.4%
8.6%
0.9%
5.5%
5.3%
4.4%
3.7%
6.4%
29.5%
21.8%
20.6%
26.7%
29.1%
32.5%
31.8%
32.0%
31.6%
30.1%
26.3%
30.5%
26.4%
25.3%
29.8%
33.1%
30.7%
25.2%
17.8%
23.4%
32.0%
33.5%
26.4%
29.3%
21.7%
24.6%
32.5%
32.2%
30.2%
31.0%
36.0%
30.3%
30.0%
30.1%
34.9%
33.2%
22.7%
31.5%
37.1%
31.6%
23.3%
19.0%
24.6%
33.3%
36.2%
29.3%
35.6%
30.4%
27.3%
34.5%
37.8%
37.8%
38.8%
44.7%
38.8%
35.5%
36.6%
39.6%
43.2%
32.8%
40.0%
44.9%
36.9%
37.0%
21.8%
29.8%
40.5%
45.3%
34.8%
28.6%
25.5%
25.0%
28.0%
25.5%
33.8%
31.7%
36.9%
33.1%
31.3%
29.6%
31.6%
37.0%
26.6%
30.0%
32.6%
30.5%
26.9%
21.7%
24.7%
31.5%
34.9%
20.4%
10.0%
15.5%
9.8%
13.0%
13.5%
16.9%
17.6%
18.8%
15.2%
13.4%
14.8%
12.8%
18.1%
20.0%
20.1%
21.4%
22.3%
18.6%
17.9%
20.2%
19.3%
22.4%
27.6%
22.8%
25.7%
35.2%
24.6%
21.9%
24.2%
19.5%
24.4%
17.3%
25.5%
26.2%
29.7%
25.2%
6.3%
5.5%
7.9%
6.2%
6.1%
1.1%
2.1%
4.7%
5.3%
26.6%
28.8%
24.4%
30.1%
29.2%
31.1%
35.2%
42.9%
35.5%
27.1%
31.8%
26.4%
34.1%
36.7%
32.0%
37.2%
42.8%
36.8%
33.0%
41.1%
35.0%
41.0%
44.3%
37.5%
45.3%
54.5%
44.9%
28.1%
29.5%
26.3%
30.3%
24.3%
28.6%
32.9%
36.8%
30.7%
12.4%
8.4%
5.8%
9.6%
18.6%
12.6%
11.7%
12.2%
23.4%
17.0%
16.0%
13.6%
22.3%
22.2%
19.1%
19.2%
7.4%
9.3%
7.7%
11.5%
26.7%
20.3%
19.9%
23.1%
34.8%
26.4%
23.7%
26.2%
37.9%
33.6%
30.3%
33.6%
29.7%
31.3%
26.8%
28.1%
9.1%
16.0%
11.1%
11.3%
10.4%
8.8%
6.0%
7.3%
2.0%
11.1%
16.0%
8.8%
12.0%
13.1%
9.7%
10.2%
7.4%
10.1%
7.2%
15.2%
8.9%
9.3%
8.8%
8.8%
9.0%
10.8%
9.5%
10.9%
13.0%
5.6%
9.7%
8.6%
9.5%
10.4%
10.5%
11.4%
5.6%
6.3%
5.5%
6.2%
7.6%
6.5%
9.8%
5.7%
8.0%
19.8%
26.1%
21.8%
21.0%
20.3%
18.1%
16.4%
16.0%
17.0%
20.1%
28.0%
17.3%
23.9%
22.8%
19.6%
24.9%
14.1%
23.4%
20.0%
28.5%
23.4%
23.7%
23.5%
18.1%
23.1%
21.9%
25.8%
11.7%
14.6%
7.5%
12.6%
10.9%
13.2%
16.0%
12.7%
13.7%
6.5%
11.7%
3.4%
15.8%
6.9%
13.9%
5.0%
17.1%
29.2%
17.1%
6.2%
21.1%
21.6%
24.6%
13.9%
27.4%
5.9%
5.1%
3.9%
9.6%
13.1%
20.9%
8.5%
35.4%
22.5%
23.1%
11.0%
32.3%
38.9%
30.8%
17.8%
40.7%
32.8%
31.7%
19.2%
36.2%
N.A. Not Applicable. Note. Draft FY2010 two-year CDRs and FY2009 three-year CDRs provided if disclosed by company. Source: Department of Education and
A member of BMO
Financial Group
281
September 2013
BMO Capital Markets
2-Year CDRs
FY2006 FY2007 FY2008 FY2009 FY2010
OPEID
022444
022180
021006
030425
009748
006385
010727
020754
022460
022779
009270
021105
021286
020789
010195
021171
025256
008350
040513
007470
007819
022913
025578
010248
012584
008878
007486
021799
013039
006755
001074
021662
007329
030718
004731
DeVry (DV)
Maximum
Minimum
Median
American University of the Caribbean
Carrington College (Boise)
Carrington College (Phoenix)
Carrington College (Portland)
Carrington College of California (fka W.C.C)
Chamberlain College of Nursing (formerly Deaconess)
DeVry University
Keller Graduate School of Management
Ross University - Medicine
Ross University - Veterinary
Maximum
Minimum
Median
Art Institute of Atlanta (The)
Art Institute of Charlotte (The)
Art Institute of Cincinnati (The)
Art Institute of Colorado (Denver)
Art Institute of Fort Lauderdale (The)
Art Institute of Houston (The)
Art Institute of New York City (The)
Art Institute of Philadelphia (The)
Art Institute of Phoenix (The)
Art Institute of Pittsburgh (The)
Art Institute of Portland (The)
Art Institute of Seattle (The)
Art Institute of York (The) - Pennsylvania
Minneapolis, MN
Illinois Institute of Art, Chicago, IL
Miami International University of Art & Design, Miami FL
The New England Institute of Art, Boston, MA
Argosy University (all locations reported as one university)
South University (all locations reported as one)
Brown Mackie College (all locations)
Maximum
Minimum
Median
Baton Rouge, LA
Indianapolis, IN
Spokane Valley, WA
3-Year CDRs
FY2006 FY2007 FY2008 FY2009
9.6%
0.1%
4.9%
N.A.
3.7%
8.1%
7.9%
9.6%
1.8%
7.3%
1.4%
0.1%
0.1%
10.2%
0.0%
5.1%
1.0%
1.7%
8.5%
6.7%
10.2%
2.9%
9.0%
2.7%
0.2%
0.0%
13.6%
0.0%
6.8%
0.8%
2.7%
8.8%
4.4%
13.6%
1.7%
10.2%
2.6%
0.2%
0.0%
16.7%
0.0%
8.4%
2.0%
8.6%
13.8%
7.7%
16.7%
3.3%
14.2%
3.9%
0.5%
0.0%
16.7%
0.0%
8.4%
1.1%
9.9%
14.6%
9.0%
16.7%
4.1%
13.3%
4.8%
0.4%
0.0%
24.8%
0.1%
13.4%
N.A.
13.0%
24.8%
21.9%
23.8%
N.A.
13.8%
3.5%
0.3%
0.1%
24.4%
0.0%
14.6%
N.A.
12.0%
23.3%
19.9%
24.4%
N.A.
17.1%
4.7%
0.6%
0.0%
28.0%
0.5%
9.5%
2.4%
11.8%
23.4%
15.6%
28.0%
7.3%
19.6%
5.2%
0.9%
0.5%
25.6%
0.0%
10.9%
1.6%
14.4%
23.5%
13.8%
25.6%
7.9%
24.1%
7.1%
0.8%
0.0%
11.3%
1.0%
6.2%
4.8%
6.7%
2.5%
4.3%
5.4%
7.2%
8.9%
5.0%
4.2%
4.9%
2.3%
4.9%
4.5%
3.4%
5.4%
5.5%
2.9%
1.2%
5.6%
11.3%
14.4%
0.0%
7.2%
7.0%
11.1%
0.0%
6.7%
9.9%
11.4%
8.1%
7.4%
13.0%
6.8%
5.3%
6.0%
4.4%
5.7%
8.5%
9.4%
3.5%
2.8%
7.6%
14.4%
11.7%
1.3%
6.5%
7.8%
9.9%
6.2%
4.7%
6.0%
8.5%
8.1%
6.1%
11.6%
7.9%
2.9%
5.0%
5.5%
4.7%
7.4%
6.5%
3.0%
2.9%
7.9%
11.2%
18.4%
0.6%
9.5%
16.0%
14.0%
18.4%
9.9%
13.0%
14.0%
17.6%
15.2%
16.3%
15.4%
6.4%
8.6%
6.8%
8.4%
10.4%
14.2%
10.1%
5.4%
13.5%
13.4%
14.9%
7.4%
11.2%
13.0%
13.4%
8.5%
10.8%
10.3%
13.2%
13.0%
9.4%
14.9%
14.3%
7.4%
8.5%
8.2%
8.3%
10.8%
11.2%
9.0%
8.2%
11.9%
11.5%
24.3%
2.1%
11.8%
11.3%
13.3%
2.5%
10.6%
11.6%
17.0%
19.1%
12.0%
N.A.
10.0%
7.1%
9.8%
8.7%
8.3%
9.3%
13.6%
7.3%
2.3%
15.2%
24.3%
30.9%
2.5%
15.2%
15.7%
17.6%
2.5%
12.6%
18.1%
21.9%
15.9%
15.2%
N.A.
13.0%
8.4%
10.6%
7.6%
10.0%
12.1%
16.2%
11.1%
5.3%
16.4%
25.4%
33.3%
2.7%
16.5%
18.9%
15.1%
12.5%
11.9%
14.9%
20.4%
20.5%
18.2%
20.3%
17.5%
6.7%
12.5%
10.5%
10.8%
12.0%
18.2%
12.4%
5.7%
16.5%
22.6%
28.6%
10.4%
22.3%
26.5%
24.1%
25.6%
17.0%
21.4%
25.4%
28.6%
24.0%
26.3%
23.3%
12.4%
14.6%
10.4%
15.7%
18.7%
23.4%
14.5%
13.4%
21.5%
23.1%
1.6%
1.4%
3.4%
9.2%
12.0%
2.7%
2.9%
7.4%
15.1%
12.8%
1.7%
7.3%
9.7%
7.9%
9.4%
1.7%
15.2%
2.7%
9.0%
9.9%
10.3%
9.3%
2.7%
15.4%
3.5%
9.5%
13.3%
10.9%
9.6%
3.5%
22.6%
3.6%
13.1%
14.9%
22.6%
18.4%
3.6%
16.5%
6.8%
11.7%
13.2%
16.5%
15.6%
6.8%
28.4%
12.6%
20.0%
19.6%
17.9%
16.2%
3.5%
30.2%
18.3%
23.5%
21.8%
20.9%
18.3%
4.1%
31.7%
6.5%
19.1%
21.3%
23.3%
22.0%
6.5%
34.1%
7.0%
20.6%
21.1%
34.1%
28.0%
7.0%
N.A. Not Applicable Note. Draft FY2010 two-year CDRs and FY2009 three-year CDRs provided if disclosed by company. Source: Department of Education and
A member of BMO
Financial Group
282
September 2013
BMO Capital Markets
2-Year CDRs
FY2006 FY2007 FY2008 FY2009 FY2010
OPEID
009407
007936
012128
007547
007938
010316
022808
007759
022288
012461
033903
033163
032323
007303
007832
031963
022910
007506
004057
001459
008221
021005
023620
011574
022898
007781
004729
007488
025829
004910
023262
007436
011005
032723
009466
020520
021676
025919
009777
030432
022018
025391
030445
020712
023519
023063
031158
020917
025654
025490
004586
007491
020836
010410
023122

Maximum
Minimum
Median
Lincoln College of New England (fka Briarwood)
Lincoln College of Technology: Columbia, MD
Lincoln College of Technology: Dayton, OH
Lincoln College of Technology: Denver, CO
Lincoln College of Technology: Indianapolis, IN
Lincoln College of Technology: Melrose Park, IL
Lincoln College of Technology: West Palm Beach, FL
Lincoln Technical Institute: Allentown, PA
Lincoln Technical Institute (Baran): East Windsor, CT
Lincoln Technical Institute: Edison, NJ
Lincoln Technical Institute: Fern Park, FL
Lincoln Technical Institute: Hartford, CT
Lincoln Technical Institute: Lincoln, RI
Lincoln Technical Institute: New Britain, CT
Lincoln Technical Institute: Philadelphia, PA
Lincoln Technical Institute: Somerville, MA
Lincoln Technical Institute: South Plainfield, NJ
Lincoln Technical Institute: Union, NJ
National American University Holdings
Strayer University
Universal Technical Institute (UTI)
Maximum
Minimum
Median
Universal Technical Institute: Avondale, AZ
Universal Technical Institute: Phoenix, AZ
Universal Technical Institute: Houston, TX
Washington Post/Kaplan (WPO)
Maximum
Minimum
Median
Bauder College : Atlanta, GA
CHI Institute: Southampton/Philadelphia, PA
CHI Institute/RETS Campus: Broomall, PA
Hesser College
Kaplan Career Institute, Boston MA
Kaplan Career Institute: Brooklyn, NY
Kaplan Career Institute Harrisburg, PA
Kaplan Career Institute: Nashville, TN
Kaplan Career Institute, ICM Campus, Pittsburgh, PA
Kaplan College: Columbus, OH
Kaplan College: Dallas, TX (Midland)
Kaplan College: Dallas, TX (San Antonio)
Kaplan College: Dayton, OH
Kaplan College: Denver, CO (Thornton, CO)
Kaplan College: El Paso, TX
Kaplan College: Indianapolis, IN
Kaplan College: Las Vegas, NV
Kaplan College: Merrillville, IN
Kaplan College: North Hollywood, CA
Kaplan College: Panorama City, CA
Kaplan College: Phoenix, AZ
Kaplan College: Sacramento, CA
Kaplan College: Salida, CA (Modesto, CA)
Kaplan College: San Antonio, TX
Kaplan College: San Diego, CA
Kaplan College: Stockton, CA
Kaplan College: Vista, CA (North County, CA)
Kaplan University: Davenport, IA
TESST College of Technology: Baltimore, MD
TESST College of Technology: Beltsville, MD
TESST College of Technology: Towson, MD
Texas School of Business: Houston, TX
3-Year CDRs
FY2006 FY2007 FY2008 FY2009
19.3%
5.3%
12.3%
10.2%
12.5%
9.9%
11.1%
12.0%
11.8%
9.9%
10.1%
6.1%
14.5%
6.2%
5.3%
14.9%
11.2%
15.0%
12.3%
6.3%
10.8%
21.9%
0.0%
11.0%
21.9%
12.5%
13.4%
10.9%
13.0%
18.1%
10.2%
10.3%
9.5%
16.2%
5.9%
6.5%
12.9%
9.1%
19.8%
12.2%
9.4%
12.5%
26.3%
4.1%
15.2%
18.5%
13.7%
20.2%
11.6%
11.8%
16.0%
14.2%
11.2%
6.3%
17.3%
7.0%
4.1%
14.0%
8.9%
20.9%
11.7%
4.5%
14.1%
35.4%
5.2%
20.3%
10.5%
17.9%
23.3%
26.0%
18.8%
27.1%
19.9%
17.4%
12.2%
19.7%
13.3%
10.6%
19.5%
15.0%
35.4%
25.7%
13.0%
23.8%
33.0%
11.6%
22.3%
11.6%
16.6%
19.3%
24.1%
21.1%
21.1%
16.2%
14.0%
14.4%
17.1%
15.6%
14.5%
21.2%
18.2%
33.0%
17.9%
17.5%
17.8%
37.0%
14.7%
23.2%
22.8%
24.6%
23.7%
21.7%
22.2%
28.7%
19.7%
20.2%
20.9%
27.0%
10.6%
20.6%
27.1%
19.8%
34.0%
23.5%
11.1%
25.0%
42.2%
16.7%
25.0%
25.4%
26.7%
26.5%
20.5%
25.5%
33.4%
20.1%
22.4%
18.6%
29.0%
16.2%
16.5%
25.9%
16.8%
42.2%
24.3%
23.5%
24.6%
42.8%
14.8%
25.8%
23.0%
26.9%
35.3%
24.4%
27.6%
30.9%
26.2%
21.4%
16.8%
31.6%
16.5%
14.8%
26.5%
19.7%
42.8%
25.3%
14.8%
28.0%
49.1%
16.8%
30.7%
16.8%
28.2%
36.2%
36.3%
33.9%
38.2%
32.0%
26.3%
20.9%
31.0%
23.6%
19.3%
30.3%
24.0%
49.1%
35.7%
25.0%
32.1%
7.3%
8.2%
9.8%
14.1%
15.6%
12.4%
15.7%
15.5%
22.9%
3.8%
6.0%
6.7%
10.0%
8.6%
10.5%
13.0%
12.8%
13.9%
8.0%
6.5%
7.3%
6.5%
7.7%
8.0%
6.8%
6.2%
6.5%
6.5%
6.8%
6.2%
5.1%
4.7%
4.9%
4.7%
5.1%
4.7%
9.0%
7.7%
8.4%
7.7%
9.0%
8.8%
11.7%
10.7%
11.2%
10.7%
11.4%
11.7%
18.8%
14.1%
17.3%
14.1%
17.3%
18.8%
14.1%
13.5%
13.7%
13.5%
14.1%
13.7%
13.1%
11.1%
13.1%
11.1%
13.1%
13.1%
16.4%
14.3%
16.0%
14.3%
16.0%
16.4%
24.9%
2.1%
13.5%
16.1%
14.1%
17.4%
8.8%
13.8%
19.2%
13.0%
16.4%
18.6%
16.3%
16.5%
14.5%
13.2%
13.7%
14.2%
2.1%
18.9%
7.1%
28.7%
7.8%
18.3%
10.6%
19.4%
16.6%
7.8%
15.3%
16.6%
20.2%
7.9%
21.8%
22.6%
23.0%
16.4%
22.0%
16.6%
16.8%
12.5%
21.2%
17.3%
25.7%
5.4%
15.6%
16.7%
19.5%
21.1%
8.7%
20.1%
25.7%
22.4%
5.4%
18.0%
20.9%
21.0%
20.4%
21.3%
17.7%
17.8%
13.2%
19.2%
20.2%
23.9%
9.8%
16.9%
11.7%
17.8%
18.7%
10.8%
17.1%
23.9%
18.6%
11.1%
16.3%
16.8%
14.8%
17.2%
18.3%
12.5%
16.1%
9.8%
16.8%
17.0%
25.3%
7.5%
16.4%
19.7%
20.0%
21.1%
11.8%
22.3%
20.6%
17.6%
14.2%
25.3%
16.8%
19.0%
17.4%
19.5%
11.2%
16.7%
12.0%
13.6%
13.5%
42.0%
11.6%
25.1%
25.1%
24.5%
28.2%
15.8%
23.0%
30.3%
24.4%
24.3%
32.1%
27.0%
37.2%
26.1%
25.0%
23.2%
25.9%
11.6%
32.1%
14.4%
44.5%
12.2%
31.5%
26.2%
31.5%
33.1%
17.2%
31.6%
37.7%
35.3%
22.2%
37.9%
32.8%
35.7%
29.8%
35.8%
29.6%
32.8%
22.1%
31.5%
28.6%
37.2%
16.0%
28.8%
26.3%
29.4%
32.9%
17.7%
34.2%
37.2%
30.9%
19.5%
26.6%
31.7%
33.4%
31.1%
32.7%
29.0%
26.1%
18.9%
31.6%
24.0%
33.9%
14.9%
23.5%
21.5%
28.9%
28.1%
16.7%
33.6%
33.9%
30.1%
20.5%
29.6%
23.5%
28.7%
28.8%
30.1%
21.6%
26.8%
17.3%
23.4%
21.5%
15.6%
16.2%
13.5%
14.9%
14.3%
18.9%
6.0%
12.3%
11.7%
9.2%
24.0%
12.6%
24.9%
20.9%
18.4%
17.6%
18.0%
18.8%
14.8%
28.7%
8.1%
14.4%
13.2%
13.3%
25.1%
17.5%
26.1%
28.4%
9.0%
14.5%
15.5%
16.3%
12.2%
17.4%
10.9%
20.3%
13.9%
17.2%
16.2%
20.1%
13.2%
19.3%
10.5%
11.6%
12.0%
16.5%
13.0%
16.6%
10.3%
14.3%
14.6%
17.3%
19.8%
14.8%
13.2%
16.9%
7.5%
13.3%
12.5%
15.6%
12.4%
16.5%
10.3%
10.4%
13.9%
16.8%
22.9%
19.5%
13.9%
17.4%
11.7%
32.0%
20.3%
29.6%
24.9%
38.9%
12.0%
21.7%
19.0%
16.6%
42.0%
29.2%
38.9%
39.8%
12.2%
28.7%
25.7%
33.5%
27.7%
44.5%
15.3%
27.5%
23.1%
23.2%
42.0%
32.6%
38.0%
43.4%
16.0%
27.3%
24.6%
26.2%
21.8%
32.0%
17.2%
30.0%
23.0%
27.8%
32.9%
27.0%
28.8%
33.0%
16.6%
17.4%
17.9%
25.8%
21.0%
29.0%
14.9%
21.1%
22.7%
25.9%
32.1%
22.6%
22.2%
30.5%
N.A. Not Applicable. Note. Draft FY2010 two-year CDRs and FY2009 three-year CDRs provided if disclosed by company. Source: Department of Education and
A member of BMO
Financial Group
283
September 2013
BMO Capital Markets
90/10 rule. A for-profit institution that derives more than 90% of its cash-basis revenues
from Title IV funding for any two consecutive fiscal years cannot participate in this program
for the subsequent two years. An institution can regain eligibility by meeting state licensing,
accreditation, and financial responsibility requirements for at least the subsequent two fiscal
years. If a school exceeds the 90% threshold for one year, the ED will place it on provisional
certification for at least two years.
As part of the aforementioned HEOA (August 2008), the violation period was expanded to
two years from one. The two-year rule gives schools a year to get their house in order
before become ineligible. 90/10 rates are typically measured on an institutions fiscal year and
are usually reported in each companys 10K.
Non-Title IV revenues (which must be 10% or more of total cash revenues) can include (but
are not limited to):
90/10 rule applies

only to for-profit
institutions
Recent 90/10 relief

has expired
A member of BMO
Cash payments, including those from non-Title IV eligible students (e.g., international) in
eligible programs;
Loans from sources outside of the institution (third-party or alternative loans);
Payments on institutional loans (those provided by the school itself). Effective July 1,
2012, institutional loan revenues must be calculated on the cash basis accounting model
(prior to this, schools could count revenue from internal loans on an accrual method
based on revenues earned).
Scholarships provided by an organization independent of the institution;
Sale proceeds on nonrecourse loans and/or receivables;
Department of Defense tuition assistance; and
State grants.
The 90/10 rule applies only to for-profit institutions (Section 102 institutions). We believe
this puts an artificial constraint on the sector and adds another layer of red-tape schools must
negotiate to stay within compliance. An August 2013 analysis by Mark Kantrowitz of
Edvisors noted that if all schools needed to comply with this regulation, public two-year
schools (i.e., community colleges) would fail when measured as a group as they received 98%
of their cash receipts from Title IV funds in aggregate; only 20% of such schools would have
been in compliance in the 2011-2012 school year. Additionally, as federal loans increase, this
has typically led schools to raise tuition to ensure the Title IV portion of total revenue remains
below 90%.
The reauthorized HEOA did provide some 90/10 relief to for-profit schools, although the
provision has expired. The rule allowed institutions to count the $2,000 increase in Stafford
loan limits (effective July 1, 2008) as part of the 10% non-Title IV revenues through the
2010-2011 academic year (ending June 2011). In addition, institutional aid (school lending)
and scholarships were included in the 10% through the end of the 2011-2012 academic year
(ending June 2012). While this may have allowed some schools to avoid raising tuition rates,
most schools did not implement tuition rate freezes in either of those years.
Financial Group
284
September 2013
Examples of how
some institutions
manage their
90/10 risk
BMO Capital Markets
Many of these companies are using a number of measures (beyond raising tuition) to remain
below the 90% threshold (examples cited in an April 2011 article in The Chronicle of Higher
Education and the July 2012 report by the Senate HELP Committee):
Collecting cash from students. Some schools have required minimum cash payments
from students in an attempt to remain below the 90% threshold.
Corporate tuition reimbursement/corporate training programs. APOLs announcement
in January 2011 that it would open a School of Continuing Education under the auspices of
the University of Phoenix is an example of such a strategy. Washington Posts Kaplan
University has had a continuing education program for some time.
Acquiring businesses that generate non-Title IV sourced cash. Among such recent
transactions are the April 2012 acquisition by Lincoln Educational Services (LINC) of
Florida Medical Training Institute, Inc. (FMTI), which offers certificate programs in various
health-related fields and where most of its students are cash payers, and the September 2012
investment by American Public Education (APEI) in New Horizons Worldwide, a global IT
training provider, to attract new corporate and international students.
Attracting foreign students. Education Management (EDMC), along with some others,
has been focusing on this.
Generating ancillary revenues. According to the Chronicle, Career Education (CECO)

beefed up (no pun intended) marketing for a chain of restaurants called Technique, tied
to its Cordon Bleu culinary schools.
Consolidating OPEIDs. While this requires approval from the ED, the institutions
accrediting body and state regulators, we have seen a recent increase in companies trying
to combine OPEIDs so that a better-performing school can absorb one that is more at
risk and avoid tripping 90/10 requirements. However, this is easier said than done; in late
July 2012, Career Education (CECO) announced it had withdrawn plans to consolidate as
many as 19 of its OPEIDs into one, owing to the complexities and delays in the process.
Deferring taking Title IV funds. Career Education delayed the receipt of $24.3 million in
Title IV funds from 2012 to 2013, while Corinthian Colleges (COCO) delayed the receipt
of $87 million in Title IV funds from June 2011 to July 2012, thereby ensuring their
respective institutions were below the 90% threshold in 2012 and FY2011.
Military and veterans tuition assistance programs. While revenues from these
programs are currently included in the 10% component of the calculation, there are
efforts under way to change that. Both the House and the Senate have recent proposals on
the floor to change the 90/10 calculation to include military benefits on the 90% side. For
example, On March 1, 2013, the Students First Act was introduced by Senator Tom
Harkin (D-IA), chairman of the Senate HELP Committee, and Senator Frank Lautenberg
(D-NJ) and co-sponsored by Senators Richard Durbin (D-IL) and John D. (Jay)
Rockefeller IV (D-WV). In addition to rolling 90/10 back to its prior 85/15 threshold
(reinstating the 15% minimum from non-federal government sources as was the case
from 1992 to 1998), other provisions include having the ED conduct program reviews for
institutions engaged in the most risky behavior, which includes engaging in serial
forbearance and default rate manipulation and spending more than 20% of revenue on
recruiting and marketing. Although this bill would affect all institutions, we believe it is
aimed at the bad actors in the for-profit sector.
A member of BMO
Financial Group
285
September 2013
BMO Capital Markets
Financial responsibility standards. A blended score of three financial ratios equity
(measures the institutions capital resources, financial viability, and ability to borrow; 40%
weighting), profitability (measures the institutions profitability or ability to operate; 30%
weighting), and reserve strength (measures the institutions viability and liquidity; 30%
weighting) is used to ensure the institution is financially viable for its students to be eligible
for Title IV funding.
An institutions financial ratios must yield a composite score of at least 1.5 (of a possible 3.0)
for it to be deemed financially responsible without the need for further federal oversight. For
scores of 1-1.4, the school is considered financially responsible but additional oversight is
required (e.g., subject to heightened cash monitoring, which, in essence, delays the receipt of
future Title IV funds). An institution with a score below 1 is considered not financially
responsible and must submit a letter of credit of at least 50% of its prior years Title IV
funding. The school may be permitted to participate in the Title IV program under provisional
certification with a smaller letter of credit, with a minimum of 10% of its Title IV funding.
A listing of historical financial-responsibility ratios for the publicly held providers is found in
Exhibit 329.
Exhibit 329. Selected For-Profit Postsecondary School Operators FinancialResponsibility Ratios (FY2002-FY2012)
Company
Apollo Group
Career Education
Corinthian Colleges
Capella Education
DeVry
Grand Canyon
Strayer Education
Washington Post
MEDIAN
Ticker
APEI
APOL
BPI
CECO
COCO
CPLA
DV
EDMC
LOPE
ESI
LINC
NAUH
STRA
UTI
WPO
FYE
12
8
12
12
6
12
6
6
12
12
12
12
5
9
12
2002
N.A.
3.0
N.A.
2.5
3.0
N.A.
N.A.
N.A.
N.A.
2.2
N.A.
N.A.
3.0
<1.5
N.A.
3.0
2003
N.A.
3.0
N.A.
2.6
2.6
N.A.
1.4
N.A.
N.A.
2.8
N.A.
N.A.
3.0
<1.5
N.A.
2.7
2004
N.A.
3.0
N.A.
2.8
2.1
N.A.
> 1.5
N.A.
N.A.
2.9
N.A.
N.A.
3.0
<1.5
N.A.
2.9
2005
N.A.
3.0
N.A.
2.7
2.1
N.A.
> 1.5
N.A.
N.A.
3.0
2.5
N.A.
3.0
>1.5
N.A.
2.8
2006
N.A.
2.9
N.A.
3.0
1.8
3.0
> 1.5
N.A.
> 1.5
2.2
1.7
N.A.
3.0
>1.5
N.A.
2.9
2007
3.0
2.6
0.6
> 1.5
1.7
3.0
> 1.5
N.A.
> 1.5
1.9
1.8
0.2
3.0
>1.5
N.A.
1.9
2008
3.0
2.7
1.6
> 1.5
2.0
3.0
> 1.5
< 1.5
> 1.5
2.5
1.8
0.5
3.0
>1.5
N.A.
2.5
2009
3.0
> 1.5
2.9
> 1.5
2.6
3.0
> 1.5
< 1.5
>1.5
2.3
2.0
1.6
N.A.
> 1.5
2.45
2.5
2010
3.0
> 1.5
3.0
> 1.5
1.7
3.0
> 1.5
< 1.5
> 2.8
> 1.5
1.8
2.4
> 1.5
> 1.5
2.29
2.4
2011
3.0
2.6
3.0
> 1.5
0.9
3.0
> 1.5
< 1.5
2.2
2.1
2.1
3.0
> 1.5
> 1.5
2.25
2.4
2012
3.0
2.4
3.0
1.6
1.5
N.A.
> 1.5
< 1.5
>2.8
1.8
1.6
2.7
> 1.5
> 1.5
N.A.
2.1
Note: N.A. Not Available. Source: BMO Capital Markets and company reports.
One-day rule (previously the 12-hour rule). This rule, which was implemented in
November 2002, requires a student to register for one day of course work per week to receive
full federal financial-aid benefits. This amendment replaced the 12-hour rule, which had
required students to be enrolled in 12 hours of course work per week to be eligible. Although
the details of what exactly constitutes one day remain somewhat ambiguous, we believe this
change creates more flexibility for nontraditional (i.e., online) education, making it easier for
such students to meet the minimum requirements.
The 50% rule. This rule (which was repealed as part of the Higher Education Reconciliation
Act (HERA) effective July 2006) required schools with at least 50% of courses offered via
"telecommunications courses" were ineligible for federal financial aid. We believe this rule
was a severe constraint in online education. While there is occasional mumbling to reinstate
such a rule, we believe this has a very low likelihood of happening.
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President Obama
favors community
colleges; ushers
in gainful
employment
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Changes Under the Obama Administration

President Obamas administration and the resurgent Democratic Congress in 2009 increased
fears of additional regulatory oversight of the for-profit sector. In his first address to Congress in
February 2009, he highlighted education as a chief policy priority and asked for every American
to commit to obtaining an additional year of higher education or training. He also set a goal that
by 2020 America would have the highest proportion of college graduates in the world.
regulations
President Obamas 2009 appointments to the ED (Martha Kanter as undersecretary and

Robert Shireman as deputy undersecretary) were key in driving the regulatory battle that
raged during most of his first term and ultimately caused transformative changes in the forprofit industry. Given Kanter and Shiremans backgrounds (chancellor of the Foothill-De
Anza Community College District and founder of Institute for College Access and Success,
respectively), we were not particularly surprised at the EDs efforts to cast community
colleges in a more favorable light as less costly alternatives to for-profit schools. For example,
in July 2009, Obama proposed the American Graduation Initiative to spend $12 billion over
ten years to boost community colleges. However, this proposal was dropped in 2010. We note
that Shireman left this post in June 2010, while Kanter plans to leave in the fall of 2013.
Negotiated rulemaking (Neg Reg). Neg-reg is where federal agencies and representatives
of various interested parties come together to eventually hammer out enforceable rules that
reflect the aim of legislation. While government agencies typically instigate the neg-reg
process following recent legislation, they may start the process at any time. In the summer and
fall of 2009, the ED instigated a neg-reg process to address Program Integrity issues in
higher education. While this set of rules was focused on all of higher education, they had
much larger implications for the for-profit industry.
Exhibit 330 summarizes all the new rules that were effective July 2011 though some were
later rejected by the courts. We provide more detail below on those we believe had the most
impact on the sector.
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Exhibit 330. Program Integrity Negotiated Rulemaking Regulations (Excl. Gainful

Employment)
Protecting consumers from misleading or overly aggressive recruiting practices and clarifying state oversight responsibilities. The regulation strengthens three current requirements that
are designed to protect students and taxpayers:
Misrepresentation: During public hearings and negotiated rulemaking sessions, the ED heard numerous complaints from students enrolled in programs in which they felt misled on what
was and was not being offered, the way programs could be paid for, and their job prospects upon completion. To protect consumers, the regulations strengthen the ED's authority to take
action against institutions engaging in deceptive advertising, marketing, and sales practices.
Incentive Compensation: The ED heard reports of aggressive recruiting practices resulting in students being encouraged to take out loans they could not afford or enroll in programs
where they were either unqualified or could not succeed. Though current laws prohibit schools from compensating admissions recruiters based solely on success in securing student
enrollment, provisions known as "safe harbors" allowed this questionable practice. The regulations remove all the "safe harbor" provisions.
State Authorization: State authorization is required by the Higher Education Act for a postsecondary institution to participate in federal student aid and other federal funding programs.
Some states have failed to establish how they approve and monitor postsecondary programs. The regulations clarify, for federal program purposes, the minimum a state must do to meet
this important responsibility to protect students, including for schools that offer distance or correspondence education.
Ensuring that only eligible students receive federal funds. Generally students are eligible for aid only if they have a high school diploma or pass an "ability to benefit" test, and only if their
academic standing is satisfactory. The final rule will help more qualified students receive aid while strengthening protections against fraud:
High School Diploma: The proliferation of high school diploma mills has called the validity of some secondary school credentials into question. The regulation requires institutions to
develop and follow procedures to evaluate the validity of a student's high school diploma if the institution or the Secretary has reason to believe that the diploma is not valid or was not
obtained from an entity that provides secondary school education.
College Credits: The regulations extend eligibility for federal student aid to students without high school diplomas after they successfully complete six credits of college work, or the
equivalent amount of coursework. This implements a provision that was included in the Higher Education Opportunity Act of 2008.
Ability to Benefit (ATB): The ED is responsible for approving ATB test materials developed by testing companies. To improve its oversight of how ATB tests are administered, the
regulation revises test approval procedures and criteria, including those related to tests for speakers of other languages and persons with disabilities.
Satisfactory Academic Progress: Every institution is required to have a policy to ensure that all of its students are achieving satisfactory academic progress. Audits and institutional
program reviews have uncovered policies that provide federal financial aid to students who do not meet institutions' academic standards. The regulations require a structured and
consistent approach to evaluating a student's academic work, while continuing to provide flexibility to institutions in establishing their policies.
Verification: Each year, millions of students are required to confirm the information on their Free Application for Federal Student Aid (FAFSA). The regulation reforms this process to
reduce burdens on students and colleges, better identify fraud, and take advantage of the increased use of the FAFSA simplification efforts that have increased the use of Internal Revenue
Service data. To allow more time for institutions to prepare, the effective date of this provision will be delayed until July 1, 2012.
Clarifying the courses that are eligible for federal aid, and the amount of aid that is appropriate.
Credit Hour: Credit hours are the metric used by the ED to measure eligibility for federal funding. Currently there is no standard definition for a credit hour, which has led to reports of
institutions awarding more creditsand awarding students more college aidthan deserved. To address this issue, the regulations define a credit hour and establish procedures for accrediting
agencies to determine whether an institution's assignment of a credit hour is acceptable. Recognizing that "seat time" is not the goal, the final rule allows for equivalent measurement of learning
outcomes. It also clarifies that a credit hour is defined solely for federal program purposes, allowing institutions to set their own standards for academic purposes.
Written Arrangement: A postsecondary institution is allowed to deliver a portion of another institution's educational program through a written arrangement. Problems have surfaced
when the two institutions are controlled by the same entity or do not meet certain participation requirements. The regulation limits the amount of a program that can be provided by a
school in an arrangement, prohibits arrangements with ineligible institutions that have had their federal student aid participation revoked, and expands information that an institution must
disclose to a student enrolled in a program affected by the arrangement.
Retaking Coursework: Currently students who repeat coursework generally cannot have the course they repeat count toward the calculation of a full-time course load in a term-based
program if previously passed. The regulations expand the definition of full-time student by allowing such courses to count in most cases for one repetition without regard to whether the
student previously passed it.
Determining When a Student Has Withdrawn: Currently, loopholes complicate the measure of how much federal funding must be paid back if a student drops out of a program
measured in credit hours. The regulations eliminate loopholes and clarify the calculation of returning federal funds by defining when a student is considered to have withdrawn from a
program. It also clarifies the circumstances under which an institution is required to take attendance for the purpose of calculating a return of federal funds.
Disbursing Federal Student Aid Funds: As it stands now, many students are not receiving their federal student aid funds in enough time to obtain their books and before the start of
school. The regulations ensure that the neediest students -- Pell grant recipients -- can acquire books and supplies by the seventh day of their payment period.
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Those issues we believe had the most significant impact on the issue include:
Issue No. 3: Misrepresentation. This changed how schools were allowed to advertise online
and in other areas and banned how schools and third parties could portray online education or
convey potential earnings to students. We believe this rule had a substantial impact on leadgenerating abilities. However, this rule was sent back to the ED for further clarification as part
of a June 2012 federal court ruling.
Limits on
Issue No. 4: Recruiter-based incentive compensation (incentive-compensation rule).
providing
This rule prohibited schools from paying bonuses to recruiters based on how many students
they enroll. While this had already been illegal prior to this neg-reg, there were certain safe
harbors that had been in place since 2002 that essentially provided loopholes for the industry.
The new rules banned these safe harbors. We believe this has had a profound impact on the
industry as many for-profit schools had to reorganize their sales force from a commissionbased system to a salary-based system. While the schools have managed through this change,
we believe it has permanently altered their selling strategies. The specific safe harbors are
shown in Exhibit 331.
incentive
compensation to
recruiters
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Exhibit 331. Safe Harbors for Incentive-Compensation Rule

Safe
Harbor # Issue
1
Adjustments to employee
compensation
Recruitment into programs that

are not eligible for (Federal
Student Aid) FSA program
funds
Payment for securing contracts

with employers
10
11
12
Details
A school may make up to two adjustments (upward or downward) to a covered employees annual salary
or fixed hourly wage rate within any 12-month period without the adjustment being considered an
incentive payment, provided that no adjustment is based solely on the number of students recruited,
admitted, enrolled, or awarded financial aid. One cost-of-living increase that is paid to all or
substantially all of the schools full-time employees will not be considered an adjustment under this safe
harbor. In addition, with regard to overtime, if the basic compensation of an employee is not an incentive
payment, neither is overtime pay required under the Federal Fair Labor Standards Act.
A school may provide incentive compensation to recruiters based upon their recruitment of students
who enroll only in programs that are not eligible for FSA funds.
This safe harbor addresses payments to recruiters who arrange contracts between a school and an
employer, where the employer pays the tuition and fees for its employees (either directly to the school or by
reimbursement to the employee). As long as there is no direct contact by the schools representative with
prospective students, and as long as the employer is paying at least 50% of the training costs, incentive
payments to recruiters who arrange for such contracts are not covered by the incentive payment
prohibition, provided that the incentive payments are not based on the number of employees who enroll,
or the amount of revenue generated by those employees.
Profit-sharing or bonus
Profit-sharing and bonus payments to all or substantially all of a schools full-time employees are not
payments
incentive payments based on success in securing enrollments or awarding financial aid. As long as the
profit-sharing or bonus payments are substantially the same amount or the same percentage of salary or
wages, and as long as the payments are made to all or substantially all of the schools full-time professional
and administrative staff, compensation paid as part of a profit-sharing or bonus plan is not considered a
violation of the incentive payment prohibition. In addition, such payments can be limited to all or
substantially all of the full-time employees at one or more organizational levels at the school, except that an
organizational level may not consist predominantly of recruiters, the admissions staff, or the financial aid
staff.
Compensation based upon
Compensation that is based upon students successfully completing their educational programs, or one
students completing their
academic year of their educational programs, whichever is shorter, does not violate the incentive
programs of study
compensation prohibition. Successful completion of an academic year means that the student has
earned at least 24 semester or trimester credit hours or 36 quarter credit hours, or has successfully
completed at least 900 clock hours of instruction at the school . (Time may not be substituted for credits
earned.) In addition, the 30 weeks of instructional time element of the definition of an academic year does
not apply to this safe harbor. Therefore, this safe harbor applies when a student earns, for example, 24
semester credits, no matter how short or long a time that takes.
Payments to employees for pre- A school may make incentive payments to individuals whose responsibilities are limited to preenrollment activities
enrollment activities that are clerical in nature. However, soliciting students for interviews is a recruitment
activity, not a pre-enrollment activity, and individuals may not receive incentive compensation based on
their success in soliciting students for interviews. In addition, since a recruiters job description is to recruit,
it would be very difficult for a school to document that it was paying a bonus to a recruiter solely for clerical
pre-enrollment activities.
Compensation paid to
The incentive payment prohibition does not extend beyond first line supervisors or managers. Direct
managerial and supervisory
supervisors are included in this prohibition because their actions generally have a direct and immediate
employees not involved in
impact on the individuals who carry out these covered activities.
Token gifts
The maximum cost of a token, noncash gift that may be provided to an alumnus or student is $100,
provided that: the gifts are not in the form of money; and no more than one gift is provided annually to an
individual. The cost basis of a token noncash gift is what the school paid for it. The value is the fair market
value of the item. A high value item for which the school paid a minimal cost would not be considered a
token gift.
Profit distributions
Profit distributions to owners are not payments based on success in securing enrollments or awarding
financial aid. Therefore any owner, whether an employee or not, is entitled to a share of the organizations
profits to the extent they represent a proportionate share of the profits based upon the employees
ownership interest.
Internet-based recruiting
This safe harbor permits a school to award incentive compensation for Internet-based recruitment
activities
and admission activities that provide information about the school to prospective students, refer prospective
students to the school, or permit prospective students to apply for admission online.
Payments to third parties for
A school may make incentive payments to third parties for other types of services, including tuitionservices to the school that do
sharing arrangements, marketing, and advertising that are not covered by the incentive compensation
not include recruitment
prohibition.
Payments to third parties for
If a school uses an outside entity to perform activities for it, including covered activities, the school may
services that include
make incentive payments to the third party without violating the incentive payment prohibition as long as
recruitment activities
the individuals performing the covered activities are not compensated in a way that is prohibited by the
incentive payment compensation rule.
Source: Knutte & Associates.
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The ED provided further clarification of the incentive compensation ban in March 2011 (see
Exhibit 332).
Exhibit 332. Incentive Compensation: Covered vs. Exempt Activities in ED Dear

Colleague Letter (March 2011)
Covered Activities
Exempt Activities
Activities that are ALWAYS subject to the Activities not subject to the ban on incentive compensation
ban on incentive compensation
include the following, unless the activities of the employee or
entity also involve a covered activity.
Recruitment activities, including:
Marketing activities, including:
Targeted information dissemination to

individuals;
Broad information dissemination;

Advertising programs that disseminate information to groups
of potential students;
Solicitations to individuals;
Collecting contact information;
Contacting potential enrollment applicants;
Screening pre-enrollment information to determine whether a
Aiding students in filling out enrollment
prospective student meets the requirements that an institution
application information
has established for enrollment in an academic program;
Determining whether an enrollment application is materially
complete, as long as the enrollment decision remains with the
institution
Services related to securing financial aid, Student support services offered after the point at which
including:
financial aid is allowed to be disbursed for a payment
period, including:
Completing financial aid applications on
behalf of prospective applicants (including
General student counseling;
activities which are authorized by the
Career counseling;
Department, such as the FAA Access tool,
Financial aid counseling, including loan
which can be used to enter, correct, verify,
management;
or analyze financial aid application data)
Online course support - both professional services and
computer hardware and software;
Academic support services, including tutoring, aimed at student
retention, whether that support is provided prior to attendance in
classes or after attendance has begun
Policy decisions made by senior executives and managers
related to the manner in which recruitment, enrollment, or
financial aid will be pursued or provided, such as, e.g.,
decisions to admit only high school graduates
Lead generators
also affected
While we believe most third-party lead generation services would be exempt under the new
incentive compensation ban, some schools announced a restructuring of their agreements with
their lead generators to ensure compliance with the new rules. Additionally, we believe lead
gen providers chose to err on the side of caution, and not engage in activity that could be in
that gray area of the rules.
The rules do allow payments to unaffiliated third parties if the services they provide are based
on enrollment levels (i.e., online course delivery), and they allow bonus payments to senior
executives for performance related to non-covered activities.
Issue No. 5: State authorization. The most controversial element of this rule required
distance schools to obtain state authorization and permission from each state in which they
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had students a difficult task for online schools that may have as few as one student in any
state in the country. However, in June 2012, a federal appeals court backed a lower court
decision to throw out this rule, and the ED subsequently announced it would not enforce it.
Issues No. 12 and 13: Return of Title IV funds (R2T4). Under the return-of-funds
provision, if a student withdraws during the first 60% of a course, the student is only entitled
to a pro rata portion of Title IV aid. For example, if a student drops after completing 25% of a
course, the student must refund 75% of the funds available for that course and the school is
on the hook to ensure that money is returned within 30 days. If a student drops after
completing 61% or more of the course, the student is entitled to 100% of the funds for that
course and the school does not have to submit a refund to the ED.
Schools may have different refund policies than the governments. For example, a school may
charge a student for 50% of the course even if the student has only completed 30% of the
course. In this case the school still must return to the ED 70% of the funds. While the school
can seek to collect the 20% it is owed from the student, this is rarely successful, and is
generally written off as bad debt. With the increase of online learning, the ED has been
paying more attention to return of Title IV.
Gainful
employment
struck down, but
likely to return.
Issue No. 6: Gainful employment. In July 2012, the gainful employment rules were struck
down by the US District Court of the District of Columbia. However, in June 2013, the ED
announced plans to establish a new round of neg-reg hearings in the fall of 2013 to address
Gainful Employment (GE). Hence, we would not be surprised to see a modified GE rule
emerge from the ED once again. Here is a primer on the original GE rule:
The Higher Education Act of 1965 designated that Section 102 schools (proprietary or forprofit providers) needed to provide programs that deliver gainful employment in a
recognized occupation to be eligible to receive Title IV (federal financial aid) funds. This
rule applies to all programs (except liberal arts baccalaureate degree programs) at for-profit
providers, as well as to non-degreed programs at not-for-profit institutions. After President
Obama took office in 2009, a newly staffed ED undertook to create a technical definition of
gainful employment through a regulatory process that started in June 2009, with the final
regulatory package issued in June 2011.
Compliance with this new GE could be accomplished only if programs met at least one of
three criteria:
1. Repayment rate. At least 35% of former students are repaying their Title IV loans, as
demonstrated by a balance that declines by at least $1.00 over the course of the year
(weighted by loan balance).
2. Debt-to-earnings ratio. The annual loan payment does not exceed 12% of typical
graduates total earnings.
3. Debt-to-discretionary income ratio. The annual loan payment does not exceed 30% of
typical graduates discretionary income (income above 150% of the poverty level, which
is $10,890 for a family of one, according to the US Department of Health and Human
Services for 2011).
There were a number of nuances and complicating factors to these calculations:
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Time frame: The time frame was based on borrowers in their third and fourth years of
repayment.
Repayment: This included borrowers making payments under an interest-only or

income-based repayment plan, subject to anti-abuse limits, and consolidation loans for
graduate programs if all interest accrued over the year has been paid.
Student types: While the repayment rate was measured for all former students, the
debt ratios were only measured for program completers.
Debt burden: The debt burden was calculated based on the programs median debt,
including private student loans.
Annual debt payments: Annual debt payments were calculated based on a 10-year
standard repayment plan for certificate and AA programs, a 15-year plan for BA and MA
programs, and a 20-year plan for other graduate and professional programs.
Data sources: The Social Security Administration (SSA) would provide the median and
mean earnings of program graduates. Institutions could verify the lists of individuals
submitted to SSA. However, the earnings data would remain private. Institutions could
also submit alternative earnings data based on surveys or state longitudinal data systems.
During a transitional period (the first three years of debt measurement through FY2014),
institutions could submit analyses based on Bureau of Labor Statistics (BLS) data on
typical earnings for particular jobs.
If in a given measurement year, a program were to fail all three thresholds, it would have been
considered to have failed the debt measurements and would be subject to the following
penalties:
After one failure: The institution must disclose the amount by which the program missed
minimally acceptable performance and, the programs plans for improvement, and
establish a three-day waiting period before students can enroll.
After two failures within three years: The institution must tell students in the failing
program that their debts may be unaffordable, that the program may lose eligibility, and
what transfer options exist.
After three failures within four years: The program loses Title IV eligibility. Institutions
cannot reestablish the programs eligibility for at least three years. However, they can
continue to operate without student aid.
Under the GE timeline, the earliest programs could have lost eligibility would have been early
2015 the third year of official debt measures (FY2012-FY2014).
In June 2012, the ED publicly released informational rates to show how programs would
have complied with the GE regulations had they currently been in effect (i.e., for the FY2011
cohort). The ED reviewed 3,695 vocational programs at 1,336 institutions, which enroll 43%
of all students in career-training programs and found that 5.2% of the programs failed all three
tests; and hence would have become Title IV ineligible.
Other insights include the following:
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Those that train students for security services, medical office assistance, and law
enforcement administration had the highest percentages of failing all three GE metrics.
While non-degree programs at not-for-profit institutions were included in this analysis,

none of those programs failed all three metrics, i.e., only those at for-profit institutions
did. However, 34 programs at community colleges and four-year private institutions
failed two of the tests, while 39 programs at public colleges and universities and 19
programs at private nonprofit institutions failed at least one test.
A number of institutions, including Capella Education (CPLA), Corinthian Colleges (COCO),

and Education Management (EDMC), cited inaccuracies in the data, including some programs
being excluded and incorrect or missing data for certain programs. Additionally, programs
with fewer than 30 students in the measurement period were classified as passing.
We have summarized these trial results for the programs offered by the publicly held
providers in Exhibit 333.
Exhibit 333. Summary of GE Informational Rates by Company (FY2011)

Company
Apollo Group
Capella Education
Career Education
Corinthian Colleges
DeVry
Lincoln Education
Strayer Education
Universal Technical Institutes
Washington Post (Kaplan)
PASSING THRESHOLD/TOTAL
Composite Results
Repay.
Debt-to-Earnings
Disc.
Ann.
Rate
59.7%
0.0%
0.0%
47.9%
5.5%
3.9%
50.3%
6.0%
3.6%
49.6%
0.5%
0.4%
39.7%
23.8%
9.6%
26.3%
34.3%
7.9%
41.8%
10.6%
5.9%
42.0%
20.4%
9.0%
60.0%
3.9%
2.9%
32.6%
7.5%
4.1%
35.8%
19.0%
5.1%
43.2%
6.5%
4.2%
32.4%
4.6%
3.2%
55.9%
12.0%
4.5%
33.6%
15.1%
5.0%
> = 35%
< = 30%
< = 12%
Average
Earnings
$72,785
56,338
40,984
71,351
27,930
20,741
36,517
29,845
65,017
36,922
22,562
46,634
57,571
26,992
23,072
Programs
63
121
33
93
331
488
95
416
39
54
140
25
26
12
306
2,242
NAs
49
26
22
21
81
104
18
72
22
17
41
9
4
1
100
587
Debt-to-Earnings
> 30%
> 12%
Both
0
0
0
1
1
1
0
0
0
0
0
0
114
78
77
219
45
44
28
1
1
104
84
78
0
0
0
4
0
0
46
0
0
0
0
0
0
0
0
2
0
0
103
6
6
621
215
207
Programmatic Results
Repay.
No. of Metrics Failed & Percent of Total
< 35%
0
%
1
%
2
%
3
14
0
0
0
0
22.2
0.0
0.0
24
71
58.7
23
19.0
0
0.0
1
9
2
0
0
2
27.3
6.1
0.0
0
65
69.9
0
0.0
0
0.0
0
76
70
67
37
123
23.0
21.1
20.2
290
58
11.9
142 29.1
140 28.7
44
28
17
19
0
26
29.5
17.9
20.0
116
148 35.6
111 26.7
62
14.9
23
14
3
0
0
3
35.9
7.7
0.0
18
18
33.3
16
29.6
3
5.6
0
42
21
36
0
47
30.0
15.0
25.7
0
0.0
0
5
11
44.0
5
20.0
7
15
0
0
15
26.9
57.7
0.0
0
9
75.0
2
16.7
0
0.0
0
59
82
5
60
129
19.6
19.3
26.8
798
630
28.1 486
21.7 409
18.2 110
%
0.0
0.8
0.0
0.0
11.2
9.0
0.0
5.5
0.0
0.0
0.0
0.0
0.0
0.0
1.6
4.9
Note: No. of programs failing 0 metrics does not include NAs. Programs that failed both debt-to-earning metrics are counted in the Both column
regardless of whether they also failed the repayment rate metric. Whereas programs counted in the 2 metrics failed column failed any 2 of the 3
metrics (not necessarily both the debt metrics) and programs counted in the 3 metrics failed column failed all 3 metrics. Source: US Department of
Education and BMO Capital Markets.
Among the highlights (and lowlights):
When analyzing composite (i.e., overall company) results, only four companies were
below the 35% repayment threshold (COCO at 26.3%, ESI at 32.6%, STRA at 32.4%,
and WPO at 33.6%). Only COCO failed the debt-to-discretionary earnings test (34.3%),
and no companies were above the debt-to-annual earnings test. We note the GE test is by
program, not by institution or company, although we show this data to provide some
frame of reference.
On a programmatic level, COCO, CECO, and EDMC had the most programs failing all
three measures, with 44, 37, and 23 programs, respectively. This amounted to roughly 9%,
11.2% and 5.5% of all programs reviewed at each school. (We note this includes programs
that were deemed NAs, as they did not have at least 30 students from which to draw data.
These programs are currently considered passing programs). We also note that COCO
released an 8K explaining it had 652 programs under review (still with 44 failing GE),
whereas the public data had only 488 programs. Additionally, the company has moved to
eliminate 13 of the failing programs and plans to address compliance issues at 11 others.
We also analyzed the data by school groups within selected companies (see Exhibit 334).
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Exhibit 334. Summary of GE Informational Rates by School Segments (FY2011)

Company/School
Apollo Group (APOL)
Univ. of Phoenix
Western Intl. Univ.
Composite Results
Debt-to-Earnings
Repay.
Rate
Disc.
Ann.
Average
Earnings
$57,602
49,668
Debt-to-Earnings
> 30%
> 12%
Both
Programmatic Results
No. of Metrics Failed & Percent of Total
Repay.
< 35%
0
%
1
%
2
%
3
Programs
NAs
103
18
20
6
1
0
1
0
1
0
22
2
61
10
59.2
55.6
21
2
20.4
11.1
0
0
0.0
0.0
1
0
1.0
0.0
48.4%
39.6%
0.0%
0.0%
3.9%
3.6%

Ashford
Univ. of Rockies
49.3%
64.1%
0.0%
0.0%
3.6%
N/A
40,984
N/A
29
4
19
3
0
0
0
0
0
0
2
0
8
1
27.6
25.0
2
0
6.9
0.0
0
0
0.0
0.0
0
0
0.0
0.0

CTU
AIU
Health
Culinary Arts
Arts & Design
46.3%
39.5%
33.6%
41.9%
34.8%
6.3%
17.1%
25.2%
67.4%
52.2%
4.1%
9.1%
9.1%
16.1%
13.6%
47,914
35,723
31,248
21,910
22,618
45
16
162
49
59
12
1
41
20
7
2
6
48
27
31
0
4
24
24
26
0
4
24
24
25
10
7
67
4
35
22
6
41
2
5
48.9
37.5
25.3
4.1
8.5
10
5
36
2
17
22.2
31.3
22.2
4.1
28.8
1
0
29
22
15
2.2
0.0
17.9
44.9
25.4
0
4
15
3
15
0.0
25.0
9.3
6.1
25.4

Everest
Heald
Wyo-Tech
22.5%
39.5%
46.6%
44.1%
16.4%
23.9%
8.6%
5.9%
6.2%
19,629
25,916
21,864
358
102
28
61
40
3
195
12
12
44
1
0
43
1
0
254
27
9
17
30
11
4.7
29.4
39.3
110
25
7
30.7
24.5
25.0
127
6
7
35.5
5.9
25.0
43
1
0
12.0
1.0
0.0
DeVry (DV)
DeVry
Keller
Carrington
Chamberlain
Ross/AUC
39.9%
44.2%
39.2%
57.0%
53.2%
10.9%
3.7%
14.6%
3.1%
32.4%
6.7%
2.8%
6.2%
2.3%
25.1%
43,654
64,604
27,853
59,148
74,281
16
13
60
3
3
3
1
12
1
2
0
0
27
0
1
0
0
0
0
1
0
0
0
0
1
7
3
19
0
0
6
9
20
2
0
37.5
69.2
33.3
66.7
0.0
7
3
10
0
0
43.8
23.1
16.7
0.0
0.0
0
0
18
0
1
0.0
0.0
30.0
0.0
33.3
0
0
0
0
0
0.0
0.0
0.0
0.0
0.0

Art Institutes
Argosy
South
Brown Mackie
40.2%
45.9%
46.7%
26.2%
30.1%
8.4%
8.2%
14.2%
10.3%
5.6%
5.6%
6.4%
25,412
51,337
52,261
30,442
334
30
39
12
57
6
7
2
101
1
1
1
80
1
1
1
76
0
1
1
95
1
12
8
105
21
20
2
31.4
70.0
51.3
16.7
89
3
11
7
26.6
10.0
28.2
58.3
62
0
0
0
18.6
0.0
0.0
0.0
21
0
1
1
6.3
0.0
2.6
8.3
Washington Post (WPO)

Kaplan
Other
33.6%
33.5%
15.7%
14.9%
5.1%
4.9%
23,213
22,674
236
70
86
14
85
18
4
2
4
2
97
32
38
22
16.1
31.4
41
18
17.4
25.7
68
14
28.8
20.0
3
2
1.3
2.9
Note: No. of programs failing 0 metrics does not include NAs. Source: Programs that failed both debt-to-earning metrics are counted in the
Both column regardless of whether they also failed the repayment rate metric. Whereas programs counted in the 2 metrics failed column failed
any 2 of the 3 metrics (not necessarily both the debt metrics) and programs counted in the 3 metrics failed column failed all 3 metrics. US
Department of Education and BMO Capital Markets.
When analyzing composite results, individual schools that were below the 35%
repayment rate included COCOs Everest schools, EDMCs Brown Mackie schools, and
WPOs Kaplan and Other schools. Several schools exceeded the 30% debt-todiscretionary income test including CECOs Culinary Arts and Art & Design segments,
COCOs Everest segment, DVs Ross/AUC schools; and EDMCs Art Institutes. Only
three school segments exceed the debt-to-annual income test: CECOs Culinary Arts and
Art & Design schools and DVs Ross/AUC schools. CECOs Art & Design group failed
all three tests.
On a programmatic level, COCOs Everest group had the most programs that failed all
three tests, with 43or roughly 14.8% of the total. EDMCs Art Institutes had 21 failing
programs (6.3% of the total), and CECOs Art & Design and Health schools each had 15
programs that failed all three tests (25.4% and 9.3% of the totals, respectively). While
only four of CECOs AIU programs failed all three tests, this amounted to roughly 25%
of the total programs reported.
A summary of those programs that failed at least one metric can be found in Exhibits 335-337.
A member of BMO
Financial Group
295
September 2013
BMO Capital Markets
Exhibit 335. Programs That Failed Three Gainful Employment Metrics (FY2011)
Company
APOL
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
OPEID
020988
021136
021136
021136
021136
022052
022052
022052
022052
022052
022052
022052
009420
009420
009420
007481
011647
007351
007351
007351
025693
030068
026167
021603
021603
021603
021603
021603
021603
030314
030314
030314
030314
030314
030314
030314
030314
030314
004503
004503
004507
004507
022506
022506
009079
022985
022985
022985
022950
022950
009828
004811
004811
004811
004811
007091
007091
010356
025998
025998
025998
025998
025998
025998
001499
001499
001499
001499
001499
001499
Inst.Name
UNIVERSITYOFPHOENIX
AMERICANINTERCONTINENTALUNIVERSITY
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SBICAMPUSANAFFILIATEOFSANFORDBROWN
BROWNCOLLEGE
BROWNCOLLEGE
BROWNCOLLEGE
LECORDONBLEUCOLLEGEOFCULINARYARTS
LECORDONBLEUINSTITUTEOFCULINARYARTS
INTERNATIONALACADEMYOFDESIGNANDTECHNOLOGY
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGEPHOENIX
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
CIPCode
131501
100201
430103
500407
500408
513501
220302
430103
500411
510801
520201
521902
430103
500409
510801
510716
500409
090701
430104
430104
120503
120503
120504
500407
500102
500407
500408
500409
521902
120503
500102
500409
100304
500102
500407
500408
500409
521902
430112
510801
220302
510801
220302
510801
510801
220302
510801
529999
430111
430112
151201
220302
430112
510801
520302
220302
529999
151201
220302
430112
510713
510801
529999
430112
100201
220302
430111
510713
510801
430112
CIPName
TeacherAssistant/Aide.
PhotographicandFilm/VideoTechnology/TechnicianandAssistant.
CriminalJustice/LawEnforcementAdministration.
Fashion/ApparelDesign.
InteriorDesign.
MassageTherapy/TherapeuticMassage.
LegalAssistant/Paralegal.
GameandInteractiveMediaDesign.
Medical/ClinicalAssistant.
BusinessAdministrationandManagement,General.
FashionMerchandising.
GraphicDesign.
MedicalAdministrative/ExecutiveAssistantandMedicalSecretary.
GraphicDesign.
RadioandTelevision.
CriminalJustice/SafetyStudies.
CulinaryArts/ChefTraining.
Restaurant,Culinary,andCateringManagement/Manager.
DigitalArts.
InteriorDesign.
GraphicDesign.
DigitalArts.
GraphicDesign.
Animation,InteractiveTechnology,VideoGraphicsandSpecialEffects.
DigitalArts.
InteriorDesign.
GraphicDesign.
SecuritiesServicesAdministration/Management.
Business,Management,Marketing,andRelatedSupportServices,Other.
CriminalisticsandCriminalScience.
ComputerEngineeringTechnology/Technician.
AccountingTechnology/TechnicianandBookkeeping.
MedicalInsuranceCodingSpecialist/Coder.
PhotographicandFilm/VideoTechnology/TechnicianandAssistant.
CredentialLevel
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
01UndergraduateCertificate
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
DebttoEarnings
Disc.
Ann.
100.0%
15.2%
265.4%
29.3%
54.4%
16.6%
137.1%
22.1%
188.8%
24.0%
100.0%
13.0%
13.5%
63.2%
100.0%
15.7%
100.0%
15.5%
100.0%
14.2%
100.0%
14.6%
100.0%
15.1%
46.9%
14.6%
42.2%
13.7%
47.6%
14.4%
84.1%
14.2%
158.0%
15.8%
81.3%
16.6%
47.0%
15.9%
50.7%
19.3%
860.1%
14.5%
111.4%
21.5%
40.4%
16.5%
229.5%
17.3%
134.3%
21.5%
256.8%
23.2%
74.7%
17.0%
40.7%
12.3%
39.2%
15.9%
109.9%
22.6%
75.3%
13.5%
70.1%
12.8%
60.3%
15.6%
47.8%
13.5%
76.2%
19.9%
92.3%
21.1%
58.8%
15.6%
69.4%
18.2%
50.0%
13.0%
138.7%
15.7%
52.5%
12.5%
57.4%
13.6%
92.7%
12.2%
100.0%
16.7%
70.0%
12.5%
131.6%
15.8%
99.0%
13.4%
96.3%
13.2%
58.7%
13.0%
174.4%
15.7%
100.0%
15.6%
158.6%
12.9%
76.9%
12.5%
301.0%
13.9%
100.0%
13.8%
60.4%
12.6%
872.8%
16.0%
155.8%
13.3%
64.3%
13.5%
56.7%
12.7%
162.5%
16.1%
1000.0%
18.6%
40.6%
12.5%
31.1%
14.1%
137.2%
15.5%
52.8%
13.8%
56.9%
13.5%
60.5%
13.6%
120.5%
14.9%
53.4%
17.5%
Repayment
Ratio
26.3%
14.8%
22.2%
23.3%
34.1%
30.1%
19.5%
13.9%
30.8%
20.3%
20.6%
10.3%
16.1%
22.0%
19.3%
14.9%
34.9%
33.9%
21.6%
31.4%
18.1%
32.7%
26.5%
19.4%
25.0%
30.1%
34.7%
31.5%
34.9%
34.3%
33.3%
20.3%
20.2%
27.6%
30.0%
31.5%
27.2%
20.4%
13.5%
30.8%
19.3%
16.7%
18.8%
19.4%
19.7%
28.2%
15.2%
20.3%
16.2%
15.7%
14.1%
32.5%
14.5%
13.2%
22.3%
16.2%
11.4%
17.4%
15.5%
14.8%
15.6%
15.1%
15.5%
15.0%
16.4%
19.5%
16.4%
16.3%
15.3%
12.6%
Source: US Department of Education and BMO Capital Markets.
A member of BMO
Financial Group
296
September 2013
BMO Capital Markets
Exhibit 335. Programs That Failed Three Gainful Employment Metrics (FY2011)
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
EDMC
EDMC
WPO
WPO
WPO
WPO
WPO
001499
001499
001534
001534
001534
001534
001534
001534
008146
008146
008146
008093
009270
009270
009270
007236
021105
010195
021171
021171
025256
025256
008350
008350
008350
008350
012584
008878
008878
008878
008878
007486
007486
013039
006755
007436
022018
011005
011574
011574
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITYPOMPANOBEACH
HEALDCOLLEGE
ARTINSTITUTEOFATLANTA(THE)
ARTINSTITUTEOFCALIFORNIALOSANGELES(THE)
ARTINSTITUTEOFCHARLOTTE(THE)
ARTINSTITUTEOFFORTLAUDERDALE(THE)
ARTINSTITUTEOFHOUSTON(THE)
ARTINSTITUTEOFNEWYORKCITY(THE)
ARTINSTITUTEOFPHILADELPHIA(THE)
ILLINOISINSTITUTEOFART(THE)
MIAMIINTERNATIONALUNIVERSITYOFART&DESIGN
NEWENGLANDINSTITUTEOFART(THE)
SOUTHUNIVERSITY
BROWNMACKIECOLLEGE(THE)
KAPLANCAREERINSTITUTEICMCAMPUS
KAPLANCOLLEGE
KAPLANCOLLEGE
BAUDERCOLLEGE
BAUDERCOLLEGE
510701
520201
220302
430111
510713
510801
520302
430112
430112
529999
430112
510801
100203
120503
500602
500602
500409
500602
110801
120503
120504
500407
120503
500406
500407
500602
120503
500407
500407
500409
500602
100202
100203
510801
220302
430104
510801
430104
500407
521902
Health/HealthCareAdministration/Management.
RecordingArtsTechnology/Technician.
CinematographyandFilm/VideoProduction.
GraphicDesign.
WebPage,Digital/MultimediaandInformationResourcesDesign.
CommercialPhotography.
GraphicDesign.
RadioandTelevisionBroadcastingTechnology/Technician.
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
47.4%
36.1%
190.8%
100.0%
46.7%
88.8%
40.3%
37.5%
41.1%
44.5%
32.9%
100.0%
917.0%
35.3%
127.5%
142.7%
62.0%
52.9%
40.4%
44.2%
53.9%
227.6%
45.5%
156.3%
81.4%
51.8%
38.0%
61.7%
123.1%
41.6%
100.0%
45.9%
89.0%
110.2%
262.2%
16.4%
14.0%
16.3%
21.3%
14.1%
15.9%
12.8%
15.1%
12.2%
13.8%
14.7%
12.2%
17.7%
13.8%
14.2%
12.4%
16.0%
15.0%
14.3%
14.7%
13.8%
20.7%
15.3%
16.0%
18.4%
18.4%
13.8%
14.2%
15.0%
15.9%
30.0%
15.3%
17.6%
16.1%
13.1%
22.8%
19.5%
15.0%
11.8%
13.8%
18.8%
19.6%
14.3%
13.8%
21.9%
19.2%
30.3%
22.2%
25.8%
20.5%
21.7%
16.9%
28.9%
27.9%
30.9%
29.6%
20.0%
26.4%
31.3%
20.6%
20.4%
33.5%
30.4%
27.3%
29.0%
23.0%
34.8%
32.4%
12.8%
27.7%
100.0%
100.0%
100.0%
100.0%
100.0%
12.4%
12.6%
13.8%
21.7%
13.1%
18.5%
25.6%
10.7%
17.0%
14.3%
Source: US Department of Education and BMO Capital Markets
A member of BMO
Financial Group
297
September 2013
BMO Capital Markets
Exhibit 336. Programs That Failed Two Gainful Employment Metrics (FY2011)
Company
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
OPEID
010148
012877
012877
012877
021160
021160
022052
022052
022052
022052
022052
026150
007481
026164
026164
026164
026164
011647
011647
022023
022023
022023
026149
007351
007351
007351
020757
020757
009795
009795
025693
025693
023522
023522
023522
032103
032103
032103
032103
030226
030226
030226
030226
030226
030068
030068
030068
026167
026167
026167
022202
022202
021603
021603
021603
021603
030314
030314
030314
030314
030314
030314
020552
Inst.Name
COLORADOTECHNICALUNIVERSITY
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNINSTITUTE
BROWNCOLLEGE
BROWNCOLLEGE
BROWNCOLLEGE
BRIARCLIFFECOLLEGE
BRIARCLIFFECOLLEGE
MISSOURICOLLEGE
MISSOURICOLLEGE
LECORDONBLEUCOLLEGEOFCULINARYARTSINCHICAGO
CALIFORNIACULINARYACADEMY
HARRINGTONCOLLEGEOFDESIGN
CIPCode
510714
500401
500407
521902
510801
513501
510714
510801
520201
510714
510808
510710
500401
510601
510714
510801
513501
500411
510701
510801
510801
510809
510801
100202
500401
500411
430104
500409
510601
510801
120501
120503
120503
120501
120503
120501
120503
120504
120503
120501
120503
120501
120503
120504
120501
120501
120504
120501
120503
120504
120503
120504
500401
500409
500602
521902
120501
120504
500406
500407
500408
090903
500406
CIPName
MedicalInsuranceSpecialist/MedicalBiller.
DesignandVisualCommunications,General.
Veterinary/AnimalHealthTechnology/TechnicianandVeterinaryAssistant.
MedicalOfficeAssistant/Specialist.
DentalAssisting/Assistant.
AnesthesiologistAssistant.
GraphicDesign.
BakingandPastryArts/Baker/PastryChef.
GraphicDesign.
InteriorDesign.
Advertising.
CredentialLevel
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
DebttoEarnings
Disc.
Ann.
43.8%
9.2%
1000.0%
16.7%
47.4%
13.0%
30.4%
9.1%
57.9%
6.0%
100.0%
9.9%
76.7%
9.1%
125.5%
9.3%
62.3%
8.3%
504.2%
9.7%
494.1%
15.6%
49.3%
6.0%
281.9%
16.5%
49.8%
6.8%
45.0%
6.3%
76.6%
6.4%
1000.0%
7.5%
1000.0%
14.6%
47.4%
11.4%
35.7%
7.0%
128.9%
10.8%
74.5%
11.0%
31.7%
5.2%
168.3%
19.1%
57.7%
15.9%
162.9%
29.2%
32.0%
10.4%
109.8%
12.9%
45.3%
6.5%
270.4%
7.5%
151.9%
17.1%
80.0%
20.5%
100.0%
10.9%
112.3%
15.1%
90.0%
21.5%
43.4%
13.2%
82.0%
12.8%
45.8%
14.7%
108.6%
26.4%
108.0%
14.0%
214.9%
13.5%
115.7%
19.6%
106.4%
23.0%
44.3%
15.3%
100.9%
13.3%
523.7%
24.7%
89.2%
16.6%
100.0%
20.9%
80.2%
20.6%
35.9%
13.6%
21.2%
70.0%
35.6%
14.7%
36.6%
8.0%
84.1%
7.3%
445.5%
10.1%
34.1%
5.9%
173.2%
21.9%
40.8%
15.7%
82.9%
16.4%
77.2%
11.0%
59.9%
13.2%
48.3%
18.9%
100.0%
29.2%
A member of BMO
Financial Group
298
September 2013
Repayment
Ratio
20.8%
37.1%
35.4%
33.9%
27.2%
25.1%
24.1%
18.1%
23.6%
12.9%
43.6%
18.2%
36.0%
25.1%
22.4%
33.0%
28.4%
45.2%
26.8%
32.4%
27.0%
21.0%
27.1%
46.6%
46.7%
43.5%
29.3%
40.5%
34.4%
19.3%
63.3%
41.8%
29.7%
48.9%
40.0%
57.0%
N/A
64.0%
46.8%
50.2%
54.4%
57.4%
39.2%
40.4%
N/A
43.9%
36.9%
44.8%
35.3%
46.1%
50.8%
66.8%
30.7%
27.4%
21.4%
22.4%
35.4%
36.3%
36.5%
28.4%
37.8%
40.5%
49.3%
BMO Capital Markets
CECO
CECO
CECO
CECO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
020552
001123
001123
001123
008090
008090
008090
008090
011107
011123
011123
011123
011123
011123
011121
011121
007606
007606
007606
007606
030723
030723
030723
030723
030723
011109
011109
011109
004494
004494
004494
004494
004494
011024
011024
011024
011024
012061
031954
004507
004507
004507
004507
011858
011858
011858
022506
022506
022506
022375
009079
009079
009079
009079
009079
009079
022985
022985
022985
009267
009267
009267
009267
009267
HARRINGTONCOLLEGEOFDESIGN
BROOKSINSTITUTE
BROOKSINSTITUTE
BROOKSINSTITUTE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
500408
500409
500602
500605
510699
510716
510801
513501
510713
510699
510713
510716
510801
513501
510716
510801
510699
510716
510801
510805
510713
510716
510801
510805
513501
510716
510801
513501
460302
510699
510716
510801
513501
510699
510716
510801
513501
513501
513501
510716
510801
510805
529999
510716
510801
510805
510699
510716
430112
510716
510713
510801
520302
220302
430112
529999
510713
510801
510805
439999
510713
510716
510801
513501
InteriorDesign.
03Bachelor'sDegree
GraphicDesign.
03Bachelor'sDegree
03Bachelor'sDegree
Photography.
03Bachelor'sDegree
DentalServicesandAlliedProfessions,Other.
PharmacyTechnician/Assistant.
Electrician.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
HomelandSecurity,LawEnforcement,FirefightingandRelatedProtectiveServices,Other 01UndergraduateCertificate
44.7%
122.4%
62.6%
188.6%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
109.6%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
63.7%
100.0%
34.5%
581.5%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
123.8%
100.0%
100.0%
100.0%
74.9%
100.0%
100.0%
100.0%
38.2%
34.7%
52.7%
100.2%
50.2%
172.7%
100.0%
52.1%
100.0%
100.0%
49.0%
100.0%
32.1%
46.1%
54.0%
100.0%
100.0%
44.8%
100.0%
62.7%
100.0%
100.0%
100.0%
16.7%
21.0%
13.1%
24.3%
8.1%
6.6%
6.6%
9.9%
5.1%
6.6%
5.9%
7.1%
7.5%
8.5%
8.6%
5.8%
7.6%
6.3%
8.0%
4.6%
5.0%
7.4%
7.6%
5.6%
7.4%
5.4%
6.1%
8.4%
10.1%
7.6%
8.8%
8.0%
8.2%
5.9%
6.4%
6.4%
8.1%
7.1%
8.0%
7.1%
6.6%
5.3%
11.4%
4.9%
5.2%
5.5%
6.2%
11.2%
10.2%
7.8%
4.9%
5.5%
7.8%
10.7%
11.9%
11.9%
5.6%
7.1%
5.4%
6.1%
4.5%
8.5%
9.2%
9.9%
A member of BMO
Financial Group
299
September 2013
53.6%
46.2%
41.7%
49.9%
34.2%
26.6%
27.2%
24.4%
31.3%
25.4%
24.0%
23.9%
19.4%
24.4%
16.1%
27.7%
22.3%
25.8%
20.1%
33.0%
28.8%
20.6%
23.1%
33.7%
31.1%
32.7%
31.9%
31.2%
12.1%
30.5%
30.3%
22.2%
23.0%
29.5%
18.7%
20.5%
16.3%
16.9%
24.1%
31.3%
19.9%
31.5%
21.7%
30.4%
31.0%
32.5%
31.2%
25.2%
23.0%
20.0%
26.8%
22.2%
29.9%
28.2%
13.1%
13.5%
24.5%
33.9%
30.2%
20.8%
28.5%
20.9%
16.8%
29.3%
BMO Capital Markets
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
009267
023001
023001
026062
026062
026062
026062
026062
022950
021218
021218
021218
021218
021218
021218
030032
030032
030032
030032
030032
011510
011510
011510
021004
021004
021004
021004
009828
009828
009828
009828
009828
009828
009828
004811
004811
004811
004811
007091
007091
007091
007091
022613
022613
022613
022613
022613
010356
010356
010356
010356
010356
025998
025998
025998
025998
001499
001499
001499
001499
001499
001534
001534
008146
008146
008146
008146
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
520302
510713
510801
119999
150501
151201
510713
510801
510801
510713
510801
510805
513501
513902
430112
510713
510801
510805
513501
513902
510716
510801
513501
510699
510716
510801
513501
110101
510699
510713
510716
510801
510805
513501
510713
510805
510713
529999
510713
510801
510805
513902
510699
510713
510716
510801
510805
510716
510801
510805
511011
513501
510713
510805
513501
520302
513501
110101
430112
520302
529999
513501
430112
510713
510801
510805
520201
ComputerandInformationSciencesandSupportServices,Other.
Heating,Ventilation,AirConditioningandRefrigerationEngineeringTechnology/Technicia01UndergraduateCertificate
NursingAssistant/AideandPatientCareAssistant/Aide.
02Associate'sDegree
ComputerandInformationSciences,General.
02Associate'sDegree
02Associate'sDegree
Renal/DialysisTechnologist/Technician.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
100.0%
100.0%
352.9%
33.2%
36.7%
35.1%
100.0%
100.0%
49.4%
100.0%
100.0%
100.0%
100.0%
100.0%
72.0%
100.0%
100.0%
117.8%
100.0%
100.0%
196.0%
44.6%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
123.6%
100.0%
46.0%
41.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
499.5%
100.0%
100.0%
38.7%
36.8%
100.0%
100.0%
100.0%
100.0%
36.4%
100.0%
37.5%
48.0%
52.6%
36.0%
100.0%
40.4%
100.0%
100.0%
34.2%
25.8%
6.8%
5.7%
5.4%
5.2%
6.3%
7.1%
5.1%
6.7%
5.1%
6.1%
7.1%
5.7%
7.5%
5.8%
11.9%
5.4%
6.8%
5.2%
6.1%
7.5%
6.0%
5.4%
7.1%
7.1%
7.2%
7.5%
10.1%
6.2%
7.9%
4.8%
7.4%
7.7%
6.5%
10.8%
5.4%
6.5%
11.1%
11.2%
5.5%
10.5%
6.4%
7.2%
6.9%
7.3%
7.1%
8.4%
6.1%
11.2%
6.8%
4.6%
5.3%
6.9%
4.8%
6.4%
7.2%
11.9%
6.3%
11.9%
11.9%
12.0%
11.6%
6.7%
11.9%
6.4%
7.5%
5.2%
12.8%
14.9%
32.0%
29.2%
26.1%
19.2%
15.5%
22.7%
22.8%
27.9%
23.8%
15.9%
22.9%
22.5%
21.3%
15.0%
22.2%
19.0%
19.6%
22.8%
7.5%
25.4%
29.3%
30.6%
29.7%
26.9%
24.3%
24.2%
15.4%
21.2%
25.9%
16.2%
16.7%
18.8%
15.8%
21.3%
14.0%
19.4%
14.1%
23.1%
18.6%
17.0%
14.4%
15.5%
15.9%
18.2%
14.5%
19.9%
18.6%
18.9%
30.3%
14.0%
30.9%
25.7%
19.4%
21.9%
19.2%
27.6%
16.2%
15.5%
23.8%
16.8%
27.6%
15.7%
16.8%
16.2%
20.1%
27.7%
A member of BMO
Financial Group
300
September 2013
BMO Capital Markets
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
008093
008093
008093
025932
007477
025933
007190
012873
012873
012873
012873
012873
012873
021006
021006
021006
021006
021006
021006
021006
021006
021006
022180
030425
009748
009748
009748
009748
009748
009748
009748
022779
009270
009270
009270
007236
007236
007236
007236
023276
023276
023276
023276
023276
021105
020789
020789
020789
020789
020789
020789
010195
010195
010195
010195
010195
010195
021171
021171
025256
008350
008350
008350
008350
008350
008350
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
WYOTECH
WYOTECH
WYOTECH
WYOTECH
WYOTECH
WYOTECH
WYOTECH
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGECALIFORNIA
ROSSUNIVERSITYSCHOOLOFVETERINARYMEDICINE
ARTINSTITUTEOFCALIFORNIASANDIEGO
ARTINSTITUTEOFCOLORADO(THE)
220301
510716
520299
520299
510801
510716
470611
460503
510699
510713
510801
513501
520401
510601
510705
510714
510801
510805
510806
510808
513501
510705
510801
513501
510706
510714
510716
510801
513501
430104
510801
512401
110803
500408
500602
120503
500407
500408
500602
120503
090903
110803
500408
500409
120503
120503
500406
110803
500406
500408
500409
120503
500407
500602
110803
500407
500409
110803
500408
500409
500409
521904
110803
500404
500406
500407
LegalAdministrativeAssistant/Secretary.
BusinessAdministration,ManagementandOperations,Other.
MotorcycleMaintenanceandRepairTechnology/Technician.
PlumbingTechnology/Plumber.
AdministrativeAssistantandSecretarialScience,General.
MedicalOfficeManagement/Administration.
PhysicalTherapyTechnician/Assistant.
HealthInformation/MedicalRecordsAdministration/Administrator.
VeterinaryMedicine.
ComputerGraphics.
InteriorDesign.
InteriorDesign.
Advertising.
ComputerGraphics.
InteriorDesign.
GraphicDesign.
ComputerGraphics.
InteriorDesign.
GraphicDesign.
ComputerGraphics.
GraphicDesign.
ComputerGraphics.
InteriorDesign.
GraphicDesign.
GraphicDesign.
ApparelandAccessoriesMarketingOperations.
ComputerGraphics.
IndustrialandProductDesign.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
07FirstProfessionalDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
30.2%
100.0%
43.2%
36.8%
68.5%
100.0%
58.3%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
331.4%
100.0%
34.8%
62.3%
38.6%
100.0%
100.0%
100.0%
139.2%
47.4%
100.0%
100.0%
34.1%
100.0%
123.7%
100.0%
57.5%
79.9%
32.4%
64.8%
46.6%
44.4%
50.4%
47.4%
51.4%
79.8%
63.8%
36.0%
36.8%
95.7%
38.6%
77.6%
42.1%
217.3%
39.2%
110.0%
46.2%
60.8%
46.0%
45.1%
80.2%
46.5%
45.7%
69.6%
47.0%
38.2%
96.5%
217.3%
35.7%
82.4%
96.9%
109.9%
52.7%
8.1%
10.7%
7.5%
7.3%
6.6%
11.7%
9.8%
9.2%
7.8%
5.0%
7.4%
10.3%
6.8%
6.6%
8.3%
5.7%
6.1%
5.8%
6.4%
7.8%
8.2%
6.1%
5.7%
9.2%
8.7%
6.1%
9.1%
7.7%
11.8%
11.6%
4.7%
25.1%
14.5%
15.9%
15.3%
14.1%
16.9%
15.0%
14.3%
19.5%
14.1%
13.0%
21.1%
13.5%
22.9%
13.6%
18.5%
15.1%
16.3%
16.1%
18.0%
11.1%
12.3%
11.7%
13.5%
11.8%
14.1%
14.7%
14.2%
16.8%
19.4%
11.8%
20.2%
24.1%
14.9%
13.7%
31.7%
29.5%
25.3%
34.0%
34.5%
31.8%
19.6%
26.8%
30.8%
29.7%
24.4%
25.0%
30.9%
34.3%
32.0%
32.3%
24.0%
28.9%
30.2%
30.6%
32.4%
14.6%
33.7%
29.1%
21.4%
22.6%
24.2%
29.7%
28.6%
30.3%
32.9%
53.2%
35.8%
48.7%
41.5%
42.0%
36.4%
46.6%
35.9%
48.7%
42.8%
48.5%
48.3%
46.1%
35.1%
39.6%
48.0%
50.0%
48.1%
50.2%
42.0%
26.4%
38.8%
33.8%
37.2%
30.0%
43.4%
48.4%
46.7%
35.2%
35.7%
28.6%
43.3%
48.7%
51.0%
37.1%
A member of BMO
Financial Group
301
September 2013
BMO Capital Markets
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
ESI
ESI
ESI
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
008350
008350
008350
008350
040513
007470
007470
007470
007819
007819
007819
007819
022913
025578
025578
010248
010248
010248
012584
012584
012584
012584
012584
012584
012584
008878
008878
007486
007329
007329
007329
022808
022808
022808
022808
022808
022808
010316
010316
010316
010316
007938
012128
012128
012128
012128
012128
012128
031963
031963
031963
012461
012461
012461
012461
012461
012461
007506
007759
007832
007832
032323
032323
032323
032323
032323
032323
ARTINSTITUTEOFPHOENIX(THE)
ARTINSTITUTEOFPITTSBURGH(THE)
ARTINSTITUTEOFPORTLAND(THE)
ARTINSTITUTEOFSEATTLE(THE)
ARTINSTITUTEOFYORK(THE)PENNSYLVANIA
ARTINSTITUTESINTERNATIONALMINNESOTA(THE)
ITTTECHNICALINSTITUTE
LINCOLNCOLLEGEOFTECHNOLOGY
LINCOLNTECHNICALINSTITUTE
500408
500409
500602
521904
510713
500406
100304
110803
110803
500407
500408
500602
500406
110801
500408
110803
500408
500409
500408
100304
110801
500401
500407
500408
500499
100304
500408
110803
110801
430103
520201
120401
150501
470604
510601
510801
151303
470199
470604
510714
510801
470101
510714
510801
511001
513501
510716
520201
430103
510801
513501
119999
430103
510716
510801
510805
513501
470101
510801
470604
470604
470101
510716
510801
510707
510714
510716
InteriorDesign.
03Bachelor'sDegree
GraphicDesign.
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
ComputerGraphics.
03Bachelor'sDegree
ComputerGraphics.
03Bachelor'sDegree
03Bachelor'sDegree
InteriorDesign.
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
InteriorDesign.
02Associate'sDegree
ComputerGraphics.
03Bachelor'sDegree
InteriorDesign.
03Bachelor'sDegree
GraphicDesign.
03Bachelor'sDegree
InteriorDesign.
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
InteriorDesign.
03Bachelor'sDegree
DesignandAppliedArts,Other.
03Bachelor'sDegree
03Bachelor'sDegree
InteriorDesign.
03Bachelor'sDegree
ComputerGraphics.
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Cosmetology/Cosmetologist,General.
Automobile/AutomotiveMechanicsTechnology/Technician.
ArchitecturalDraftingandArchitecturalCAD/CADD.
02Associate'sDegree
Electrical/ElectronicsMaintenanceandRepairTechnology,Other.
Electrical/ElectronicsEquipmentInstallationandRepair,General.
BloodBankTechnologySpecialist.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
HealthInformation/MedicalRecordsTechnology/Technician.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
52.2%
37.1%
70.8%
36.4%
100.0%
1000.0%
31.4%
35.9%
55.5%
54.2%
82.4%
40.9%
44.5%
57.3%
164.1%
65.1%
73.2%
54.9%
100.0%
32.7%
37.1%
30.7%
43.3%
49.4%
38.1%
28.6%
239.6%
48.2%
63.9%
37.4%
31.7%
100.0%
60.6%
47.7%
52.5%
126.3%
31.7%
36.3%
41.5%
137.9%
198.5%
31.7%
72.1%
58.7%
101.6%
100.0%
123.2%
85.3%
132.3%
41.8%
169.3%
100.0%
68.0%
100.0%
100.0%
439.4%
100.0%
32.0%
30.1%
36.1%
32.1%
37.2%
68.3%
100.0%
53.5%
34.5%
100.5%
17.0%
13.5%
16.8%
13.4%
0.1%
12.8%
12.1%
12.7%
17.5%
15.4%
16.0%
16.0%
13.0%
14.9%
15.9%
18.5%
20.4%
16.9%
6.3%
13.2%
13.2%
13.1%
14.7%
12.8%
13.2%
13.9%
22.9%
19.0%
8.1%
7.3%
8.0%
9.4%
9.8%
9.4%
6.8%
7.2%
8.5%
7.6%
8.7%
5.2%
6.8%
6.9%
7.2%
7.5%
4.7%
6.8%
10.9%
10.9%
6.5%
6.0%
5.3%
8.1%
6.2%
6.4%
6.9%
5.4%
5.8%
6.7%
5.7%
6.8%
8.0%
7.4%
6.4%
6.9%
10.1%
5.8%
5.7%
57.8%
47.8%
48.0%
41.7%
29.5%
44.7%
46.0%
45.0%
44.9%
52.6%
49.2%
46.8%
62.3%
50.9%
68.2%
55.3%
60.8%
63.2%
27.4%
60.7%
36.6%
56.7%
39.8%
54.0%
70.6%
31.6%
40.8%
54.7%
28.7%
19.4%
22.6%
14.2%
12.7%
24.0%
30.0%
20.9%
30.3%
28.2%
30.8%
25.5%
28.0%
27.0%
22.9%
20.8%
23.2%
21.6%
13.1%
20.9%
18.7%
27.1%
32.1%
15.4%
21.9%
13.5%
25.9%
27.5%
33.8%
34.3%
32.8%
26.7%
26.4%
21.9%
21.5%
29.5%
21.8%
30.1%
23.2%
A member of BMO
Financial Group
302
September 2013
BMO Capital Markets
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
007488
025829
025829
025829
025829
025829
004910
004910
004910
004910
023262
023262
023262
007436
007436
020712
020712
025391
025391
030445
030445
030445
023519
023519
023519
023063
023063
023063
023063
023063
025654
025654
025654
025490
021676
022018
022018
022018
009777
009777
030432
011005
020520
020520
020520
020520
032723
032723
032723
032723
025919
025919
025919
025919
009466
009466
009466
009466
009466
031158
031158
031158
031158
031158
004586
004586
004586
004586
011574
011574
022898
022898
022898
007781
007491
007491
010410
010410
023122
023122
023122
023122
KAPLANCAREERINSTITUTE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
BAUDERCOLLEGE
BAUDERCOLLEGE
CHIINSTITUTE
CHIINSTITUTE
CHIINSTITUTE
CHIINSTITUTE/RETSCAMPUS
TESSTCOLLEGEOFTECHNOLOGY
TEXASSCHOOLOFBUSINESS
510801
460302
480501
510710
510801
510805
460302
510601
510710
510801
510710
510801
220302
510801
520201
510801
510808
510713
513501
220302
510801
220302
510601
510710
510801
510601
510710
510801
513501
430104
510601
510710
510801
430104
510801
510801
510805
513501
510710
510801
510801
510801
510601
510801
510805
430104
510601
510710
510801
510805
470201
510601
510710
510801
510601
510710
510801
510805
512601
220302
510601
510710
510801
512601
220302
309999
500409
510705
510801
430104
510710
510801
510805
510801
460302
510801
510801
430104
510601
510710
510801
510805
Electrician.
MachineToolTechnology/Machinist.
Electrician.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Heating,AirConditioning,VentilationandRefrigerationMaintenanceTechnology/Technic01UndergraduateCertificate
HealthAide.
HealthAide.
02Associate'sDegree
Multi/InterdisciplinaryStudies,Other.
02Associate'sDegree
GraphicDesign.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Electrician.
02Associate'sDegree
101.1%
100.0%
923.2%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
34.9%
47.2%
335.2%
37.4%
57.5%
100.0%
100.0%
41.9%
100.0%
57.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
36.2%
100.0%
100.0%
100.0%
30.2%
43.2%
100.0%
100.0%
100.0%
72.1%
62.2%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
45.9%
100.0%
100.0%
35.1%
31.6%
35.3%
100.0%
100.0%
200.0%
100.0%
100.0%
134.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
32.4%
60.4%
100.0%
44.5%
100.0%
728.3%
100.0%
100.0%
100.0%
100.0%
68.1%
100.0%
514.9%
37.6%
100.0%
100.0%
100.0%
100.0%
5.2%
7.0%
5.4%
7.5%
8.2%
6.2%
8.0%
6.5%
6.9%
6.7%
5.2%
5.6%
8.5%
4.8%
11.8%
4.8%
12.1%
2.0%
0.4%
4.8%
6.4%
6.2%
7.9%
8.9%
7.5%
6.9%
6.9%
6.7%
5.6%
7.7%
6.6%
6.0%
6.4%
8.6%
6.0%
1.7%
1.2%
7.9%
5.1%
5.0%
5.9%
8.0%
7.9%
7.8%
6.4%
9.6%
5.0%
8.6%
6.7%
4.7%
4.8%
4.9%
7.1%
6.3%
4.7%
6.1%
5.8%
3.7%
6.5%
5.7%
6.5%
7.6%
6.8%
6.9%
9.8%
10.3%
8.3%
7.6%
7.5%
11.6%
7.1%
8.9%
8.2%
5.2%
6.8%
5.6%
5.3%
6.9%
6.4%
6.6%
6.4%
5.7%
22.5%
19.8%
25.4%
15.8%
16.7%
13.9%
13.1%
12.1%
18.5%
21.6%
28.7%
20.2%
19.7%
23.0%
23.6%
28.4%
40.0%
30.8%
27.3%
28.2%
30.5%
27.7%
28.3%
23.2%
25.7%
29.3%
31.5%
29.2%
27.5%
27.2%
29.8%
27.4%
32.3%
32.8%
25.6%
13.5%
12.0%
31.5%
21.5%
23.9%
22.2%
15.5%
15.8%
11.5%
20.2%
14.2%
33.1%
22.1%
26.5%
26.7%
19.7%
33.5%
23.2%
19.8%
27.7%
23.1%
20.6%
28.2%
20.1%
28.8%
24.0%
19.9%
16.5%
8.6%
31.9%
22.3%
33.3%
26.3%
14.2%
13.7%
18.8%
18.9%
14.1%
33.6%
21.7%
13.1%
17.7%
16.7%
24.0%
21.8%
22.6%
18.0%
A member of BMO
Financial Group
303
September 2013
BMO Capital Markets
Exhibit 337. Programs That Failed One Gainful Employment Metric (FY2011)
Company
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
APOL
BPI
BPI
CPLA
CPLA
CPLA
CPLA
CPLA
CPLA
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
OPEID
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
020988
021715
021715
001881
001881
032673
032673
032673
032673
032673
032673
010148
010148
010148
010148
010148
010148
010148
010148
010148
010148
021136
021136
021136
021136
021136
012877
021160
021160
021160
021160
022052
022052
022052
022052
022052
026150
026150
026150
009420
009420
009420
009420
007481
007481
011647
011647
011647
011647
011647
022023
022023
022023
022023
022023
026149
026149
007351
020757
020757
020757
009795
026167
Inst.Name
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
UNIVERSITYOFPHOENIX
WESTERNINTERNATIONALUNIVERSITY
WESTERNINTERNATIONALUNIVERSITY
ASHFORDUNIVERSITY
ASHFORDUNIVERSITY
CAPELLAUNIVERSITY
CAPELLAUNIVERSITY
CAPELLAUNIVERSITY
CAPELLAUNIVERSITY
CAPELLAUNIVERSITY
CAPELLAUNIVERSITY
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
SANFORDBROWNCOLLEGE
BROWNCOLLEGE
BRIARCLIFFECOLLEGE
BRIARCLIFFECOLLEGE
BRIARCLIFFECOLLEGE
MISSOURICOLLEGE
CIPCode
110801
111001
231303
301701
420101
430199
440000
510707
510710
510805
520204
520302
090100
111004
131202
301701
510718
521001
130403
422708
429999
450401
510710
520201
510701
422803
190707
430104
440701
190707
520206
510801
513901
110103
111001
430103
430104
510801
520201
520301
430103
500401
500407
520201
500401
500411
520201
510601
510714
510805
510909
513901
510803
513801
430103
520201
510714
510801
510805
110901
520201
430103
500409
510716
520201
110901
220301
430104
510801
520201
510601
513501
220302
510909
520201
430103
510714
520201
220301
510706
520201
513501
120501
CIPName
NetworkandSystemAdministration/Administrator.
Professional,Technical,Business,andScientificWriting.
BehavioralSciences.
Psychology,General.
CorrectionsandCriminalJustice,Other.
HumanServices,General.
OfficeManagementandSupervision.
Communication,General.
Web/MultimediaManagementandWebmaster.
ElementaryEducationandTeaching.
BehavioralSciences.
LongTermCareAdministration/Management.
HumanResourcesManagement/PersonnelAdministration,General.
AdultandContinuingEducationAdministration.
PsychometricsandQuantitativePsychology.
Psychology,Other.
Criminology.
CounselingPsychology.
FamilyandCommunityServices.
SocialWork.
FamilyandCommunityServices.
NonProfit/Public/OrganizationalManagement.
LicensedPractical/VocationalNurseTraining.
InformationTechnology.
Accounting.
SurgicalTechnology/Technologist.
OccupationalTherapistAssistant.
RegisteredNursing/RegisteredNurse.
ComputerSystemsNetworkingandTelecommunications.
GraphicDesign.
HealthInformation/MedicalRecordsAdministration/Administrator.
CredentialLevel
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
05Master'sDegree
05Master'sDegree
05Master'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
04PostBaccalaureateCertificate
05Master'sDegree
05Master'sDegree
05Master'sDegree
06DoctoralDegree
06DoctoralDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
05Master'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
DebttoEarnings
Disc.
Ann.
11.2%
5.3%
5.4%
3.7%
N/A
N/A
N/A
N/A
N/A
N/A
10.7%
5.1%
N/A
N/A
N/A
N/A
16.8%
6.2%
N/A
N/A
6.1%
3.5%
10.4%
4.9%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5.1%
3.6%
13.9%
5.8%
12.6%
7.0%
13.6%
6.5%
20.0%
7.7%
N/A
N/A
N/A
N/A
N/A
N/A
0.8%
0.4%
0.6%
0.4%
0.8%
0.5%
N/A
N/A
N/A
N/A
N/A
N/A
15.0%
7.5%
6.2%
3.7%
N/A
N/A
18.0%
7.3%
22.5%
7.1%
55.4%
12.0%
6.7%
3.9%
15.2%
6.2%
N/A
N/A
N/A
N/A
37.2%
11.1%
9.1%
4.4%
32.5%
11.9%
N/A
N/A
N/A
N/A
18.7%
5.0%
26.6%
5.6%
22.8%
4.1%
20.3%
7.1%
16.0%
8.3%
N/A
N/A
7.4%
5.0%
N/A
N/A
31.9%
11.2%
26.1%
5.6%
22.3%
5.2%
27.8%
4.7%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
25.9%
10.0%
6.4%
2.5%
N/A
N/A
9.1%
3.4%
6.9%
1.4%
23.6%
7.8%
35.9%
4.8%
100.0%
7.1%
N/A
N/A
25.0%
8.0%
N/A
N/A
N/A
N/A
20.1%
5.0%
N/A
N/A
27.0%
10.0%
26.1%
8.6%
17.7%
7.3%
721.2%
7.2%
43.8%
10.4%
Repayment
Ratio
26.4%
29.4%
26.4%
23.3%
23.9%
25.7%
22.6%
16.1%
22.6%
12.1%
33.1%
33.3%
22.2%
29.6%
26.8%
30.1%
31.9%
20.2%
30.0%
28.2%
27.7%
31.4%
30.2%
32.9%
30.0%
25.4%
24.5%
32.2%
25.8%
32.0%
34.7%
15.8%
32.8%
33.1%
34.7%
31.7%
23.6%
36.1%
26.3%
27.1%
27.1%
12.9%
37.1%
34.1%
35.6%
14.3%
25.2%
30.8%
27.2%
27.7%
24.5%
32.0%
19.1%
34.1%
12.5%
35.5%
26.9%
28.6%
23.7%
18.2%
16.7%
26.6%
18.9%
21.3%
24.1%
32.7%
22.8%
23.3%
28.0%
33.3%
47.9%
41.6%
28.8%
29.4%
31.4%
29.1%
28.7%
17.8%
32.6%
24.3%
31.2%
37.8%
52.7%
A member of BMO
Financial Group
304
September 2013
BMO Capital Markets
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
022202
021603
021603
021603
021603
021603
021603
021603
021603
021603
021603
030314
030314
030314
030314
030314
030314
001123
008090
008090
008090
011107
011107
011107
011121
011121
030723
011109
011024
012061
012061
012061
004503
004503
004503
004503
004503
004503
004503
004507
004507
004507
004507
004507
011858
011858
011858
022506
022506
022506
022506
022506
022506
022375
022375
022375
022375
022375
009079
009079
022985
022985
009267
023001
023001
026062
026062
026062
026175
026175
026175
022950
022950
022950
022950
021218
021218
030032
030032
030032
011510
021004
021004
BROOKSINSTITUTE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTCOLLEGE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
120501
100203
111001
500102
500408
100304
110103
110901
500402
500411
500602
100304
110801
100203
500411
500602
521401
100304
510713
510805
520401
510699
510801
513501
510713
513501
510699
510699
510805
510699
510716
510801
510713
510716
513501
110101
220302
520302
529999
439999
510713
430112
510909
520302
510699
510713
513501
510708
110101
520302
529999
430112
520201
513501
220302
430112
510801
529999
510716
520401
430112
510909
510699
513501
520302
460302
510699
510805
510913
513501
513701
220302
520302
529999
430112
510901
510909
510901
510909
430112
510699
510713
510805
02Associate'sDegree
02Associate'sDegree
DigitalArts.
02Associate'sDegree
InteriorDesign.
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
CommercialandAdvertisingArt.
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
Marketing/MarketingManagement,General.
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
HomelandSecurity,LawEnforcement,FirefightingandRelatedProtectiveServices,Other 01UndergraduateCertificate
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
MedicalTranscription/Transcriptionist.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Electrician.
AthleticTraining/Trainer.
Aromatherapy.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
CardiovascularTechnology/Technologist.
CardiovascularTechnology/Technologist.
02Associate'sDegree
55.1%
N/A
9.0%
N/A
46.3%
16.6%
N/A
N/A
28.7%
23.0%
5.2%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100.0%
109.2%
N/A
37.9%
99.7%
100.0%
27.4%
49.6%
100.0%
78.8%
26.1%
1000.0%
20.2%
47.1%
27.8%
100.0%
26.0%
N/A
N/A
N/A
N/A
14.6%
97.9%
29.3%
22.9%
N/A
40.7%
46.4%
100.0%
N/A
N/A
N/A
27.6%
N/A
N/A
100.0%
N/A
N/A
N/A
N/A
70.8%
N/A
N/A
N/A
100.0%
100.0%
N/A
N/A
35.3%
28.0%
122.9%
100.0%
100.0%
19.3%
N/A
N/A
N/A
35.8%
17.2%
15.7%
16.9%
N/A
29.8%
59.5%
100.0%
11.4%
N/A
3.5%
N/A
7.2%
4.8%
N/A
N/A
13.2%
6.1%
1.9%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5.5%
5.8%
N/A
4.8%
5.8%
7.1%
3.7%
4.9%
5.8%
6.2%
5.0%
8.0%
5.8%
6.9%
4.1%
5.6%
5.0%
N/A
N/A
N/A
N/A
4.0%
4.6%
11.4%
10.7%
N/A
4.8%
5.0%
6.6%
N/A
N/A
N/A
9.2%
N/A
N/A
6.2%
N/A
N/A
N/A
N/A
6.5%
N/A
N/A
N/A
7.6%
9.7%
N/A
N/A
4.7%
5.1%
7.4%
7.3%
9.4%
7.7%
N/A
N/A
N/A
7.8%
6.4%
5.6%
7.0%
N/A
5.1%
5.4%
6.7%
64.3%
14.6%
30.9%
13.6%
48.4%
33.7%
16.9%
29.4%
42.1%
29.5%
34.6%
27.8%
25.3%
16.0%
29.7%
32.9%
29.6%
33.0%
35.2%
39.3%
16.5%
43.2%
35.0%
36.2%
28.3%
40.6%
36.5%
42.3%
31.4%
44.6%
32.3%
36.1%
30.0%
35.8%
24.2%
28.0%
14.0%
19.0%
25.6%
26.7%
35.7%
16.1%
29.3%
24.4%
47.1%
36.7%
35.3%
33.3%
4.8%
24.7%
20.9%
8.7%
23.1%
35.4%
25.7%
18.0%
11.1%
27.3%
39.0%
22.5%
22.9%
26.7%
37.5%
36.4%
5.5%
17.8%
44.3%
28.0%
46.3%
41.5%
46.5%
28.8%
19.6%
15.0%
12.5%
38.3%
20.9%
32.3%
27.0%
8.4%
33.1%
48.7%
36.9%
A member of BMO
Financial Group
305
September 2013
BMO Capital Markets
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
021004
021004
009828
009828
004811
004811
007091
022613
010356
010356
025998
025998
025998
025998
025998
025998
025998
001499
001499
001499
001499
001499
001499
001534
001534
001534
001534
001534
001534
001534
001534
001534
001534
001534
001534
008146
008146
008146
008146
008146
008146
008146
008146
008146
008146
021875
021875
008093
008093
008532
008532
008532
008532
025932
025932
025932
007477
007477
007477
025931
025931
030340
030340
030340
007234
007234
025933
025933
025933
025933
007190
012873
012873
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTINSTITUTE
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
EVERESTUNIVERSITY
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
HEALDCOLLEGE
WYOTECH
WYOTECH
WYOTECH
510909
513901
119999
150501
110101
520401
520302
150501
510713
510812
510801
110101
510805
110101
520201
430103
520201
510801
510805
220302
439999
520301
520201
510801
110101
510805
510909
529999
110101
220302
510701
520201
520301
430103
520201
110101
220302
430111
510713
510801
520302
520904
520301
430103
520201
510601
510801
119999
520305
240102
510601
510716
510801
119999
220301
510801
119999
220301
520299
220301
510801
220301
510716
510801
510601
520901
119999
220301
510801
520299
460503
460302
470604
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
RespiratoryTherapyTechnician/Assistant.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
05Master'sDegree
05Master'sDegree
02Associate'sDegree
03Bachelor'sDegree
HomelandSecurity,LawEnforcement,FirefightingandRelatedProtectiveServices,Other 03Bachelor'sDegree
Accounting.
03Bachelor'sDegree
05Master'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
Accounting.
03Bachelor'sDegree
05Master'sDegree
05Master'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Hotel/MotelAdministration/Management.
02Associate'sDegree
Accounting.
03Bachelor'sDegree
05Master'sDegree
05Master'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
AccountingandBusiness/Management.
02Associate'sDegree
GeneralStudies.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
HospitalityAdministration/Management,General.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
PlumbingTechnology/Plumber.
Electrician.
16.2%
10.6%
N/A
26.8%
N/A
N/A
N/A
22.7%
26.5%
14.3%
N/A
N/A
N/A
N/A
21.7%
N/A
13.5%
N/A
N/A
N/A
N/A
23.0%
12.9%
N/A
N/A
N/A
21.9%
29.3%
N/A
N/A
N/A
19.3%
17.6%
11.5%
11.3%
N/A
N/A
N/A
N/A
N/A
25.7%
N/A
N/A
12.4%
11.6%
28.5%
28.3%
14.9%
20.3%
5.4%
80.4%
N/A
21.6%
9.5%
20.1%
15.4%
18.6%
N/A
22.0%
N/A
39.8%
N/A
N/A
23.9%
53.0%
45.3%
6.2%
N/A
26.3%
31.6%
59.6%
24.7%
44.7%
6.2%
5.8%
N/A
5.7%
N/A
N/A
N/A
5.6%
3.7%
7.9%
N/A
N/A
N/A
N/A
11.4%
N/A
7.8%
N/A
N/A
N/A
N/A
11.9%
8.0%
N/A
N/A
N/A
10.6%
11.2%
N/A
N/A
N/A
10.6%
10.0%
7.0%
6.9%
N/A
N/A
N/A
N/A
N/A
11.4%
N/A
N/A
7.3%
7.0%
6.2%
7.3%
5.4%
6.4%
2.5%
10.1%
N/A
7.5%
5.0%
7.2%
5.9%
6.5%
N/A
6.4%
N/A
7.5%
N/A
N/A
5.5%
8.0%
6.8%
3.2%
N/A
5.8%
5.7%
7.1%
6.7%
9.5%
26.3%
27.4%
15.7%
26.9%
16.8%
15.4%
25.8%
22.8%
32.9%
25.7%
9.6%
4.5%
19.6%
15.6%
30.8%
12.3%
21.0%
4.6%
14.9%
24.5%
28.2%
29.7%
34.1%
16.1%
14.5%
16.2%
17.7%
17.4%
16.2%
14.7%
21.7%
22.8%
25.5%
29.5%
23.0%
16.1%
19.1%
12.5%
6.1%
17.9%
21.3%
18.0%
8.9%
24.4%
24.1%
34.5%
33.1%
33.2%
33.7%
25.1%
44.9%
31.8%
28.4%
28.5%
26.7%
30.7%
34.8%
22.3%
25.3%
31.6%
47.0%
34.4%
34.6%
27.3%
73.0%
68.4%
33.9%
30.8%
28.2%
38.2%
36.2%
33.5%
35.7%
A member of BMO
Financial Group
306
September 2013
BMO Capital Markets
COCO
COCO
COCO
COCO
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
012873
012873
023462
023462
010727
010727
010727
010727
010727
010727
010727
020754
020754
020754
021006
021006
022180
022180
022180
030425
030425
030425
030425
009748
009270
009270
009270
009270
009270
009270
009270
007236
007236
023276
023276
031254
031254
031254
031254
021105
021105
021105
021286
020789
010195
010195
010195
010195
010195
010195
010195
010195
010195
021171
021171
021171
025256
025256
025256
025256
008350
008350
008350
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
040513
WYOTECH
WYOTECH
WYOTECH
WYOTECH
DEVRYUNIVERSITY
DEVRYUNIVERSITY
DEVRYUNIVERSITY
DEVRYUNIVERSITY
DEVRYUNIVERSITY
DEVRYUNIVERSITY
DEVRYUNIVERSITY
KELLERGRADUATESCHOOLOFMANAGEMENT
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
CARRINGTONCOLLEGE
ARTINSTITUTEOFCALIFORNIAHOLLYWOOD(THE)
ARTINSTITUTEOFCINCINNATI(THE)
510805
430112
470611
470616
110801
110901
150303
510707
520302
140903
520201
520201
521001
521201
510913
511004
510601
510705
513501
510601
510714
510801
510808
510601
500406
500409
100203
120504
500406
500410
521904
120504
500404
500409
120504
500407
521904
500407
521904
521904
500408
500409
110803
500409
100202
100304
110801
500409
090903
120504
500408
500411
521902
120504
500409
521904
120501
120503
110801
500602
120501
120503
110801
120501
120503
220302
510801
513901
520101
100299
110201
110601
111001
111006
141001
151302
220302
430104
500408
500409
510705
510801
510805
510808
510909
520101
520302
MarineMaintenance/FitterandShipRepairTechnology/Technician.
Electrical,ElectronicandCommunicationsEngineeringTechnology/Technician.
ComputerSoftwareEngineering.
HumanResourcesManagement/PersonnelAdministration,General.
ManagementInformationSystems,General.
AthleticTraining/Trainer.
Clinical/MedicalLaboratoryTechnician.
GraphicDesign.
Illustration.
IndustrialandProductDesign.
GraphicDesign.
InteriorDesign.
GraphicDesign.
ComputerGraphics.
GraphicDesign.
GraphicDesign.
Advertising.
InteriorDesign.
GraphicDesign.
Business/Commerce,General.
AudiovisualCommunicationsTechnologies/Technicians,Other.
ComputerProgramming/Programmer,General.
DataEntry/MicrocomputerApplications,General.
ComputerSupportSpecialist.
ElectricalandElectronicsEngineering
CAD/CADDDraftingand/orDesignTechnology/Technician.
InteriorDesign.
GraphicDesign.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
33.1%
N/A
128.7%
104.6%
N/A
9.2%
19.7%
24.8%
N/A
N/A
15.3%
N/A
N/A
N/A
100.0%
16.2%
88.9%
100.0%
100.0%
52.9%
60.6%
38.8%
100.0%
49.4%
N/A
28.4%
N/A
N/A
N/A
N/A
N/A
33.1%
28.5%
N/A
32.7%
N/A
N/A
23.5%
N/A
N/A
N/A
N/A
100.0%
33.4%
N/A
N/A
N/A
14.9%
N/A
N/A
30.6%
44.8%
N/A
N/A
30.1%
N/A
32.2%
38.6%
N/A
N/A
69.6%
13.0%
12.4%
30.7%
N/A
0.0%
0.0%
2.7%
N/A
0.0%
N/A
0.0%
0.2%
N/A
0.0%
0.0%
0.0%
0.0%
N/A
14.1%
0.0%
0.0%
0.0%
N/A
0.2%
0.0%
0.0%
5.0%
N/A
9.2%
9.0%
N/A
4.4%
10.1%
10.5%
N/A
N/A
8.8%
N/A
N/A
N/A
8.6%
7.8%
6.2%
8.2%
7.8%
5.5%
5.7%
5.3%
6.8%
6.8%
N/A
10.9%
N/A
N/A
N/A
N/A
N/A
11.6%
12.7%
N/A
9.6%
N/A
N/A
10.6%
N/A
N/A
N/A
N/A
8.0%
10.8%
N/A
N/A
N/A
6.1%
N/A
N/A
11.5%
11.0%
N/A
N/A
10.9%
N/A
6.7%
9.1%
N/A
N/A
8.6%
5.8%
7.1%
6.1%
N/A
0.0%
0.0%
1.3%
N/A
0.0%
N/A
0.0%
0.1%
N/A
0.0%
0.0%
0.0%
0.0%
N/A
3.7%
0.0%
0.0%
0.0%
N/A
0.1%
0.0%
0.0%
36.1%
11.9%
38.4%
38.8%
29.3%
33.1%
34.3%
29.6%
21.9%
27.4%
32.1%
34.6%
29.6%
30.5%
N/A
31.2%
53.2%
46.7%
52.9%
43.7%
46.6%
38.2%
35.9%
39.6%
22.1%
29.1%
23.9%
18.8%
30.1%
27.5%
14.2%
41.5%
59.5%
31.5%
50.6%
34.4%
23.2%
28.6%
33.0%
16.0%
34.6%
13.8%
73.6%
64.5%
20.8%
27.4%
34.1%
31.2%
33.9%
29.7%
45.4%
41.5%
14.5%
31.6%
39.4%
15.3%
38.7%
35.1%
21.4%
24.5%
40.9%
20.4%
33.1%
50.8%
33.6%
29.9%
25.1%
23.8%
28.4%
14.2%
9.9%
20.5%
25.6%
18.0%
30.2%
32.3%
19.7%
14.3%
33.9%
34.3%
20.7%
19.4%
21.7%
30.6%
21.9%
20.6%
28.1%
A member of BMO
Financial Group
307
September 2013
BMO Capital Markets
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
DV
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
EDMC
LOPE
LOPE
LOPE
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
ESI
LINC
LINC
LINC
LINC
040513
040513
040513
040513
007470
007470
007470
007470
007470
007470
022913
025578
025578
010248
012584
012584
012584
012584
012584
012584
008878
008878
008878
008878
008878
007486
021799
021799
021799
013039
013039
013039
013039
013039
013039
013039
013039
013039
013039
013039
006755
006755
006755
006755
006755
006755
006755
010832
001074
001074
001074
007329
007329
007329
007329
007329
007329
007329
007329
007329
007329
007329
007329
007329
030718
030718
030718
009407
007547
022808
010316
ARTINSTITUTEOFSEATTLE(THE)
ARGOSYUNIVERSITY
ARGOSYUNIVERSITY
ARGOSYUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
SOUTHUNIVERSITY
WESTERNSTATEUNIVERSITYCOLLEGEOFLAW
GRANDCANYONUNIVERSITY
LINCOLNCOLLEGEOFNEWENGLAND
100304
120504
500602
500605
120503
500409
500602
500406
500602
521904
500602
500409
521904
120501
110801
500402
500409
521904
090903
120504
120503
521902
110803
120504
521902
500602
510808
520201
422801
110401
220302
511199
520201
520302
220302
430103
510701
511199
520201
511508
510713
430104
510705
510801
513801
520101
520302
220101
131202
380203
520101
430103
110901
111001
150303
151302
500401
510707
520302
100304
430103
520201
520302
522001
110801
100304
430103
120301
150803
120503
470101
Photography.
GraphicDesign.
GraphicDesign.
CommercialandAdvertisingArt.
GraphicDesign.
Advertising.
ComputerGraphics.
ClinicalPsychology.
InformationScience/Studies.
Health/MedicalPreparatoryPrograms,Other.
Health/MedicalPreparatoryPrograms,Other.
MentalHealthCounseling/Counselor.
RegisteredNursing/RegisteredNurse.
Law.
ElementaryEducationandTeaching.
ChristianStudies.
Electrical,ElectronicandCommunicationsEngineeringTechnology/Technician.
CAD/CADDDraftingand/orDesignTechnology/Technician.
ConstructionManagement.
FuneralServiceandMortuaryScience,General.
AutomotiveEngineeringTechnology/Technician.
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
06DoctoralDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
05Master'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
07FirstProfessionalDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
03Bachelor'sDegree
03Bachelor'sDegree
02Associate'sDegree
02Associate'sDegree
19.7%
N/A
N/A
N/A
N/A
40.3%
N/A
64.1%
30.9%
N/A
38.5%
38.6%
74.0%
104.3%
N/A
40.3%
20.2%
N/A
25.6%
25.0%
N/A
N/A
N/A
N/A
14.1%
27.4%
32.6%
N/A
18.0%
N/A
N/A
N/A
N/A
N/A
17.5%
N/A
N/A
N/A
17.6%
23.2%
N/A
N/A
N/A
25.0%
6.5%
N/A
N/A
20.4%
N/A
N/A
N/A
N/A
12.2%
N/A
11.0%
16.0%
N/A
N/A
N/A
15.1%
10.6%
7.5%
N/A
N/A
70.5%
N/A
N/A
N/A
40.2%
45.6%
100.0%
6.4%
N/A
N/A
N/A
N/A
10.0%
N/A
10.7%
10.4%
N/A
7.2%
11.0%
10.7%
9.9%
N/A
6.9%
4.5%
N/A
12.0%
11.4%
N/A
N/A
N/A
N/A
6.4%
12.2%
11.9%
N/A
12.5%
N/A
N/A
N/A
N/A
N/A
9.0%
N/A
N/A
N/A
9.1%
11.2%
N/A
N/A
N/A
8.6%
4.1%
N/A
N/A
13.8%
N/A
N/A
N/A
N/A
5.3%
N/A
5.0%
6.2%
N/A
N/A
N/A
4.2%
4.9%
4.0%
N/A
N/A
10.9%
N/A
N/A
N/A
7.4%
8.6%
7.4%
34.7%
23.3%
18.3%
32.9%
23.8%
40.8%
30.8%
50.4%
42.3%
33.0%
55.0%
61.1%
57.8%
N/A
27.7%
56.8%
29.8%
33.5%
59.3%
34.0%
32.9%
25.9%
31.9%
28.8%
33.5%
44.8%
61.2%
24.6%
50.5%
15.7%
17.9%
14.8%
15.5%
18.7%
18.5%
18.0%
22.2%
21.0%
28.0%
25.3%
19.1%
10.8%
27.6%
23.0%
33.1%
14.2%
31.2%
53.0%
33.9%
32.8%
25.8%
22.1%
33.1%
24.8%
31.8%
32.0%
17.1%
23.1%
28.5%
31.8%
16.3%
19.4%
19.4%
25.2%
37.0%
34.0%
24.8%
31.4%
42.4%
40.3%
N/A
A member of BMO
Financial Group
308
September 2013
BMO Capital Markets
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
LINC
NAUH
NAUH
NAUH
NAUH
NAUH
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
STRA
UTI
UTI
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
010316
007938
007938
007938
007936
012128
012128
007303
031963
031963
012461
007506
007759
032323
032323
022288
033163
004057
004057
004057
004057
004057
001459
001459
001459
001459
001459
001459
001459
001459
001459
001459
001459
001459
001459
001459
001459
021005
021005
004910
004910
023262
007436
007436
007436
020712
020712
025391
020917
020917
025490
025490
025490
025490
025490
021676
021676
022018
022018
022018
022018
022018
030432
020520
025919
009466
004586
004586
004586
004586
004586
004586
004586
004586
004586
004586
004586
004586
004586
004586
011574
011574
011574
011574
022898
007781
007781
007781
004729
004729
004729
007491
007491
007491
020836
020836
020836
010410
LINCOLNTECHNICALINSTITUTEEASTWINDSOR
LINCOLNTECHNICALINSTITUTEHARTFORD
NATIONALAMERICANUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
STRAYERUNIVERSITY
UNIVERSALTECHNICALINSTITUTE
UNIVERSALTECHNICALINSTITUTE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANCOLLEGE
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
KAPLANUNIVERSITY
BAUDERCOLLEGE
BAUDERCOLLEGE
BAUDERCOLLEGE
BAUDERCOLLEGE
CHIINSTITUTE
HESSERCOLLEGE
HESSERCOLLEGE
HESSERCOLLEGE
470604
150803
470201
470605
470101
110101
430103
470604
510714
510805
510801
470604
510714
120401
513501
470611
120503
110101
510801
510805
513501
110103
520101
110401
111006
520101
520302
521499
520101
521101
520201
520304
130499
440401
510701
520201
520304
470611
470699
510713
430104
430104
110901
520301
521902
510805
510908
510805
510801
512601
510713
510801
510805
510899
513501
510805
430104
510601
510710
510713
510710
513501
510713
500605
460302
460302
110103
510801
511009
520407
110103
430104
510707
510708
510801
520101
090100
220000
422814
430104
500408
500409
510801
520201
430104
470201
510601
510801
510801
420101
420101
470201
510805
110901
460302
510801
430104
110901
02Associate'sDegree
AutomotiveEngineeringTechnology/Technician.
DieselMechanicsTechnology/Technician.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Cosmetology/Cosmetologist,General.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
03Bachelor'sDegree
InformationScience/Studies.
02Associate'sDegree
ComputerSupportSpecialist.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Marketing,Other.
02Associate'sDegree
03Bachelor'sDegree
InternationalBusiness/Trade/Commerce.
03Bachelor'sDegree
AccountingandFinance.
EducationalAdministrationandSupervision,Other.
05Master'sDegree
PublicAdministration.
05Master'sDegree
05Master'sDegree
05Master'sDegree
AccountingandFinance.
05Master'sDegree
VehicleMaintenanceandRepairTechnologies,Other.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Accounting.
02Associate'sDegree
02Associate'sDegree
RespiratoryCareTherapy/Therapist.
02Associate'sDegree
HealthAide.
AlliedHealthandMedicalAssistingServices,Other.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Photography.
02Associate'sDegree
Electrician.
Electrician.
PhlebotomyTechnician/Phlebotomist.
Business/OfficeAutomation/Technology/DataEntry.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
MedicalTranscription/Transcriptionist.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Communication,General.
03Bachelor'sDegree
LegalStudies,General.
03Bachelor'sDegree
AppliedBehaviorAnalysis.
03Bachelor'sDegree
05Master'sDegree
InteriorDesign.
02Associate'sDegree
GraphicDesign.
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
02Associate'sDegree
Psychology,General.
02Associate'sDegree
Psychology,General.
03Bachelor'sDegree
02Associate'sDegree
Electrician.
02Associate'sDegree
02Associate'sDegree
14.2%
5.7%
0.0%
4.5%
28.4%
N/A
N/A
N/A
14.4%
30.9%
N/A
100.0%
124.8%
100.0%
100.0%
55.7%
40.9%
N/A
26.0%
N/A
N/A
3.9%
N/A
5.0%
2.9%
5.7%
8.2%
N/A
5.7%
4.0%
1.2%
N/A
7.1%
5.8%
6.5%
4.3%
6.2%
32.2%
34.7%
4.1%
1.5%
0.0%
1.9%
5.6%
N/A
N/A
N/A
4.0%
4.6%
N/A
1.2%
5.8%
5.3%
5.7%
8.2%
6.9%
N/A
10.0%
N/A
N/A
2.9%
N/A
3.5%
2.1%
3.7%
4.9%
N/A
4.0%
2.8%
0.9%
N/A
4.7%
4.1%
4.4%
3.2%
4.2%
7.9%
8.1%
22.9%
31.2%
33.7%
31.1%
29.7%
6.9%
7.4%
29.2%
32.0%
44.3%
22.9%
N/A
43.1%
39.2%
39.5%
42.5%
47.9%
32.3%
34.3%
23.3%
32.8%
33.1%
27.7%
26.5%
25.9%
26.5%
32.3%
27.7%
30.0%
30.1%
30.4%
30.2%
21.9%
25.0%
26.2%
31.4%
33.9%
50.7%
52.0%
42.2%
26.0%
N/A
N/A
N/A
N/A
36.1%
12.6%
46.6%
61.2%
44.2%
57.8%
45.2%
30.4%
100.0%
100.0%
27.9%
N/A
0.0%
0.0%
100.0%
100.0%
N/A
100.0%
120.6%
27.2%
29.3%
5.4%
17.2%
N/A
N/A
10.9%
19.5%
N/A
N/A
2.7%
16.4%
N/A
N/A
N/A
4.9%
N/A
N/A
N/A
N/A
10.3%
18.3%
169.3%
22.6%
102.8%
8.0%
N/A
19.1%
25.7%
N/A
20.9%
23.5%
12.4%
10.9%
4.9%
6.3%
N/A
N/A
N/A
N/A
4.7%
7.4%
1.9%
4.8%
4.9%
5.2%
4.9%
4.6%
6.0%
6.2%
5.7%
N/A
0.0%
0.0%
7.6%
9.9%
N/A
6.6%
6.5%
5.0%
5.0%
3.1%
3.3%
N/A
N/A
5.9%
7.7%
N/A
N/A
0.6%
7.8%
N/A
N/A
N/A
3.0%
N/A
N/A
N/A
N/A
3.4%
4.6%
4.9%
5.0%
5.0%
2.5%
N/A
5.8%
4.4%
N/A
5.8%
4.4%
5.9%
4.7%
39.5%
23.5%
22.7%
25.5%
20.6%
10.7%
41.8%
34.1%
41.9%
48.0%
46.6%
41.3%
45.4%
47.4%
48.1%
48.1%
33.5%
21.2%
12.4%
11.6%
39.2%
38.2%
29.5%
35.9%
42.3%
31.2%
27.5%
33.6%
33.7%
20.1%
22.8%
29.2%
30.7%
33.1%
14.4%
25.7%
32.9%
29.7%
24.5%
20.6%
35.0%
21.3%
17.9%
12.0%
10.8%
34.8%
33.6%
45.5%
24.6%
37.4%
31.9%
33.0%
21.9%
18.2%
19.9%
25.9%
32.1%
26.3%
34.8%
A member of BMO
Financial Group
309
September 2013
Court vacates
prior gainful
employment
BMO Capital Markets
In July 2012, the US District Court for the District of Columbia vacated key parts of the GE
rule. In its ruling, the court ruled the ED failed to provide sufficient evidence to justify the
35% repayment rule (i.e., the repayment rate), and while the two debt-to-earnings standards
(that students' debt-to-annual earnings and debt-to-discretionary earnings are below 12% and
30%, respectively, of annual wages) were based on expert studies and prior research, the
repayment rate standard had no facts or expert studies to back it up.
As all three portions of the rule were intended to work together the court vacated all three
standards. Additionally, the court vacated the new program approval rules and school
reporting rules as they were tied to GE. The student disclosure rules were allowed to stand
separately from GE. In March 2013, the court rejected the EDs appeal a short-lived victory
for the sector.
The next rounds of Neg Reg are slated to be held on September 9-11, 2013 (Session 1) and
October 21-23, 2013 (Session 2). The constituencies to be represented include representatives
for students, legal assistance organizations, consumer advocacy organizations, financial aid
administrators, state higher education executive officers, state attorneys general, business and
industry, institutions of higher education, and regional/national/specialized accrediting agencies.
Framework for
upcoming Neg
Reg on gainful
employment
On August 29, 2013, the ED released a number of documents and draft regulatory language to
use for the upcoming Neg Reg meetings, stating these documents are to help frame the
negotiations. While the ED has dropped the repayment rate metric, it kept the debt-toearnings metrics, with some modifications.
Given the fall start of negotiations, we do not believe the process will be completed in time
for the November 1, 2013, Federal Register deadline for rules to be effective in July 2014.
Therefore, any new rules from this process will likely not be effective until July 2015.
However, there could be some negative headlines emanating from the negotiations that could
affect the stocks in the sector.
In addition, on July 10, 2013, the Subcommittee on Higher Education and Workforce
Training Chairwoman Virginia Foxx (R-NC), House Education and the Workforce Chairman
John Kline (R-MN), and Rep. Alcee L. Hastings (D-FL) introduced a bipartisan bill entitled
the Supporting Academic Freedom Through Regulatory Relief Act (H.R. 2637). The bill
proposes to:
Permanently repeal the GE regulation;
Permanently repeal the state authorization regulation (see details in Program Integrity
section);
Permanently repeal the credit hour regulation (see details in Program Integrity section);
Amend the incentive compensation regulation to ensure third-party service providers are
allowed to enter into tuition sharing agreements with nonprofit colleges and universities
to aid in the development of distance education platforms; and
Prohibit the ED from issuing additional higher education regulations in several of these
areas until after Congress reauthorizes the Higher Education Act (HEA).
Companies have taken steps to ensure GE compliance. While GE rules were thrown out,
the efforts schools took to ensure compliance remain in effect today as a hedge against
possible regulations in the future. Exhibit 338 contains an overview of some of the major
changes implemented by schools in this space. We believe these programs will continue to be
tweaked and adjusted over time.
A member of BMO
Financial Group
310
September 2013
BMO Capital Markets
Exhibit 338. Examples of Self-Regulation to Improve Quality

Company
Name/Ticker
Apollo Group
(APOL)
Description
University of Phoenix (UOP) University Orientation program -- a free, three-week program for students with less than 24 credits prior to incurring any student loans
or other financial aid obligations. This program began in November 2010 and mostly affected UOPs Associates degree program, which was 31% of FY2012
enrollments (down from 38% in FY2011); and 28% of APOLs FY2012 degree-seeking net-revenues (down from 33% in FY2011), though likely a smaller proportion
of its operating income. Management has cited some success with this program but has de-emphasized it in recent quarters, in favor of better pre-screening and adaptive
learning modules to improve student outcomes.
Bridgepoint
Education (BPI)
Quality initiatives were implemented in 4Q12, including the Ashford Promise program where students can withdraw or be denied entry with three weeks of their first
course at no charge and a mandatory two-week orientation for students with no prior credit; this program has had a roughly 28% attrition rate. Per management, roughly
11%-12% of those in the Ashford Promise programs are screened out.
Capella Education
Capella Universitys bachelor student assessment program, which began on November 1, 2010, requires applicable students to pass an assessment program before
(CPLA)
being admitted. Those who do not pass will likely be counseled to apply for alternative programs at different institutions or for more remediation. Bachelors students
represented 23% of total CPLA enrollments in 2012, but had been the companys fastest growing vertical from 2008-2010. Since this implementation, management
noted retention has improved, and new undergrad students have higher first course success rates and a higher level of learner satisfaction.
Career Education
(CECO)
By the end of 3Q11, CECO had restructured its Culinary Arts program, offering a 12-month certificate program for $17,500 17% below the prior $21,000.
Management believes this, along with a shift of focus to certificates from Associates (which also included general education programs), will reduce the overall average
cost of culinary education by 50%. In addition, in 2Q11 and 3Q11, CECO implemented a new Student Orientation and Academic Readiness (SOAR) program in its
AIU and CTU schools, requiring new online undergraduate students with no prior college experience to pass a college preparatory course to continue their studies.
Those that do not pass will not receive a grade for their course, will be excluded from the companys start numbers, and will not be charged tuition. Following this
implementation, management noted roughly one third of new undergraduate students were enrolling in SOAR with a 50%-60% pass rate.
Corinthian
Colleges (COCO)
Decision to curtail Ability to Benefit (ATB) students beginning September 1, 2010 and setting enrollment caps at schools in locations with very poor job markets.
However, the December 2011 Appropriations Act disallowed ATB students from receiving Pell Grants effective July 1, 2012, hence the company stopped enrolling
ATB students, which were roughly 7.5% of total enrollment in FY2012 (vs. 23.8% at June 30, 2009). In October 2012, COCO began offering GED programs to the
general public to try to offset some of the loss from ATB students.
Grand Canyon
Education (LOPE) Grand Canyon University shifted to a Borrower Based Academic Year (BBAY) beginning in April 2010. All new and continuing LOPE online and professional
studies students starting a new award year now have financial aid awarded based on the BBAY non-term processing. Management believes this shift affected retention
and to a lesser extent starts as it limited Title IV borrowing, causing students who previously used funds for other expenses (e.g., living expenses) in addition to tuition
to drop out or enroll somewhere else. We believe a shift to BBAY may help improve retention over time as students are required to complete programs before being
eligible for further aid awards.
ITT Educational
Services (ESI)
In June 2011, management announced it had restructured its program delivery format, by reducing its associate degree program (8% of enrollments) to 20 courses
from 24 courses and the number of credits for a degree reduced to 90 from 96, reducing graduation time to 6.75 academic quarters from 8, and potential reducing the
cost of the degree by roughly 7%. Management is also considering new bachelors programs that reduce completion time to 13 1/3 quarters from 15.
Lincoln
Educational
Services (LINC)
Raise the minimum ATB test scores for admission.. As ATB students are no longer eligible for Pell Grants, the company will begin offering a GED program to
Strayer Education
(STRA)
STRA initially reduced the number of new campus openings in 2012, and did not open any new locations in 2013. In the fall of 2013, management introduced a new
these students.
scholarship plan whereby a students fourth class was offered free.

Washington Post
(WPO)
In 4Q10, Kaplan Higher Education implemented a new program entitled the Kaplan Commitment. Under this program, students try classes for three weeks before
incurring a financial obligation. Kaplan will also conduct academic assessments to help determine whether students are likely to be successful in their chosen course of
study. Students who choose to withdraw from the program during this timeframe or students who do not pass the academic evaluation will not have to pay for the
coursework. In recent quarters, management has partially attributed declining enrollment to this program.
A member of BMO
Financial Group
311
September 2013
BMO Capital Markets
Competency-
Competency-based learning. Recently we have seen an increased acceptance of programs that
based learning
do not use the traditional credit hour model but rather where Title IV financial aid may be
awarded based on students mastery of competencies rather than their accumulation of credits.
We believe the greater acceptance of this model could spur continued growth in postsecondary
education, especially for nontraditional students.
The pioneer of this type of program is Western Governors University (WGU), which was
incorporated in 1997 as an online, competency-based university. In March 2013, the ED
announced that higher education institutions could apply to provide Title IV financial aid to
students enrolled in competency-based programs and spelled out a process for doing so. Since
that time, we have seen a number of new entrants, including:
Capella Universitys (CPLA) FlexPath program, which offers bachelor's and master's
degrees in business via a self-paced, direct-assessment method; and
Southern New Hampshire Universitys College for America which provides associates
degrees for mastery to 120 competencies;
A number of other schools have received approval from their accrediting bodies but were still
waiting for ED approval at the time of this publication, including Education Managements
Argosy University (MBA program). In addition, privately held UniversityNow offers
competency-based programs through its New Chart University, although the school is not Title
IV eligible.
State oversight
In addition to federal oversight, states provide another level of school oversight. Some specific
actions taken by states in recent years include:
California. In October 2009, a bill was signed reestablishing a state agency to oversee the
for-profit industry. In March 2011, a new bill was signed requiring Cal Grant
participating institutions with more than 40% of undergraduate students using Title IV
loans maintain a trial three-year CDR below 24.6% in 2011-2012 to be eligible for initial
awards. For the 2012-2013 academic year and beyond, a three-year CDR below 30%
would be required. This measure also reduces by 20% the renewal Cal grants at
institutions with three-year CDRs above 24.6%. In addition, a 90/10 limitation was
instituted for for-profit institutions in the state limiting Title IV and Cal Grants to no
more than 90% of fiscal year revenues.
Maryland. On May 10, 2011, Senate Bill 695 was passed, giving the Maryland Higher
Education Commission the authority to regulate for-profit institutions of higher education
and prohibits incentive pay for student recruiters. It also phases out state-financed aid for
students at these schools by June 30, 2016.
New York. In January 2006, the New York State Board of Regents imposed a
moratorium on approving applications for new for-profit colleges in the state and for
expanding existing ones, citing negative publicity for certain schools (e.g., Interboro
Institute) and wishing to ensure that proper accountability measures were in place. In
December 2006, these restrictions were modified and the moratorium was lifted.
However, the Board of Regents and the New York State Education Department were
given authority to withhold permanent degree-granting authority for new for-profit
A member of BMO
Financial Group
312
September 2013
BMO Capital Markets
colleges for up to five years, during which time state officials can closely monitor the
colleges. The new rules also require the state to approve any change of ownership of a
for-profit college.
Ohio. In 2007, Ohios Governor signed a budget bill that retained the states $30 million
tuition-grant program for students attending for-profit schools. However, the FY2009FY2010 Ohio state budget eliminated the OCOG.
We have also seen a number of actions and investigations being taken by state attorneys
general offices, in addition to those listed below against specific institutions. These include:
In May 2011, the attorney general of Kentucky announced he was leading a multistate
working group of at least 10 states in a joint investigation of the sector. As of early 2013,
at least 30 state attorneys general had joined the group.
In May 2012, attorneys general for 21 states called on Congress to close an "apparent
loophole" within the 90/10 rule that they say encourages for-profit colleges to use "highpressure recruiting tactics" on military veterans.
In June 2012, a group of 15 state attorneys general announced an investigation of lead

generator QuinStreet (QNST).
In February 2013, the Massachusetts attorney general announced she was investigating
more than 12 for profit schools in her home state.
The regulatory and legal issues faced by several of the publicly held companies are numerous
and are in a constant state of flux. In the following exhibits, we have provided some of the
regulatory and legal-related issues that have affected the companies in the sector.
A member of BMO
Exhibit 339. Accreditation-related issues
Exhibit 340. Class action lawsuits
Exhibit 341. Department of Education issues
Exhibit 342. False Claims Act/Qui Tam lawsuits
Exhibit 343. Other civil issues
Exhibit 344. Other Federal agency issues
Exhibit 345. SEC-related issues
Exhibit 346. Shareholder derivative actions
Exhibit 347. State regulations
Financial Group
313
September 2013
BMO Capital Markets
Exhibit 339. Accreditation-Related Issues

Ticker
APEI
Type
Dept. of Education
APOL
Dept. of Education
APOL
APOL
Dept. of Education
Dept. of Education
Date
Nature of Issue
Feb-11 Program review of Title IV administration FY2010 and FY2011
award years
Dec-05 OIG audit finds improper Title IV calculation from September
2002 to December 2004.
Mar-07 Application for certification of UOP to participate in Title IV
Oct-08 Self reported issues related to financial aid distribution and SAP
Status
Closed
Closed
Outcome/Disposition
APEI responding to initial review findings, could have to
return up to $837,000
Repays $4.2 million in February 2008
Closed
Closed
Recertified in November 2009 until December 31, 2012

Re-paid $8.4 million to ED to settle matter
Closed June 2010. Paid $0.7 million owing to improper
timing of Title IV returns. Corrected self-reported internal
clerical errors and posted $126 million letter of credit
Recertified in May 2010 until September 30, 2014
Received final review in February 2011, no significant or
No adverse findings
Recertified in November 2009 until December 2012
OIG gave final report in Jan. 2011, awaiting decision on
findings from office of federal student aid.
Department has scheduled an on-site program review from
August 20 - 24, 2012.
APOL
Dept. of Education
Feb-09 Program Review of University of Phoenix's policies and

procedures involving Title IV programs.
Closed
APOL
APOL
APOL
APOL
BPI
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Closed
Closed
Closed
Closed
Ongoing
BPI
Dept. of Education
Mar-09 Application for certification of WIU to participate in Title IV

Dec-10 Program Review; Covers FY2009-FY2011
Jul-12 Review of Title IV administration
Application for certification of UOP to participate in Title IV
May-08 OIG Audit of administration of Title IV funds and compliance with
other regulations (March 2005-June 2009)
Jul-12 Department of Education to assess University of the Rockies
administration of Title IV programs for 2010-2011 and 2011-2012
CECO
CECO
Dept. of Education
Dept. of Education
Jan-04 Program Review - Gibbs College, Livingston NJ

Jan-05 OIG audit to determine 90/10 compliance at SBC
Closed
Closed
CECO
Dept. of Education
Jan-05 OIG audit to determine 90/10 compliance at SBI - Atlanta
Closed
CECO
Dept. of Education
Feb-05 Program review of Brooks College - Long Beach
Closed
CECO
Dept. of Education
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Jun-05 ED imposed growth restrictions until conclusion of 10-12 program

reviews
Feb-06 ED reviewing 2004 compliance audit opinions
May-06 ED reviewing 2005 compliance audit opinions
Jul-06 Program Review - Briarcliffe College
Oct-06 Program Review - The Cooking & Hospitality Inst. Chicago
Nov-06 Program Review - Brooks Institute
Nov-06 Program Review - AIU
Nov-06 Program Review - Gibbs College, Boston; MA
Nov-06 Program Review - Lehigh Valley College
Nov-06 Program Review - Gibbs College, Vienna; VA
Nov-06 Program Review - Sanford Brown Institute, Atlanta
Nov-06 Program Review - Int. Academy of Design and Tech. Chicago
Nov-06 Program Review - Katherine Gibbs School, NY
Nov-06 Program Review - California Culinary Academy
Dec-06 OIG to investigate LCB-Atlanta school relating to Title IV
administration
Jan-07 Program Review - Western School of Health & Bus.
Careers/Sanford Brown Institute - Pittsburgh
Nov-09 Program review found flaws in AIU's enrollment and attendance
policies
Jun-10 OIG Title IV compliance audit of Colorado Technical University
CECO
Dept. of Education
CECO
Dept. of Education
Ongoing
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
CECO closed (taught out) school in 1Q10

November 22, 2005; School met 90/10 but must enhance
90/10 reporting capability
January 18, 2006; School met 90/10 but must enhance
Final review in May 2006, paid $9K to ED and $15K to other
lenders
Compliance issues were resolved and growth restrictions
lifted on January 19, 2007
No outcome announced
Final review required $0.9 million refund
Final determination issued 2Q08 - no material impact
Final determination issued 4Q07- no material impact
Closed investigation with no action on August 8, 2007
Closed
Closed
Closed findings in June 2012 with no further requirements
Ongoing
CECO disagreed with findings in March 2012, ED fed aid

office will make determination
CECO on heightened Cash Monitoring 1 status
Settled with ED in April 2006 for $23K, and closed program
CECO
Dept. of Education
CECO
CECO
CECO
Dept. of Education
Dept. of Education
Dept. of Education
Dec-11 Inquiry into placement rates

FY2008 Program Review - Brooks Institute
FY2008 Program review of Collins, initial report in July 2004
Ongoing
Closed
CECO
COCO
COCO
Dept. of Education
Dept. of Education
Dept. of Education
Closed
Closed
Closed
Final review in February 2006, paid fines of $487,000

FY2010 audit complete - no action taken
January 21, 2009; OIG informs no action to be taken
COCO
Dept. of Education
FY2006 Program review of PCI

Oct-98 OIG review of 90/10 compliance
Oct-07 OIG serves search warrant at National School of Technology in
Ft. Lauderdale, FL
Aug-08 Program Review - Phoenix
Ongoing
COCO
COCO
COCO
COCO
COCO
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Sep-08
Sep-08
Sep-08
Sep-08
Sep-08
Report issued April 2010 - found several potential violations,

COCO responded and is awaiting final draft
No material findings
April 2010 report had several findings and company is
disputing some and working to resolve others
Draft audit on April 26, 2010 found non-compliance on
behalf of lenders, but not COCO
Nov 2011 determination, COCO to return Title IV of $3.6
million
Resolved in April 2011, no material findings
Immaterial liabilities paid
No liabilities assessed
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
Concluded July 2012, no actions or refunds required
Program Review - Fremont, CA

Program Review - Reseda, CA
Program Review -Tampa, FL
Program Review - Gardena, CA
Program Review - Everest Phoenix online
Closed
Closed
Closed
Closed
Closed
COCO
Dept. of Education
Oct-08 OIG audit of Everest - Brighton, MA
Closed
COCO
COCO
Dept. of Education
Dept. of Education
Jul-10 Program Review - Colorado Springs, CO

Aug-10 Program Review -Tampa, FL online
Closed
Closed
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
CPLA
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Feb-11
Feb-12
Apr-12
Apr-12
Apr-12
Aug-12
Sep-12
Sep-12
Jun-13
Jun-13
Jul-13
Aug-13
Apr-06
Program Review - San Antonio

Program Review Laramie, WY; Blairsville, PA; Sacramento, CA
Program Review, Springfield, MO
Program Review, Crosslanes, WV
Program Review, Rochester, NY
Program Review, Largo FL; Long Beach, CA;
Program Review, Pompano Beach, FL
Program Review, Renton, WA
Program Review, Salinas, CA
Program Review, Southfield, MI
Program Review, Stockton, CA
Program Review, Long Beach, CA
OIG compliance audit focused on calculation of return of Title IV
Closed
Closed
Closed
Closed
Closed
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Closed
CPLA
CPLA
DV
EDMC
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Sep-08
Apr-12
May-11
Mar-11
Submitted application for Title IV recertification

Program Review
Program Review of Title IV administration
OIG Subpoena - South University & Art Institute Pittsburgh
Closed
Closed
Closed
Closed
EDMC
Dept. of Education
May-13 OIG Subpoena - Argosy University
EDMC
Dept. of Education
FY2013 Four program reviews at EDMC schools versus three in FY2012
LINC
Dept. of Education
Closed
no further action required

July 2012, no liabilities no further action required
No adverse findings
SAP and licensing of programs (Jan 2006 - March 2011),
EDMC is cooperating, has not heard back
Requesting policies and procedures re: attendance,
withdrawal and return to Title IV policies and detailed
information on a number of students who enrolled
in the Bachelor's of Psychology degree program
For FY2014 to date, have had two program reviews and
one additional review is scheduled
No update available
Closed
Ongoing
Final letter May 29, 2008 - $0.2 million repaid to ED

Expires September 2013
Closed
Report issued February 2011, no liabilities assessed.

Closed April 2011
Began in March 2011, final program review issued April
2011, no monetary liabilities assessed
Completed August 2011, no liabilities found
Ongoing
Ongoing
LINC
LINC
Dept. of Education
Dept. of Education
LINC
Dept. of Education
Jan-06 Program Review - Lincoln College of Technology (fka Denver

Automotive Diesel College)
Feb-08 Program Review - Southwester College
Apr-10 All institutions put on provisional Title IV certification following
change of control
Jan-11 Program review of Philadelphia campus (FY2010 and FY2011)
LINC
Dept. of Education
Feb-11 Program review of Dayton campus (FY2010 and FY2011)
Closed
LINC
Dept. of Education
Dept. of Education
Dept. of Education
Jul-11 Program review of Grand Prairie, TX, campus (title IV

administration for FY2010 and FY2011)
Aug-11 Program review of Philadelphia campus (FY2010 and FY2011)
Mar-08 Applied for Title IV recertification
Closed
LINC
LOPE
Closed
Closed
LOPE
Dept. of Education
Aug-08 OIG investigation - recruiter compensation practices
Closed
LOPE
NAUH
Dept. of Education
Dept. of Education
Jul-10 Program review related to return of Title IV compliance issues

Mar-11 Program review
Ongoing
Closed
Closed
Ongoing
STRA
STRA
Dept. of Education
Dept. of Education
Jan-08 Program Review - Title IV compliance

Aug-10 Program Review
STRA
Dept. of Education
Dec-11 Program review
Ongoing
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Sep-08
Oct-08
Jan-10
Feb-11
Jun-11
Aug-11
Sep-11
Sep-11
Aug-13
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Ongoing
Program Review - Chicago Broomall

Program Review - Baltimore
Program Review - Bauder
Program Review - Phoenix
Program Review - Brooklyn, OH
Program Review - Harrisburg, PA
Program Review - Houston TX
Program Review - San Antonio, TX
Program reviews
Completed November 2011, no liabilities found

In April 2011, LOPE received provisional certification
through December 2013. LOPE may apply for full
certification.
Related to qui-tam suit filed Aug. 2007 (period Jan. 2004 to
Aug. 2008)
LOPE has offered settlement plan of about $3.5 million
Final program review issued May 2012, resulting in return of
$336,000.
Completed in 2008 - closed with no findings
March 2011, preliminary report finds AA in General Studies
not eligible for Title IV, STRA is contesting
Program participation agreement put on provisional basis
owing to not disbursing Title IV in timely manner
Settled July 2011, $1.6 million, related to DOJ investigation
No adverse findings
Closed January 2010, no action
Closed October 2011, five immaterial findings
Closed October 2011, no findings.
Final report September 2011, no findings
October 2011 - final report, no findings
Currently six open/pending reviews
Source: Company filings and press releases.
A member of BMO
Financial Group
314
September 2013
BMO Capital Markets
Exhibit 340. Class Action-Related Issues

Date
Suit Title
Nature of Issue
Aug-10 Douglas N. Gaer v. American
Allege company made false and misleading statements
Public Education, Inc.
Sep-03 Bryan Sanders et al v. University Plaintiff contends the Company failed to pay overtime.
of Phoenix, Inc. et al,
Ticker
APEI
Type
Class Action
APOL
Class Action
APOL
Class Action
May-05 In re Apollo Group Incorporated,

Securities Litigation.
Sep-06 Equal Employment Opportunity
Commission v. University of
Phoenix, Inc.,
Feb-09 Angela Russ; Shawn Martin;
Nitisha Ingram vs. Apollo Group
and The University of Phoenix
APOL
Class Action
APOL
Class Action
APOL
APOL
APOL
APOL
APOL
BPI
Class Action
Class Action
Class Action
Class Action
Class Action
Class Action
Apr-09
Jul-09
Sep-09
Jan-10
Mar-13
Aug-10
Tranchita
Sabol
Davis
Adoma
Swink v. Univ. of Phoenix
Douglas N. Gaer v. American
Public Education, Inc.
Jan-11 Rosendahl v. Bridgepoint
Education, Inc.
Feb-11 Stevens v. Bridgepoint Education
Sanchez v. Bridgepoint
Education
Moore v. Ashford University,
LLC.
Status
Closed
Outcome/Disposition
Dismissed December 2011
Closed
October 2006 judged for APOL
Alleges failure to disclose a potentially damaging government

report regarding compensation practices.
Closed
Sept. 2011, settlement of $145 million
Alleges religious discrimination against former employees.
Closed
$2 million settlement reached in November
Alleges that UOPX improperly returned the entire amount of

students undisbursed federal loan funds to the lender.
Closed
Dismissed August 31, 2010, APOL settled for immaterial

amount
Wage and Hour claims

Alleges illegal use of automatic dialing systems
Allege company made false and misleading statements
Closed
Closed
Closed
Closed
Closed
Closed
Settled. Case dismissed June 2010.

Settled in January 2011.
Settled. Case dismissed June 2010.
August 2011, immaterial settlement agreement.
Dismissed April 2013
Dismissed December 2011
BPI
Class Action
BPI
Class Action
BPI
Class Action
BPI
Class Action
BPI
CECO
Class Action
Class Action
CECO
Class Action
CECO
Class Action
Plaintiffs allege admissions reps at Brooks Institute of

Mar-05 Thurston, et al. v. Brooks
Photography and AIU made a variety of misrepresentations to
College, Ltd., et al; Nilsen v.
Brooks Institute of Photography, them.
et al.; Outten , et al. v. American
intercontinental University, Inc.
CECO
Class Action
Class Action
Jun-05 Benoit, et al v. Career Education

Corporation, et al.
Aug-05 Onate and Lawrence, et al. v.
The Katharine Gibbs
Corp.New York, the Katharine
Gibbs Corp.Melville, and
Career Education Corp.
Plaintiffs allege admissions reps Ultrasound Technology Services Closed

made a variety of misrepresentations to them.
Plaintiffs allege admissions reps at Katherine Gibbs made a
Closed
variety of misrepresentations to them.
Plaintiff moved to dismiss
CECO
CECO
Class Action
Closed
Settled in October 2008
Class Action
Arbitration was set for December 2006, no updates since
Class Action
Plaintiffs allege admissions reps at Allentown Business School

Plaintiffs allege admissions reps at Ultrasound Technology
Services made a variety of misrepresentations to them.
Closed
CECO
Closed
Settled
CECO
Class Action
Aug-05 Vander Vennet, et al. v.

American intercontinental
University, Inc., et al.
Sep-05 McCarten et. Al. v. Allentown
Business School
Mar-06 Laronda Sanders, et al. v.
Ultrasound Technical Services,
Inc., et al.
Sep-07 Amador v California Culinary
Academy and Career Education
Corporation; Adams, v. California
Culinary Academy and Career
Education Corporation.
The suit filed by admissions advisors alleges that AIU Online

failed to pay overtime.
CECO
The suit alleges that CCA made a variety of misrepresentations

to the plaintiff class relating to the school's reputation and the
value of the education.
Closed
Settled November 2010 for $40 million
Oct-07 Tino Anglade, et al. v. Career

Education Corp.
Feb-08 Lilley et al. v Career Education
Corp.
Closed
Settled
Ongoing
Pending
Ongoing
Pending
Closed
Oral arguments were expected March 2, 2010
Jan-12 Guzman v. Bridgepoint

Education, Inc.
Jul-12 Franke, Sacharczyk, Stein v.
Bridgepoint
Oct-12 Marla Montano v. Bridgepoint
Oct-03 Finnigan, et. al. v. American
InterContinental University
Online
Dec-03 In re Career Education
Corporation Securities Litigation
CECO
Class Action
CECO
Class Action
CECO
Class Action
Mar-08
CECO
Class Action
Mar-08
Class Action
Jun-08
CECO
Class Action
Jun-08
CECO
Class Action
Aug-10
Dec-10 Kelly, et al. v. Career Education

Corporation,
Jan-12 Ross v. Career Ed.
May-12 Kishia Houck v. CECO Int.
Academy of Merchandising and
Design
Sep-12 Stafford v. AIU
Jan-13 Cohen V. CECO IAD
Jan-13 Cernohorsky v. CECO IAD
Jun-13 Enea v. CECO, California
Culinary Academy
May-03 Montoya v. Corinthian Schools,
Inc., et al.,
Mar-04 Travis, Alan Alvarez, Satz v.
Rhodes Colleges, Inc.,
Corinthian Colleges, Inc., and
Florida Metropolitan University
Nov-07 Hardwick, et al. v. Corinthian
Colleges, inc.
Dec-07 Leask v. Corinthian Colleges,
Inc., and Corinthian Schools,
Inc., et al.
May-08 Rivera v. Sequoia Education Inc.
and Corinthian Colleges Inc.
CECO
Class Action
Class Action
Class Action
CECO
CECO
CECO
CECO
Class Action
Class Action
Class Action
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
Class Action
COCO
COCO
COCO
COCO
COCO
Class Action
Class Action
Class Action
Class Action
Class Action
COCO
COCO
COCO
COCO
CPLA
Class Action
Class Action
Class Action
Class Action
Class Action
Ongoing
Cased moved to arbitration
Denied wage and hour protections in California.
Closed
Settlement reached April 2012 $10.8 million
Alleges misrepresentation and unlawful behavior to recruit and

retain students.
Filed suit for false and misleading statements, specifically
concealment of accreditation problems.
Wrongful termination allegations
Employees allege overtime pay was denied
Ongoing
Case pending
Ongoing
Complaint filed
Ongoing
Closed
Pending
The suits alleges that CECO violated SEC rules by insider trading Closed
after falsifying financial data
The suit filed by admissions advisors alleges CECO failed to pay

during meal periods worked.
The plaintiff's are students who allege that CECO misrepresented
transferability of credits, job placement potential and quality of
education and instruction.
Surrett, et al. v. Western Culinary Plaintiffs allege deceptive acts including misrepresenting job
Institute, Ltd. and Career
placement and post-graduation salary potential and quality of
education and instruction.
Education Corporation.
Diallo v. American
Alleges several misrepresentations relating to the school's
intercontinental university, inc.
reputation and the value of its education.
and Career Education Corp.
Alleges that defendants committed fraud and violated the
Vasquez, et al. v. California
School of Culinary Arts, inc. and California Unfair Competition Law and the California Consumer
legal Remedies Act.
Career Education Corp.
Blake v. Career Education Corp. Alleges that SBC admissions representatives made material
misrepresentations to prospective students.
Fahey, et al v. Career Education Violations of Telephone Consumer Protections Act
Corporation; Rojas, et al v.
Career Education Corporation.
CECO
CECO
CECO
Fraudulent and illegal recruitment of students.
Nov-08 Mary Credille and Roger

Madden, (), v. Corinthian
Colleges et al.,
Sep-09 Miesha Daniels, et al. v. ()
Corinthian Colleges, Inc.
Dec-09 Mancuso, () v. Florida
Metropolitan University, Inc and
Corinthian Colleges, Inc,
Apr-10 Reed, () v. Florida Metropolitan
University, Inc. and Corinthian
Colleges, Inc.
Aug-10 Jimmy Elias Karam v. Corinthian
Colleges & Neal J. Totten v.
Aug-10 Chelsi Miller, Daniel Marty and
Christie Cotton ()
Nov-10 Alisha Montgomery, et al., ()
Dec-10 Jacquel Kimble ()
Jan-11 Kevin Ferguson (...)
Feb-11 Laura Irizarry (...)
Mar-11 Sharon Jalanic-Reed, Lynell
Graves (...)
Mar-11 Noravel Arevalo (...)
Apr-11 Kenneth Stockman (...)
Sep-11 Michael Harrington v. COCO
Jun-13 Frank Erickson v COCO
Nov-10 Oklahoma Firefighters Pension
and Retirement System v.
Capella Education Company
Closed
$4.9 million settlement reached in September 2008
Settled April 29, 2008 for $12.4 million
Settled in August 2006
Ongoing
Pending - $2.1 million in settlements paid, though not all

class has settled
Closed
Settlement reached around mid-2009
Closed
Settled June 2012 - $6 million
Violated Fair Labor Standards Act
Closed
Settled April 2011, $0.2 million
Violation of SEC rules

Misrepresentation to students about outcomes
Closed
Ongoing
Settled June 2013 - $27.5 million

Pending arbitration
Violations of Telephone Consumer Protections Act

Closed
Ongoing
Ongoing
Ongoing
Settled July 15, 2013

Pending
Pending
Complaint filed
Alleges failed to pay overtime to instructors
Closed
Settled FY1Q05 - immaterial
Alleges misrepresentations by advisors at FMU
Closed
Settled June 2009 for immaterial amount
Alleges wage and hour violations
Closed
Dismissed January 2009
Alleges inadequate student disclosures
Closed
Settled FY3Q09 for immaterial amount
Alleges misrepresentations regarding the HVAC program at

Wyotech Fremont and Oakland.
Ongoing
Company plans to defend itself
Alleges failure to pay overtime
Closed
Dismissed February 2013
Plaintiffs allege admissions reps at the Dallas area Everest

campus made a variety of misrepresentations to them.
Alleges failure to pay overtime
Closed
Company plans to defend itself, no outcome information

found
Settled in March 2011 for immaterial amount
Closed
Alleges failure to receive approval to offer online programs in

Texas
Closed
Alleges defendants made misrepresentations and failed to

disclose material facts, causing artificial inflation of stock prices.
Closed
Dismissed August 2012 (plaintiffs have appealed)
Alleges misrepresentations to students.
Closed
Alleges violations of consumer and business laws.

Ongoing
Closed
Ongoing
Closed
Closed
Settlement discussions
Settled
Dismissed in FY4Q11
Dismissed in FY4Q11

Wage and pay accusations
Shareholder dispute
Alleges defendants made false or misleading public statements
about our business and prospects during the time period from
February 16, 2010 through August 13, 2010
Ongoing
Closed
Ongoing
Ongoing
Closed

Dismissed in FY4Q11
District court of Minnesota dismissed all claims. June 1,
2012
DV
DV
Class Action
Class Action
Nov-00 Mousavi v. DeVry

Alleges inadequate training
Dec-05 Daghlian v. DeVry University, Inc Recruiter compensation violation
Closed
Closed
Settled June 2006, immaterial

Dismissed July 31, 2009
ESI
Class Action
Aug-04 City of Austin Police Retirement

System,
Individually and on Behalf of All
Others Similarly Situated v. ITT
Educational Services, Inc., et al.
Closed
Dismissed October 24, 2005 - no action
LINC
Class Action
Closed
Class Action
Class Action
Nov-10 In re Lincoln Educational

Services Corp. Securities
Litigation
Oct-10 Kinnett v. Strayer Education
Oct-10 Plumbers Local Pension Fund
Allege the company's directors made false and misleading

statements
STRA
WPO
N.A..
Company made materially false and misleading statements
Closed
Ongoing
Dismissed march 2013

Pending
Made material misleading statements
A member of BMO
Financial Group
315
September 2013
BMO Capital Markets
Exhibit 341. Department of Education-Related Issues

Ticker
APEI
Type
Dept. of Education
APOL
Dept. of Education
APOL
APOL
Dept. of Education
Dept. of Education
Date
Nature of Issue
Feb-11 Program review of Title IV administration FY2010 and FY2011
award years
Dec-05 OIG audit finds improper Title IV calculation from September
2002 to December 2004.
Mar-07 Application for certification of UOP to participate in Title IV
Oct-08 Self reported issues related to financial aid distribution and SAP
Status
Closed
Closed
Outcome/Disposition
APEI responding to initial review findings, could have to
return up to $837,000
Repays $4.2 million in February 2008
Closed
Closed
Recertified in November 2009 until December 31, 2012

Re-paid $8.4 million to ED to settle matter
Closed June 2010. Paid $0.7 million owing to improper
timing of Title IV returns. Corrected self-reported internal
clerical errors and posted $126 million letter of credit
Recertified in May 2010 until September 30, 2014
Received final review in February 2011, no significant or
No adverse findings
Recertified in November 2009 until December 2012
OIG gave final report in Jan. 2011, awaiting decision on
findings from office of federal student aid.
Department has scheduled an on-site program review from
August 20 - 24, 2012.
APOL
Dept. of Education
Feb-09 Program Review of University of Phoenix's policies and

procedures involving Title IV programs.
Closed
APOL
APOL
APOL
APOL
BPI
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Closed
Closed
Closed
Closed
Ongoing
BPI
Dept. of Education
Mar-09 Application for certification of WIU to participate in Title IV

Dec-10 Program Review; Covers FY2009-FY2011
Jul-12 Review of Title IV administration
Application for certification of UOP to participate in Title IV
May-08 OIG Audit of administration of Title IV funds and compliance with
other regulations (March 2005-June 2009)
Jul-12 Department of Education to assess University of the Rockies
administration of Title IV programs for 2010-2011 and 2011-2012
CECO
CECO
Dept. of Education
Dept. of Education
Jan-04 Program Review - Gibbs College, Livingston NJ

Jan-05 OIG audit to determine 90/10 compliance at SBC
Closed
Closed
CECO
Dept. of Education
Jan-05 OIG audit to determine 90/10 compliance at SBI - Atlanta
Closed
CECO
Dept. of Education
Feb-05 Program review of Brooks College - Long Beach
Closed
CECO
Dept. of Education
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
CECO
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Jun-05 ED imposed growth restrictions until conclusion of 10-12 program

reviews
Feb-06 ED reviewing 2004 compliance audit opinions
May-06 ED reviewing 2005 compliance audit opinions
Jul-06 Program Review - Briarcliffe College
Oct-06 Program Review - The Cooking & Hospitality Inst. Chicago
Nov-06 Program Review - Brooks Institute
Nov-06 Program Review - AIU
Nov-06 Program Review - Gibbs College, Boston; MA
Nov-06 Program Review - Lehigh Valley College
Nov-06 Program Review - Gibbs College, Vienna; VA
Nov-06 Program Review - Sanford Brown Institute, Atlanta
Nov-06 Program Review - Int. Academy of Design and Tech. Chicago
Nov-06 Program Review - Katherine Gibbs School, NY
Nov-06 Program Review - California Culinary Academy
Dec-06 OIG to investigate LCB-Atlanta school relating to Title IV
administration
Jan-07 Program Review - Western School of Health & Bus.
Careers/Sanford Brown Institute - Pittsburgh
Nov-09 Program review found flaws in AIU's enrollment and attendance
policies
Jun-10 OIG Title IV compliance audit of Colorado Technical University
CECO
Dept. of Education
CECO
Dept. of Education
Ongoing
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed

November 22, 2005; School met 90/10 but must enhance
January 18, 2006; School met 90/10 but must enhance
Final review in May 2006, paid $9K to ED and $15K to other
lenders
Compliance issues were resolved and growth restrictions
lifted on January 19, 2007
Final review required $0.9 million refund
Closed investigation with no action on August 8, 2007
Closed
Closed
Closed findings in June 2012 with no further requirements
Ongoing
CECO disagreed with findings in March 2012, ED fed aid

office will make determination
CECO on heightened Cash Monitoring 1 status
Settled with ED in April 2006 for $23K, and closed program
CECO
Dept. of Education
CECO
CECO
CECO
Dept. of Education
Dept. of Education
Dept. of Education
Dec-11 Inquiry into placement rates

FY2008 Program Review - Brooks Institute
FY2008 Program review of Collins, initial report in July 2004
Ongoing
Closed
CECO
COCO
COCO
Dept. of Education
Dept. of Education
Dept. of Education
Closed
Closed
Closed
Final review in February 2006, paid fines of $487,000

FY2010 audit complete - no action taken
January 21, 2009; OIG informs no action to be taken
COCO
Dept. of Education
FY2006 Program review of PCI

Oct-98 OIG review of 90/10 compliance
Oct-07 OIG serves search warrant at National School of Technology in
Ft. Lauderdale, FL
Aug-08 Program Review - Phoenix
Ongoing
COCO
COCO
COCO
COCO
COCO
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Sep-08
Sep-08
Sep-08
Sep-08
Sep-08
Report issued April 2010 - found several potential violations,

COCO responded and is awaiting final draft
April 2010 report had several findings and company is
disputing some and working to resolve others
Draft audit on April 26, 2010 found non-compliance on
behalf of lenders, but not COCO
Nov 2011 determination, COCO to return Title IV of $3.6
million
Resolved in April 2011, no material findings
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
COCO cooperating
Concluded July 2012, no actions or refunds required
Program Review - Fremont, CA

Program Review - Reseda, CA
Program Review -Tampa, FL
Program Review - Gardena, CA
Program Review - Everest Phoenix online
Closed
Closed
Closed
Closed
Closed
COCO
Dept. of Education
Oct-08 OIG audit of Everest - Brighton, MA
Closed
COCO
COCO
Dept. of Education
Dept. of Education
Jul-10 Program Review - Colorado Springs, CO

Aug-10 Program Review -Tampa, FL online
Closed
Closed
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
COCO
CPLA
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Feb-11
Feb-12
Apr-12
Apr-12
Apr-12
Aug-12
Sep-12
Sep-12
Jun-13
Jun-13
Jul-13
Aug-13
Apr-06
Program Review - San Antonio

Program Review Laramie, WY; Blairsville, PA; Sacramento, CA
Program Review, Springfield, MO
Program Review, Crosslanes, WV
Program Review, Rochester, NY
Program Review, Largo FL; Long Beach, CA;
Program Review, Pompano Beach, FL
Program Review, Renton, WA
Program Review, Salinas, CA
Program Review, Southfield, MI
Program Review, Stockton, CA
Program Review, Long Beach, CA
OIG compliance audit focused on calculation of return of Title IV
Closed
Closed
Closed
Closed
Closed
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Closed
CPLA
CPLA
DV
EDMC
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Sep-08
Apr-12
May-11
Mar-11
Submitted application for Title IV recertification

Program Review
Program Review of Title IV administration
OIG Subpoena - South University & Art Institute Pittsburgh
Closed
Closed
Closed
Closed
EDMC
Dept. of Education
May-13 OIG Subpoena - Argosy University
EDMC
Dept. of Education
FY2013 Four program reviews at EDMC schools versus three in FY2012
LINC
Dept. of Education
Closed
no further action required

July 2012, no liabilities no further action required
No adverse findings
SAP and licensing of programs (Jan 2006 - March 2011),
EDMC is cooperating, has not heard back
Requesting policies and procedures re: attendance,
withdrawal and return to Title IV policies and detailed
information on a number of students who enrolled
in the Bachelor's of Psychology degree program
For FY2014 to date, have had two program reviews and
one additional review is scheduled
No update available
Closed
Ongoing
Final letter May 29, 2008 - $0.2 million repaid to ED

Expires September 2013
Closed
Report issued February 2011, no liabilities assessed.

Closed April 2011
Began in March 2011, final program review issued April
2011, no monetary liabilities assessed
Completed August 2011, no liabilities found
Ongoing
Ongoing
LINC
LINC
Dept. of Education
Dept. of Education
LINC
Dept. of Education
Jan-06 Program Review - Lincoln College of Technology (fka Denver

Automotive Diesel College)
Feb-08 Program Review - Southwester College
Apr-10 All institutions put on provisional Title IV certification following
change of control
Jan-11 Program review of Philadelphia campus (FY2010 and FY2011)
LINC
Dept. of Education
Feb-11 Program review of Dayton campus (FY2010 and FY2011)
Closed
LINC
Dept. of Education
Dept. of Education
Dept. of Education
Jul-11 Program review of Grand Prairie, TX, campus (title IV

administration for FY2010 and FY2011)
Aug-11 Program review of Philadelphia campus (FY2010 and FY2011)
Mar-08 Applied for Title IV recertification
Closed
LINC
LOPE
Closed
Closed
LOPE
Dept. of Education
Aug-08 OIG investigation - recruiter compensation practices
Closed
LOPE
NAUH
Dept. of Education
Dept. of Education
Jul-10 Program review related to return of Title IV compliance issues

Mar-11 Program review
Ongoing
Closed
Closed
Ongoing
STRA
STRA
Dept. of Education
Dept. of Education
Jan-08 Program Review - Title IV compliance

Aug-10 Program Review
STRA
Dept. of Education
Dec-11 Program review
Ongoing
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
WPO
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Dept. of Education
Sep-08
Oct-08
Jan-10
Feb-11
Jun-11
Aug-11
Sep-11
Sep-11
Aug-13
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Closed
Ongoing
Program Review - Chicago Broomall

Program Review - Baltimore
Program Review - Bauder
Program Review - Phoenix
Program Review - Brooklyn, OH
Program Review - Harrisburg, PA
Program Review - Houston TX
Program Review - San Antonio, TX
Program reviews
Completed November 2011, no liabilities found

In April 2011, LOPE received provisional certification
through December 2013. LOPE may apply for full
certification.
Related to qui-tam suit filed Aug. 2007 (period Jan. 2004 to
Aug. 2008)
LOPE has offered settlement plan of about $3.5 million
Final program review issued May 2012, resulting in return of
$336,000.
Completed in 2008 - closed with no findings
March 2011, preliminary report finds AA in General Studies
not eligible for Title IV, STRA is contesting
Program participation agreement put on provisional basis
owing to not disbursing Title IV in timely manner
Settled July 2011, $1.6 million, related to DOJ investigation
No adverse findings
Closed January 2010, no action
Closed October 2011, five immaterial findings
Closed October 2011, no findings.
Final report September 2011, no findings
Currently six open/pending reviews
A member of BMO
Financial Group
316
September 2013
BMO Capital Markets
Exhibit 342. False Claims Act/Qui-Tam Lawsuits

Ticker
APOL
Type
False Claims
Act/Qui Tam
APOL
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
APOL
APOL
APOL
BPI
BPI
CECO
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
Date
Suit Title
Nature of Issue
Mar-03 United States of America ex rel. Alleges UPX violated recruiter compensation rules.
Hendow v. University of Phoenix
Jul-05
Aug-05
Aug-08
May-11
Jul-10
Mar-11
Dec-02
Status
Closed
Outcome/Disposition
$67.5 million settlement ($78.5 million with attorney fees)
reached in December 2009. DOJ did not intervene.
Related to potential enrollment and financial aid violations
Closed
Dismissed February 2, 2007
Alleges UPX improperly compensates its employees.
Closed
Alleges employment claims and claims under the Federal and

Closed
California false claims acts.
Alleges violation of recruiter compensation laws since December Ongoing
2009.
United States of America, ex rel., Incentive compensation violations
Ongoing
James Carter and Roger Lengyel
v. Bridgepoint Education, Inc.,
Ashford
University
Ryan Ferguson and Mark T.
Non compliance with TIV regulations
Closed
Pacheco v. Bridgepoint
United States ex. rel. Shauntee Alleges violations of the False Claims Act and the Higher
Closed
A. Payne v. Whitman Education Education Act
Group, Inc., et. al.
United States of America v.
Alleges violations of the False Claims Act and the Higher
Ongoing
Education Act
American InterContinental
University, Inc.
United States of America, ex rel. Alleges violations of the False Claims Act and the Higher
Ongoing
Education Act
Brent M. Nelson v. Career
Education Corporation, SanfordBrown, Ltd., and Ultrasound
Technical Services,
Inc.
Latest appeal dismissed in February 2010.

Unsealed. DOJ did not intervene. Complaint filed.
US DOJ declined to intervene in January 2013. Case still
pending.
DOJ did not intervene. Dismissed April 30, 2013

June 20, 2005 - case dismissed
CECO
False Claims
Act/Qui Tam
Jul-09
CECO
False Claims
Act/Qui Tam
Apr-13
COCO
False Claims
Act/Qui Tam
Oct-07 United States of America, ex rel. Alleges violations of the False Claims Act and the Higher
Education Act
Stephen Backhus v. Corinthian
Colleges, Inc., et al.,
Closed
Dismissed
COCO
False Claims
Act/Qui Tam

Education Act
Closed
Dismissed
COCO
False Claims
Act/Qui Tam
Oct-07 United States of America, ex rel.

Steven Fuhr v.
Oct-07 United States of America, ex rel.
Nyoka Lee and Talala Mshuja v.

Education Act
Ongoing
Cases were dismissed, though case under appeal.
COCO
False Claims
Act/Qui Tam

Education Act
Ongoing
Under seal
DV
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
DV
DV
EDMC
EDMC
EDMC
ESI
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
ESI
False Claims
Act/Qui Tam
ESI
False Claims
Act/Qui Tam
ESI
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
False Claims
Act/Qui Tam
LOPE
UTI
WPO
WPO
False Claims
Act/Qui Tam
WPO
False Claims
Act/Qui Tam
WPO
False Claims
Act/Qui Tam
Dismissed on July 12, 2012, some aspects of case still

pending
DOJ did not intervene - case unsealed Feb. 2013
Apr-12 United States ex rel. Carolina

Marion v. Heald College and
Corinthian Colleges
Apr-04 v. US Education
Recruiter compensation violation
Closed
Dismissed September 2008
Aug-07 v. Western Career College
Closed
Sep-07 Jennifer S. Shultz v. DeVry
Closed
March 2010, $4.9 million settlement
Apr-07 United States of America, and

various states v. EDMC
May-10 Buchanan v. South University
Online and Education
Management Corporation
Ongoing
Closed
Unsealed, five states have joined case, DOJ intervened in

August 2011
Company plans to defend itself. DOJ has not intervened. No
recent updates.
Mar-12 Sobek v. EDMC
Ongoing
Nov-99 United States ex rel. Dan Graves Recruiter compensation violation

and Susan Newman v. ITT
Educational Services, Inc., et al.
Closed
DOJ did not intervene. August 2013 - reached settlement

pursuant to DOJ approval
Denied relators final petition April 18, 2005
May-02 United States of America ex rel.

Mohamed Mahmoud and Ed
Maloney v. ITT Educational
Services, Inc.
Mar-05 United States of America ex rel.
Robert Olson v. ITT Educational
Services, Inc. d/b/a ITT
Technical Institute
Jul-07 Leveski v ITT
Closed
Dismissed February 26, 2007 - no action
Closed
Violation of TIV rules
Ongoing
Pending
Aug-07
Violations of False Claims Act
Closed
May-12
Ongoing
Settled August 18, 2010 for $5.2 million. DOJ did not
intervene.
Cooperating with investigation

Carlos Urquilla-Diaz, et al. v.
Kaplan University et al.
Apr-08 United States of America ex rel.
Jorge Torres v. Kaplan Higher
Education Corp.
Sep-08 United States of America ex rel.
Victoria Gatsiopoulos et al. v.
ICM School of Business &
Medical Careers et al.
Jan-09 United States of America ex rel.
Charles Jajdelski v. Kaplan
Higher Education Corp.
Related to Title IV eligibility
Ongoing
Narrowed scope in August 2011
False claims allegations
Closed
Dismissed in August 2011
Closed
Dismissed 1Q12
Closed
Dismissed in July 2011
Plaintiffs allege a variety of misrepresentations to them.
A member of BMO
Financial Group
317
September 2013
BMO Capital Markets
Exhibit 343. Other Civil Issues

Ticker
APEI
Type
Other Civil
APOL
Other Civil
APOL
Other Civil
Date
Suit Title
Feb-11 American University System, Inc.
v. American University and
American Public University
System, Inc.
Charles Jajdelski v. Kaplan
Higher Education Corp.
Nov-10 KK Modi Investment and
Financial Services vs. Apollo
Group (filed in New Delhi, India)
CECO
Other Civil
Jun-06
CECO
Other Civil
Jun-11 Abarca v. California Culinary

Academy
CECO
Other Civil
Jun-11 Andrade, et al. v. California

Culinary Academy, Inc.
CECO
Other Civil
Aug-11 Aprieto, et al. v. California

Culinary Academy, Inc.
CECO
Other Civil
Aug-11 Wilson v. CECO
CECO
CECO
CECO
Other Civil
Other Civil
Other Civil
COCO
Other Civil
COCO
Other Civil
COCO
Other Civil
COCO
Other Civil
COCO
Other Civil
COCO
Other Civil
DV
DV
Other Civil
Other Civil
DV
EDMC
Other Civil
Other Civil
EDMC
Other Civil
EDMC
Other Civil
Sep-11 Gonzalez v. CECO

Dec-12 Nimely v CECO
Apr-13 Sumrall and Tavares Vickers v
CECO
Jun-02 Aldape et al. v. Corinthian
Schools, Inc.
Jun-03 Estrada v. Corinthian Schools,
Inc., et al
Feb-05 Michelle Sanchez v. Corinthian
Colleges, Inc.,
Feb-05 Nancy Tsai v. Corinthian
Colleges, Inc., et al.,
Apr-05 Jaclyn Fisher, et al. v. Corinthian
Colleges, Inc.
Jan-06 Mercidita Garcia, et al. v.
Corinthian Colleges, Inc.,
Jan-02 Royal Gardner v. DeVry
Sep-04 Ross University v. American
Univ. of Antigua
May-06 Hines v. Ross University
Jun-09 University of the South v. South
University
Aug-09 Buirkle et al. v. Argosy Education
Group, Inc.
Mar-10 Adibian et al. v. Argosy
University, Education
Management LLC and Education
Management Corporation.
ESI
ESI
ESI
UTI
WPO
Other Civil
Other Civil
Other Civil
Other Civil
Other Civil
Mar-13
Apr-13
May-13
Apr-04
Dec-10
Koetsch v ITT
Massachusetts Laborers' v ITT
Wilfred v. ITT
US Equal Employment
Opportunities Commission
Nature of Issue
Alleged trademark infringement
Status
Closed
Outcome/Disposition
Patent Infringement: Alleges that APOL and UPX, along with

Capella Education Company, Laureate Education Inc., and
Walden University Inc are infringing on patents relating to
managing courseware.
Alleges breach of exclusivity and non-compete agreements for
APOL's investments in India
Ongoing
Under appeal. Settlement offer rejected in FY3Q12.
Ongoing
Set for hearing July 2013
AIU London sues The Open University for wrongful termination of

accreditation agreement
Employee recruiter allegations for change in compensation plan
Closed
Ongoing
Settled in June 2007, AIU-London accredited by another

body
Stayed related to Amador case
Ongoing
Ongoing
Ongoing
Pending
Employee mistreatment allegations

Labor violations
Labor violations
Closed
Ongoing
Ongoing
Settled
Pending
Pending
Former students of Bryman College campus in Los Angeles, CA Closed
Former student of Bryman College Campus in Whittier
Closed
Allegations from student at Bryman College - West LA
Closed
Settled in FY3Q08
Allege admissions reps National Institute of Technology - Long

Closed
Beach made a variety of misrepresentations to them.
Allege admissions reps at Bryman College - Tacoma, WA, made Closed
a variety of misrepresentations to them.
Alleges program misrepresentation
Closed
Immaterial settlement FY4Q07
Settled in FY3Q08
Alleges program misrepresentation

Alleged copyright infringement
Closed
Closed
Settled 2006
Settlement October 2005 - immaterial
Discrimination suit
Trademark suit
Closed
Ongoing
Settled May 2007

No trial date set
Plaintiffs allege admissions reps at the Argosy Dallas campus

Plaintiffs allege admissions reps at the Argosy Dallas campus
Closed
scheduled for arbitration
Closed
Settled in 3Q13, some plaintiffs pursuing fraud suits
Violation of SEC rules and fiduciary duty

Former employees demand payment from NTT transaction
Alleging racial bias
Ongoing
Ongoing
Ongoing
Closed
Closed
Pending
Pending
Pending
May 2008 settlement
Immaterial settlement FY4Q07
A member of BMO
Financial Group
318
September 2013
BMO Capital Markets
Exhibit 344. Other Federal Agency Issues

Ticker
APOL
APOL
APOL
CECO
CECO
CECO
COCO
COCO
EDMC
ESI
ESI
UTI
WPO
Type
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Other Federal
Agency
Date
Suit Title
Sep-06 Internal Revenue Service
Status
Closed
Jan-09 Internal Revenue Service
Nature of Issue
Covers Fiscal years 2003-2005, related to improper deductions
from stock options
Reviewing FY2006-2010
Nov-12 Chile Ministry of Education
Investigation into UNIACC
Ongoing
Outcome/Disposition
Closing agreement reached in November 2009 to pay $27.3
million in taxes
Ongoing
Jun-05 Department of Justice
Chicago DOJ grand jury investigation
Closed
Closed investigation on April 19, 2007
May-06 Department of Justice
Reviewing allegations of false statements to the ED
Closed
Closed August 2007, no actions taken
Aug-11 Department of Veterans Affairs
CTU compliance survey found incorrect certification of monthly

housing allowance
Civil Investigative Demand into private lending practices
Ongoing
Paid $3.6 million
Apr-12 Consumer Financial Protection

Ongoing
Bureau
Dept. of Justice and US Attorney Inquiry into referral and attendance practices, possibly related to Ongoing
qui tam suits
Jul-10 Department of Justice
GAO undercover investigation of recruiter practices - Argosy
Closed
Released findings of misleading practices in August 2010
Feb-04 Department of Justice
DOJ investigation into various student records
Closed
Last mentioned in FY2008 10K
May-12 Consumer Financial Protection

Bureau
May-12 Department of Labor
Investigative demand
Ongoing
Suit related to retaliatory employment practices
Ongoing
Complaint filed
Attorney General Inquiry into Title IV compliance - Chicago

Broomall, surgical technology program
Closed
Settled July 2011, $1.6 million
Jan-08 Department of Justice
COCO cooperating
May relate to another qui tam suit
Exhibit 345. SEC-Related Issues

Date
Nature of Issue
Jun-06 SEC Informal inquiry into stock option grants
Ticker
APOL
Type
SEC related
APOL
APOL
SEC related
SEC related
APOL
SEC related
CECO
SEC related
CECO
SEC related
FY2007 NASDAQ Determination of compliance with Nasdaq Marketplace Closed

Rules
Jan-04 SEC Investigation from Midwest regional office, no details
Closed
available
Apr-12 Chicago regional SEC inquiry related to placement rate practices Ongoing
COCO
COCO
COCO
EDMC
EDMC
SEC related
SEC related
SEC related
SEC related
SEC related
Sep-04
Aug-06
Jun-13
Jul-05
Jun-12
EDMC
SEC related
Mar-13
EDMC
ESI
SEC related
SEC related
May-13
Mar-04
ESI
SEC related
Feb-13
Oct-09 SEC Inquiry into revenue recognition practices

Apr-12 SEC inquiry into insider trading
SEC informal inquiry - no details given

SEC review of stock option grants
SEC investigation into compliance with Dept. of Ed
Informal inquiry into stock trading activity
Letter from Division of Corporation Finance re: FY2011 10K and
FY3Q12 10Q
Subpoena from Division of Enforcement re: goodwill valuation
and student receivables' bad debt allowance
Subpoena from Division of Enforcement re: letters of credit
SEC inquiry into various student records - related to DOJ
investigation
Subpoena, inquiry into private education loan practices
Status
Closed
Outcome/Disposition
SEC closed case in July 2007, with no enforcement action
Closed
Closed
Completed March 2012, no enforcement action.

Investigation completed with no action on January 17, 2013
Closed
Closed
Ongoing
Closed
Ongoing
Closed May 24, 2007 with no action taken

Investigation completed with no action on January 17, 2008
Terminated January 20, 2005 - no action

FY4Q07 completes inquiry no action taken
COCO cooperating
No updates available
Ongoing
Ongoing
Closed
Last mentioned in FY2008 10K
Ongoing
A member of BMO
Financial Group
319
September 2013
BMO Capital Markets
Exhibit 346. Shareholder Derivative Actions

Ticker
APOL
APOL
APOL
APOL
APOL
APOL
APOL
Type
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
BPI
Shareholder
Derivative Action
CECO
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
CECO
CECO
CECO
CECO
CECO
CECO
CECO
COCO
COCO
Shareholder
Derivative Action
COCO
Shareholder
Derivative Action
DV
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
DV
DV
EDMC
EDMC
EDMC
ESI
ESI
Shareholder
Derivative Action
ESI
Shareholder
Derivative Action
ESI
Shareholder
Derivative Action
ESI
Shareholder
Derivative Action
LINC
Shareholder
Derivative Action
Shareholder
Derivative Action
Shareholder
Derivative Action
LINC
LINC
STRA
Shareholder
Derivative Action
Date
Suit Title
Apr-06 Barnett v. John Blair et al.
Nature of Issue
Alleges financial officers backdated stock option grants.
Aug-06 Bamboo Partners v. Nelson et al. Alleges financial officers breached fiduciary duties with regard to
federal securities class action law suits
Sep-06 Alaska Electrical Pension Fund Alleges officers and directors engaged in misconduct regarding
stock option grants.
v. Sperling,
Nov-06 Teamsters Local 617 Pension & The complaint alleges that current and former directors and
Welfare Funds v. Apollo Group, officers violated securities laws regarding stock option
accounting.
Inc et al
Aug-10 Gaer v. Apollo Group, Inc., et. al. Alleges material false and misleading statements that inflated
share prices
Mar-11 Himmel
Breach of fiduciary duty, waste of corporate assets, and unjust
enrichment.
Apr-11 Smith
Breaches of fiduciary duty, abuse of control, gross
mismanagement, unjust enrichment, corporate waste, and insider
trading.
Alleges breach of fiduciary duties of candor, good faith and
Jul-12 Martinez v. Clark (now
loyalty, wasted corporate assets and were unjustly enriched
Bridgepoint shareholder
derivative action)
Jan-04 McSparran v. John M. Larson, et Alleges breach of fiduciary duties for insider stock sales and
misappropriation of information
al.
Jul-04 Xiao-Qiong Huang v. John M.
The lawsuit alleged breach of fiduciary duty for personal profit by
the individual defendants
Larson, et al.,
Nov-04 Nicholas v. Dowdell, et al.,
The lawsuit alleges breach of fiduciary duty for insider stock sales
and misappropriation of confidential information,
Jun-05 Neel v. Dowdell, et al.,
Alleges breach of fiduciary duties for insider stock sales and
misappropriation of information
Aug-05
Plaintiffs allege admissions reps at SBC made a variety of
misrepresentations to them.
Dec-11 Bangari v. Lesnik
Breach of fiduciary duty
Status
Closed
Closed
Outcome/Disposition
May 2010 settlement requires APOL to implement corporate
governance reform and pay immaterial amount.
Dismissed March17, 2009
Closed
Settled September 2008 for an immaterial amount
Ongoing
Case dismissed March 2011. Plaintiffs appeal April 2012

still pending.
Ongoing
Dismissed June 2012, plaintiff appealed July 2012
Ongoing
Closed
Stayed pending results of Smith and Nov 10 shareholder

suit
Dismissed September 2012
Ongoing
Case pending
Closed
Dismissed May 30, 2007
Closed
Dismissed June 27, 2007
Closed
Last action in March 2005
Closed
Last action in March 2007
Closed
Settlement reached in 1Q07
Ongoing
Still pending
Dec-11 Cook v. McCullough
Ongoing
Still pending
Nov-12 Alex v. McCullough
Ongoing
Still pending
Closed
Dismissed in September 2010, COCO paid plaintiffs court

fees
Accuses former officers and directors of breach of fiduciary duty
Closed
Settlement approved September 21, 2009
Alleges defendants made misrepresentations and failed to

disclose material facts, causing artificial inflation of stock prices.
Closed
Voluntarily dismissed
Alleges failure disclose fraudulent recruiting tactics (from Oct.

2007 and Aug. 2010)
2007 and Aug. 2010)
2007 and Aug. 2010)
Alleges misleading statements
Closed
Dismissed March 2013; plaintiff appealed April 2013
Closed
Closed
Closed
Violated fiduciary obligations
Ongoing
Pending
Violated fiduciary obligations
Ongoing
Pending
Apr-04 In Re ITT Educational Services,

Inc. Derivative Litigation.
Breach of fiduciary duties
Closed
Dismissed March 21, 2006 - no action
Sep-04 Alaska Electrical Pension Fund

Derivatively on
Behalf of ITT Educational
Services, Inc. v. Rene R.
Champagne, et
Oct-04 Arthur Stein v. ITT Educational
Services, Inc.
Closed
Demand to inspect accounting records
Closed
Dismissed May 9, 2005 - no action
Closed
Dismissed March 7, 2006 - no action
Closed
Dismissed March 2012
Dismissed October 2011
Jul-04 Collet and Davila, Derivatively on Accuses former officers and directors of breach of fiduciary duty
behalf of Corinthian Colleges,
Inc., v. David Moore, et al.
Aug-06 Adolf (...), Gunkel (...), Pfeiffer
(...), M. Alvin Edwards, III (),
Close, derivatively on behalf of
Corinthian Colleges Inc., v.
David Moore et al.
Oct-10 David Realty Company,
derivatively on behalf of
Corinthian Colleges, Inc., v. Jack
Massimino, et al.,
Nov-10 Boca Raton Firefighters Pension
Jan-11 Hald v. Hamburger
Green v. Hamburger et al.
Mar-11 Dotro v. Hamburger et al.
Aug-10 Gaer v. Education Management
Corp., et. Al
May-12 Oklahoma Law Enforcement v.
Nelson
Aug-13 Bushansky v. Nelson
Nov-04 Albert Reitan, derivatively on

behalf of nominal defendant ITT
Educational Services, Inc. v.
Rand V. Araskog, et. al..
Nov-10 Antonio Cosing, J. Kent Gregory
& Operating Engineers
Construction Industry () v. ITT
Educational Services, Inc.,
Dec-10 Mike Schweertmann v. David F.
Carney, et al.
Feb-11 Gregory and Karen Lehner v.
Shaun E. McAlmont, et al.
Mar-11 Steven C. Lloyd and
Paul Stone v. David F. Carney,
et al.
Jan-11 Vakharloskaya v. Silberman et
al.,
Allege breach of fiduciary duties
Closed
Closed
Dismissed November 2011
Closed
Dismissed October 2011
Closed
Dismissed June 2012, plaintiff may appeal
A member of BMO
Financial Group
320
September 2013
BMO Capital Markets
Exhibit 347. State-Related Issues

Ticker
APOL
APOL
Type
State regulators
State regulators
Date
Nature of Issue
Jul-10 Arizona state audit
May-11 Massachusetts Office of the Attorney General Inquiry
Status
Closed
Ongoing
APOL
APOL
State regulators
State regulators
Aug-11 Delaware Office of the Attorney General Subpoena

Oct-11 Florida Office of the Attorney General Inquiry
Ongoing
Ongoing
Ongoing
Outcome/Disposition
Resulted in net refund of $51.5 million
Inquiry into possible deceptive trade practices from Jan.
2002 to Dec. 2010
Request student information for Jan.2006 to Aug. 2011
2006 to Oct. 2011
Compliance with consumer laws (Jan. 2008 to March 2011).
BPI
State regulators
Feb-11 Iowa Office of the Attorney General Investigation
BPI
State regulators
May-11 New York Office of the Attorney General Subpoena
Ongoing
BPI
State regulators
Sep-11 North Carolina Office of the Attorney General Investigation.
Ongoing
Compliance with consumer laws (March 2005 to Aug.

2011).
Compliance with consumer laws (Jan. 2008 to Sept. 2011)
Sep-12 Iowa's College Student Aid Commission: Information request on

several issues
Jan-13 California Office of the Attorney General Investigation.
May-05 New Jersey Department of Labor and Workforce Development
raised concerns about Sanford Brown Institute - Iselin following
60 Minutes story
Jul-05 California Bureau for Private Postsecondary and Vocational
Education places Brooks Inst. Of Photograph on conditional
approval for two years
Jul-05 Office of Attorney General in Pennsylvania found lending
irregularities at Lehigh Valley College
Oct-05 Texas Higher Education Coordinating Board found Texas
Culinary Institute to have insufficient testing requirements
Apr-06 New York State Education Department, compliance review of
Gibbs-NY
Jan-07 California Bureau for Private Postsecondary and Vocational
Education reviewing application for license renewal of Brooks
Institute of Photography
Nov-10 Florida State Attorney General investigation of Sanford Brown
Ongoing
BPI working with commission
Ongoing
Closed
Period of March 2009 to date of announcement

SBI receives license renewal on Aril 26, 2006
Closed
State rules on May 20, 2006 that Brooks can be on full

approval pending results of official review
Closed
February 19, 2008 agreement with AG to pay fine of $0.2

million and assure compliance
Finished audit on March 13, 2007 and lifted restrictions after
CECO met compliance
NYSED imposed enrollment caps in April 2008. School has
subsequently been taught out.
Issued 5-year license on April 19, 2007
Closed
Closed
BPI
State regulators
BPI
CECO
State regulators
State regulators
CECO
State regulators
CECO
State regulators
CECO
State regulators
CECO
State regulators
CECO
State regulators
Closed
Closed
Closed
CECO
State regulators
CECO
State regulators
CECO
State regulators
CECO
State regulators
CECO
COCO
State regulators
State regulators
COCO
State regulators
COCO
State regulators
COCO
State regulators
May-11 New York Attorney General investigation, related to consumer

protection and misrepresentation of placement rates
Dec-11 Illinois State Attorney General investigation into consumer
protection violations
Jan-12 Oregon Dept. of Justice Investigation related to consumer
protection laws
Sep-12 Massachusetts Attorney General investigative demand
Jun-04 California Attorney General requests documents related to
lawsuits and regulatory issues
Nov-05 Florida Attorney General office compliance investigation of
Florida Metropolitan University
Jan-08 State Attorneys General of Illinois, Arizona and Nevada
investigating relationships with student loan providers
Oct-10 Florida Office of the Attorney General Inquiry
COCO
State regulators
Mar-11 California Office of the Attorney General Inquiry
COCO
COCO
State regulators
State regulators
Apr-11 Massachusetts Office of the Attorney General Inquiry

Ongoing
Apr-11 Atlanta Dept. of Education Office of Inspector General subpoena Ongoing
Ongoing
Information on Sanford Brown fair trade laws (Jan. 2001 to

Feb. 2011)
Paid $10 million settlement in August 2013
Ongoing
Ongoing
Ongoing
Closed
Closed
Settled July 31, 2007 for $6.5 million and to stop 11

programs in 9 campuses
August 21, 2007, immaterial settlement
Closed
Ongoing

2006 to Oct. 2011
Inquiry related to compliance with prior judgment, no
material outcome
Inquiry into possible deceptive trade practices
Inquiry into possible deceptive trade practices, AG may file
a false claims act lawsuit
Inquiry into possible deceptive trade practices, no material
outcome
COCO cooperating
COCO
State regulators
COCO
State regulators
COCO
State regulators
Apr-11 Mid-Atlantic regional office of the Office of Inspector General

subpoena
May-11 New York AG inquiry into financial aid, admissions and other
issues
Aug-11 Oregon office of the Attorney General
COCO
State regulators
Dec-11 Illinois AG inquiry into financial aid, admissions and other issues Ongoing
COCO
State regulators
Dec-12 California Attorney General requests data on student outcomes
Ongoing
COCO cooperating
COCO
State regulators
Jan-13 Wisconsin Dept. of Justice requests student outcome data for

Milwaukee campus COCO is teaching out
Jul-13 Minnesota Attorney General Civil Investigative Demand into
student lending and outcomes data
Apr-07 New York and Minnesota Attorneys General inquiry into student
lending
Apr-13 Illinois Attorney General subpoena incentive compensation
Apr-13 Massachusetts Attorney General investigative demand, student
loans
Jun-07 Massachusetts State Attorney General review of potential
misleading of students by New England Institute of Art
Oct-10 Illinois State Attorney General investigation into recruiter
compensation
Oct-10 Florida Attorney General investigation into possible
misrepresentations at Argosy (Jan 2006 to Present)
Dec-10 Kentucky Attorney General investigation into possible
misrepresentations at Brown Mackie (Jan 2008 to Dec 2010)
Aug-11 New York Attorney General investigation into recruitment
practices (Jan. 2000 to Aug. 2011)
Dec-11 City of San Francisco investigation into student recruitment and
debt
Sep-12 Colorado Attorney General subpoena re: Argosy UnibersityDenver
Jan-13 Massachusetts State Attorney General review of marketing
practices of New England Institute of Art
Attorney General investigation into student loans at Portland Art
Institute and Illinois schools
Oct-02 California State Attorney General - Miscalculation of state grant
awards
Oct-12 Massachusetts Attorney General civil investigative demand into
consumer practices
May-11 New York Attorney General investigation into compliance with
consumer protection laws (may 2005 to May 2011).
Nov-12 Massachusetts attorney general civil investigative demand over
consumer protection laws
N.A. Texas Workforce Commission placed Grand Prairie, TX campus
on conditional certificate owing to low employment metrics.
Ongoing
COCO cooperating
COCO
State regulators
CPLA
State regulators
DV
DV
State regulators
State regulators
EDMC
State regulators
EDMC
State regulators
EDMC
State regulators
EDMC
State regulators
EDMC
State regulators
EDMC
State regulators
EDMC
State regulators
EDMC
State regulators
EDMC
State regulators
ESI
State regulators
ESI
State regulators
Closed
Ongoing
Closed
Ongoing
COCO cooperating
Closed
No further developments - no action taken
Ongoing
Ongoing
Closed
Similar to ongoing AG investor
Closed
Company is complying with request
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Closed
No updates available
Closed
Settled September 30, 2005 $0.8 million
Ongoing
Ongoing
LINC is cooperating with information request
Ongoing
LINC is cooperating with information request
Closed
Campus must submit improvement plan by August 2011,

employment must improve for 2011 award year or TWC will
withdraw approval.
August 2007 resolved and UTI adopts lending practices
code of conduct
LINC
State regulators
LINC
State regulators
LINC
State regulators
UTI
State regulators
Oct-07 Department of Education state Attorneys General for Arizona and Closed
Illinois requesting information on lending and business practices
UTI
State regulators
UTI
State regulators
Nov-07 Dept. of Education Florida Attorney General requests info on

lending and business practices
Sep-12 Massachusetts attorney general civil investigative demand over
consumer protection laws
Oct-10 Florida Attorney General; investigation into alleged deceptive
trade practices
Feb-11 Illinois Attorney General investigative demand
Apr-11 Massachusetts Attorney General investigative demand
Jul-11 Delaware Office of the Attorney General Subpoena
WPO
State regulators
WPO
WPO
WPO
State regulators
State regulators
State regulators
Inquiry into possible deceptive trade practices, no material

outcome
COCO cooperating
Closed
March 2008 - no action
Ongoing
Ongoing
WPO cooperating with investigation
Ongoing
Ongoing
Ongoing
A member of BMO
Financial Group
321
September 2013
BMO Capital Markets
Online Postsecondary School Market

Online higher education continues to gain acceptance among students, schools, regulators, and
employers, and is increasingly becoming a part of mainstream education. We believe this, along
with improving technology, internet access, demand for flexible education alternatives and
pressure to reduce costs will continue to drive demand for online or blended learning models in
both the for-profit and not-for-profit industries.
The Sloan Consortium, an educational research group, defines the online postsecondary market
as follows (see Exhibit 348).
Exhibit 348. Delivery Method Classifications

Proportion of Content
Delivered Online
0%
Type of Course
Typical Description
Traditional
1% - 29%
Web Facilitated
30% - 79%
Blended/Hybrid
80+%
Online
Course with no online technology used content is delivered in writing or

orally.
Course which uses web-based technology to facilitate what is essentially a
face-to-face course. May use a course management system (CMS) or web
pages to post the syllabus and assignments.
Course that blends online and face-to-face delivery. Substantial proportion of
the content is delivered online, typically uses online discussions, and typically
has a reduced number of face-to-face meetings.
A course where most or all of the content is delivered online. Typically have
no face-to-face meetings.
Source: Class Differences: Online Education in the United States, Sloan Consortium 2010.
Projected 6.5%
CAGR in online
enrollment for
2013-2020, though
mostly back-end
loaded
Eduventures estimates there were over 3.2 million students enrolled in fully online
postsecondary programs in 2013 (2012-2013 school year), or about 15.5% of all students
enrolled in degree-granting postsecondary institutions that year, by our estimates. This share is
up significantly from approximately 1.2% in the 1999-2000 school year. Although we project
relatively sluggish growth for total US postsecondary enrollment through 2020 (2019-2020
school year), Eduventures projects that postsecondary online enrollment will increase roughly
5.5% annually to more than 5 million students in 2020 (2019-2020 school year), which would
represent nearly 24% of total postsecondary enrollment in that year (see Exhibit 349). However,
much of that forecast is back-end loaded.
5,000
25%
4,000
20%
Percentage of total postsecondary
20
E
19
E
20
18
E
20
17
E
20
16
E
20
15
E
20
14
E
20
20
11
10
09
08
12
13
E
20
20
20
20
20
20
20
20
20
20
20
20
20
07
0%
05
06
5%
04
1,000
03
10%
02
2,000
00
15%
01
3,000
As % of Postsecondary
Enrollment (in 000s)
20
Online Enrollment (in 000's)
Exhibit 349. Postsecondary Online Schools Enrollment (20002020E)
Source: BMO Capital Markets estimates and Eduventures
A member of BMO
Financial Group
322
September 2013
More than 32% of

postsecondary
students have
taken at least one
BMO Capital Markets
According to the Sloan Consortium, in fall 2011 (latest data available) more than 6.7 million
postsecondary students took at least one online course about 32% of all students enrolled in
postsecondary education in the US. This is up from 1.6 million students (9.6% of total
enrollment) in fall 2002, a.17.3% CAGR over that time (see Exhibit 350).
online course
Students taking at least one online course
35%
As % of total postsecondary enrollment
30%
25%
20%
15%
10%
5%
Taking at least one online

course (in mil.)
Exhibit 350. Number of Students Taking at Least One Online

Course (Fall 2002Fall 2011)
0%
Fall 2002
Fall 2003
Fall 2004
Fall 2005
Fall 2006
Fall 2007
Fall 2008
Fall 2009
Fall 2010
Fall 2011
Projected 6.5%
CAGR in online
revenues 20112015
We have estimated postsecondary online schools revenue using prior Eduventures data as a base
and updating it based on their most recent enrollment forecast. We estimate that roughly $21.3
billion was spent on online higher education in the 2012-2013 school year (or 2013) and forecast
this market will grow at roughly a 6.5% CAGR through 2020 (2019-2020 school year), reaching
just over $33 billion in revenues that year (see Exhibit 351). Online higher education would
represent about 5.5% of the estimated $599 billion expected to be spent on postsecondary
education in that year.
Exhibit 351. Postsecondary Online Schools Revenue (2000

2020E)
$35
6%
5%
Percentage of total postsecondary
25
4%
20
3%
15
2%
10
5
1%
0%
Revenues
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
18
E
20
19
E
20
20
E
Revenues ($ bil.)
30
Source: BMO Capital Markets estimates and Eduventures.
Most online
programs are
bachelors level
A member of BMO
According to Eduventures (see Exhibit 352), roughly 59% of students enrolled in online higher
education are enrolled in bachelors programs, compared to 66% of campus-based programs.
Online masters and doctoral students account for 4% of programs compared to 1% and 2%,
respectively, of campus-based programs (fall 2009 data; latest available). Given that masters
level students are more likely to be older, employed, and/or raising families, we are not
surprised they would prefer the flexibility of online programs.
Financial Group
323
September 2013
BMO Capital Markets
Exhibit 352. Delivery Market Share by Credential (Fall 2009)

70%
66%
59%
% of total enrollment
60%
Online
Campus-based
50%
40%
34%
31%
30%
20%
10%
4%
4%
1%
2%
0%
Associates
Bachelors
Masters
Doctoral
Source: Eduventures.
Benefits of online learning are shown in Exhibit 353.
Exhibit 353. Benefits of Online vs. Traditional Postsecondary

Schools
Users
Cost benefits saves travel-related and opportunity costs from time saved
Personalized can tailor content and delivery to virtually each individual learner
Convenience can learn on your own time, anytime, anywhere
Real-time updates can make learning experience more relevant
Self-paced can review until information is fully grasped without holding up the
class; asynchronous platform reaches students that may not respond to
synchronous learning
Efficient - potentially faster and higher completion rates, according to some
anecdotal evidence
Expands community can interact with others in different geographic locations
and enroll in programs that may not be available at local schools
Greater oversight via better tracking and management capabilities
Providers
Scalability offers cost-effective way of increasing potential revenue base

Penetrate new markets can offer access to services beyond geographic
boundaries
Consistent quality although customizable, quality may improve through
consistency
Cost savings enables schools to automate many tasks associated with teaching,
and to leverage curriculum across a wider student base
A member of BMO
Financial Group
324
September 2013
Repeal of 50%
rule helped spur
online growth and
investment
Military service
learners are a
significant
segment and
BMO Capital Markets
We believe the removal of the 50% rule in 2006 was critical to spurring growth in this industry.
This rule had limited schools from participating in federal student loan programs if more than
half of their courses were online. We believe this also helped set off an era of private equity
investment in not-for-profit schools to convert them to for-profit models. Among the notable
conversions were Bridgepoint Educations (BPI) Ashford University and University of the
Rockies, Grand Canyon Educations (LOPE) Grand Canyon University, and Trident University
(formerly Touro International University).
We believe online programs are also well suited to members of the military, who can take
courses online while on deployment or away at base. Research by the Sloan Consortium shows
that for-profit schools are more than twice as likely (23.9%) to have online programs designed
specifically for military students as public not-for-profits (9.2%).
growth driver for

online education
In 2001, the US Army launched eArmyU to help enlisted soldiers find online programs
specifically catered to military members. Additionally, several organizations have long-standing
relationships with military students and curriculum, including for-profit providers, such as
American Military University (APEI) and Grantham University, and not-for-profit providers
such as Central Texas College and University of Maryland University College. We believe the
military will continue to be a competitive market for education, particularly for online students,
and note several companies have pursued this market to help manage 90/10 levels as military
education aid currently does not count as Title IV aid.
Surprisingly, most
While online schools can enroll students who live anywhere, research has found that most online
students attend local online schools. A 2013 survey by Aslanian Market research and The
Learning House, Inc. found 47% of online students lived within 50 miles of the campus whose
programs they are attending and 70% live within 100 miles. While some traditional state schools
may benefit from bringing in higher paying out-of-state students to attend online programs, we
believe most online schools focus more heavily on their local markets. For example, schools
such as Bridgepoint Educations (BPI) Ashford University and University of the Rockies and
Grand Canyon Educations (LOPE) Grand Canyon University anchored their online platforms
to physical campuses that were well known regionally.
online students
tend to be local
We believe online students chose local schools for several reasons including:
Most popular
online programs
A member of BMO
Blended learning, where the school either has a campus or learning center nearby for
students to use;
Familiarity with the local brand;
The school may advertise courses more heavily in local markets; and
Local employers may be more familiar with the school.
Although virtually all types of programs are offered online, the most popular appear to be those
with fewer hands on requirements. Exhibit 354 shows the most popular online programs based
on search frequency. As shown, programs in psychology, education, business, and health topped
the list.
Financial Group
325
September 2013
BMO Capital Markets
Exhibit 354. Most Popular Postsecondary Online Programs (2011)

eLearning
Demand
eLearning
Demand
Associates:
Early childhood education
Religion
Business administration
Criminal justice
Psychology
Medical billing
Health administration
Accounting
Engineering
Paralegal
70
68
66
66
66
64
64
63
63
62
Master's:
Counseling
Psychology
Nursing
Special education
Curriculum and instruction
Religion
Educational administration
72
71
70
69
68
67
67
66
66
66
Bachelor's:
Psychology
Nursing
Accounting
Religion
K12 education
Criminal justice
Computer science and engineering
Management
72
71
69
68
67
66
66
65
64
62
62
Doctoral:
Psychology
Educational leadership
Educational technology
Religion
Curriculum and instruction
Special education
Criminal justice
Adult and higher education
Counseling
66
62
59
57
57
56
56
55
55
55
55
Source: eLearners.com and BMO Capital Markets.
Perceptions of online learning improving, but still controversial. We believe the
perception of quality for online education remains somewhat controversial, though less so as
online programs gain acceptance. The following survey results from the Sloan Consortium
reflect the subtly changing views on online education from various stakeholders.
Most academic
leaders still
neutral on
online educations
In Exhibit 355, academic leaders were asked if their faculty accept the value and legitimacy of
an online education. As shown, results have changed only mildly, with the percentage agreeing
growing to 32% in 2012 from 28% in 2002. The majority leaders is still neutral and has been
each year surveyed.
value and
legitimacy
Exhibit 355. Faculty Acceptance of Value and Legitimacy of

Online Learning Programs (2002-2012 Surveys)
70%
Agree
60%
Disagree
Neutral
50%
40%
30%
20%
10%
0%
Fall 2002
Fall 2004
Fall 2005
Fall 2006
Fall 2007
Fall 2009
Fall 2011
Fall 2012
Note: This question was not asked in every survey. Source: Sloan Consortium.
As shown in Exhibit 356, the highest percentage of agreement was found at for-profit schools
(no 2012 survey available).
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326
September 2013
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Exhibit 356. Faculty Acceptance of Value and Legitimacy of Online Learning Programs
by School Type (2003-2011 Surveys)
Faculty Accept the
Value and Legitimacy
of Online Education
Private For-Profit
2003 2005 2006 2009 2011 2003 2005 2006 2009 2011 2003 2005 2006 2009 2011
34.2% 36.4% 32.3% 35.7% 35.6% 20.2% 20.6% 20.3% 19.2% 20.9% 28.8% 42.1% 31.5% 44.9% 49.4%
63.2% 58.6% 58.9%
N.A. 56.5% 67.6% 62.1% 60.5%
N.A. 61.1% 63.3% 52.9% 50.9%
N.A. 47.0%
2.7% 4.9% 8.8%
N.A. 8.0% 12.2% 17.3% 19.2%
N.A. 18.0% 7.8% 5.1% 17.6%
N.A. 3.6%
Agree
Neutral
Disagree
N.A. Not Available. Note: This question was not asked in every survey. Source: Sloan Consortium.
As shown in Exhibit 357, most school administrators believe the learning outcomes of online
learning are the same as for face-to-face learning.
Most see
outcomes of
online learning
equivalent to face
Exhibit 357. Learning Outcomes Online vs. Face to Face (20032012 Surveys)
to face
Learning Outcomes Online

vs Face-to-Face
2003
0.6%
11.7%
12.3%
44.9%
32.1%
10.7%
42.8%
Superior
Somewhat superior
At least some superiority
Same
Somewhat inferior
Inferior
At least some inferiority
2004
1.0%
10.0%
11.0%
50.6%
28.4%
10.1%
38.5%
All Institutions
2006 2009 2010
1.8% 2.1% 3.4%
15.1% 12.4% 14.2%
16.9% 14.5% 17.6%
45.0% 53.0% 48.4%
30.3% 23.0% 24.3%
7.8% 9.5% 9.8%
38.1% 32.5% 34.1%
2011
2.7%
13.8%
16.5%
51.1%
22.7%
9.7%
32.4%
2012
3.7%
16.8%
20.5%
56.4%
17.7%
5.3%
23.0%
When measured by school type (2011 and 2012 surveys not available), those at for-profit
institutions were most likely to cite that online programs had some superiority, although most
said outcomes were equivalent (see Exhibit 358).
For-profits
relatively more
likely to cite some
superiority of
online programs
Exhibit 358. Learning Outcomes Online vs. Face to Face (2003-2010 Surveys)
Learning Outcomes Online
vs Face-to-Face
Superior
Somewhat superior
At least some superiority
Same
Somewhat inferior
Inferior
At least some inferiority
2003
0.5%
16.9%
17.4%
57.6%
21.0%
3.9%
24.9%
2004 2006
2009
0.7% 1.8% 1.7%
12.7% 18.1% 12.2%
13.4% 19.9% 13.9%
62.0% 53.7% 65.1%
22.0% 24.1% 18.4%
2.5% 2.3% 2.6%
24.5% 26.4% 21.0%
2010
2.3%
14.6%
16.9%
59.6%
19.0%
4.6%
23.6%
2003
0.3%
6.7%
7.0%
32.8%
43.8%
16.5%
60.3%
2004
2006
2009
1.3% 2.8% 2.6%
7.0% 13.7% 13.3%
8.3% 16.5% 15.9%
35.5% 37.1% 40.8%
36.8% 31.1% 28.2%
19.4% 15.1% 15.1%
56.2% 46.2% 43.3%
2010
3.4%
13.5%
16.9%
38.5%
30.1%
14.5%
44.6%
Private For-Profit
2003
2004
2006
2009
2010
2.0% 0.0% 0.0% 2.0% 6.6%
10.0% 4.3% 12.0% 10.8% 15.2%
12.0% 4.3% 12.0% 12.8% 21.8%
39.6% 78.3% 42.2% 53.3% 45.2%
32.6% 13.0% 40.7% 21.9% 22.2%
15.9% 4.3% 5.2% 11.9% 10.8%
48.5% 17.3% 45.9% 33.8% 33.0%
Analysis of
empirical
research favors
online education
A member of BMO
A study released in June 2009 by the ED compiled the results of empirical research dating back
to 1996 and drew positive conclusions about the effectiveness of online education. The analysis
found that students who took all or part of their class online performed better, on average, than
those taking the same course through traditional face-to-face instruction. However, we note a
July 2010 paper by the Community College Research Center at Columbia Universitys Teachers
College refuted some of these findings and cited flaws with the study.
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327
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Online learning
increasingly part
of school strategy
BMO Capital Markets
Regardless of whether educators agree over the outcomes of online education, we believe it is
clearly becoming an increasing part of school strategy. The Sloan study found that educators are
increasingly agreeing that online education is an important part of their schools long-term
strategy (see Exhibit 359), with 69% agreeing in 2012, up from 49% in 2002.
Exhibit 359. Importance of Online Education to Long-Term

Strategy (Fall 2002-Fall 2012)
Agree
70%
Disagree
Neutral
60%
50%
40%
30%
20%
10%
0%
2002
2003
2004
2005
2006
2007
2009
2010
2011
2012
Online programs must address several other hurdles in addition to general concerns about
quality and acceptance. According to the fall 2006 Sloan Consortium survey (latest available),
more than 80% of respondents said the need for students to stay disciplined was either
important or very important by far the largest of all the barriers to widespread adoption
of online learning (see Exhibit 360).
Exhibit 360. Most Cited Challenges for Online Programs (Fall 2006)
Not Somewhat
Important Important
4.1%
15.4%
8.8%
30.2%
14.7%
29.2%
14.7%
29.4%
18.3%
31.8%
23.8%
36.6%
Barriers to Widespread Adoption of Online Learning

Students need more discipline to succeed in online courses
Lack of acceptance of online instruction by faculty
Lower retention rate in online courses
Higher costs to develop online course
Higher costs to deliver online course
Lack of acceptance of online instruction by potential employers
Important
42.2%
36.9%
35.1%
37.2%
33.3%
27.8%
Very
Important
38.3%
24.2%
21.0%
18.7%
16.6%
11.7%
Note: Data adds to more than 100% as multiple answers were allowed. Source: Sloan Consortium.
A more recent survey (2012) segmented these responses among private, not-for-profit and forprofit schools and found that this issue had become more important at not-for-profit schools, but
less important at for-profit schools (see Exhibit 361).
Exhibit 361. Percent Saying Students Need More Discipline in

Online Programs (2007 vs. 2012)
School Type
Public
Private for-profit
2007
38.0%
30.1%
54.6%
2012
50.8%
43.5%
49.7%
Source: Sloan Consortium.
A member of BMO
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Services and
assessments are
top issues
BMO Capital Markets
The Instructional Technology Council (ITC) has surveyed administrators of distance learning
programs at community colleges annually since 2004. As shown in Exhibit 362, top issues in
recent years have been adequate student services and assessments. Additionally, we note
concerns over regulation and compliance have only emerged in recent surveys.
Exhibit 362. Greatest Challenges for Administrators of Distance Education Programs

(2004-2012)
Challenge
Adequate student services for distance education students
Adequate assessment of distance education classes
Support staff needed for training and technical assistance
Operating and equipment budgets
Adequate administrative authority
State authorization regulations
Student authentication
Compliance with new financial aid attendance requirements
Adequate space for training and technical assistance
Faculty acceptance
Organizational acceptance
Student acceptance
Compliance with HEOA requirements for distance education
2004
2
2005
5
2006
3
2007
2
2008
2
1
3
5
1
2
4
1
2
4
1
3
5
1
3
4
7
4
6
8
7
3
6
8
6
5
7
8
6
4
7
8
6
5
7
8
2009
2
3
1
4
5
2010
3
2
1
4
5
7
6
8
10
9
6
7
8
10
9
2011
1
2
7
4
8
11
10
3
9
5
6
12
2012
1
2
3
4
5
6
7
8
9
10
11
12
Source: Annual survey conducted by Instructional Technology Council.
Why students take online courses. In July 2012, Aslanian Market Research and The Learning
House, Inc. released a survey of 1,500 individuals who have enrolled or plan to take a fully
online program. The primary motivation of these students was career-oriented (not surprisingly),
although most of the responses related to ones current career not changing careers given the
working adult nature of most online students (see Exhibit 363).
Exhibit 363. Primary Motivation for Students Taking Online

Courses (2012)
To advance in current
career
46%
29%
To change careers
To keep up to date in
current career
12%
To meet credential or
licensure requirements
for current job
5%
Personal reasons not

related to job or career
4%
Other
4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Source: Aslanian Market research and The Learning House, Inc. spring 2012 survey.
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In addition, the survey asked individuals what their trigger points were to get them to enroll.
As shown in Exhibit 364, the most common reason cited was related to ones current career.
Exhibit 364. Trigger Points for Enrolling in Online Courses

(2012)
33%
To qualify for promotion or salary increase

19%
State of the economy

15%
Reached a "milestone" age (e.g., 30, 40, 50)

9%
Lost job or family member lost job

4%
Moved to new location
3%
Children left home

Got married
2%
Got divorced or separated
2%
13%
Other
0%
5%
10%
15%
20%
25%
30%
35%
Source: Aslanian Market research and The Learning House, Inc. spring 2012 survey.
Important factors
for students when
choosing online
programs
An annual Noel-Levitz survey (shown in Exhibit 365) has tracked the top reasons student
attended online programs at not-for-profit schools (data for-profit schools were not available).
While the top three reasons convenience, flexible pacing, and work schedule have remained
the top three each year, we note financial assistance, reputation and cost have moved up in
recent surveys.
Exhibit 365. Important Factors for Students When Choosing Online Programs (20042012; ranked by 2012 survey)
Enrollment Factors
Convenience
Flexible pacing for completing a program
Work schedule
Program requirements
Reputation of institution
Financial assistance available
Cost
Future employment opportunities
Ability to transfer credits
Distance from campus
Recommendations from employer
2004
6.8
6.6
6.6
6.4
6.1
5.9
6.1
6.0
6.2
5.5
4.5
2005
6.8
6.6
6.6
6.4
6.2
6.0
6.2
6.0
6.2
5.5
4.7
2006
6.8
6.6
6.6
6.4
6.2
6.0
6.2
6.1
6.2
5.5
4.7
2007
6.8
6.6
6.6
6.4
6.3
6.2
6.2
6.1
6.2
5.5
4.8
2008
6.8
6.6
6.6
6.4
6.3
6.2
6.2
6.1
6.3
5.5
4.8
2009
6.8
6.6
6.6
6.4
6.3
6.2
6.3
6.2
6.3
5.5
4.9
2010
6.7
6.6
6.6
6.4
6.3
6.3
6.3
6.2
6.2
5.5
4.9
2011
6.8
6.6
6.6
6.4
6.3
6.3
6.3
6.2
6.2
5.4
4.9
2012
6.8
6.6
6.6
6.5
6.3
6.3
6.3
6.2
6.2
5.3
5.0
Note: Ranking based on a 1-7 scale, with 7 being very important and 1 being not important. Data ranked by latest survey.
Source: Annual National Online Learners Priorities Report survey conducted by Noel Levitz.
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Top ten online

programs
BMO Capital Markets
The website www.onlinedegreereviews.org ranks online schools based on student reviews and
ratings. The top ten - which includes all types of schools - are shown in Exhibit 366. We take
these ratings with a grain of salt.
Exhibit 366. Top 10 Online Colleges as Ranked by Current and

Former Students (August 2013)
Rank
1
2
3
4
5
6
7
8
9
10
Name
Henley-Putnam University
Boise State University
Amberton University
California Intercontinental University
Andrew Jackson University
Seton Hall University
Norwich University
Berkeley College
Charter Oak State College
Type
Private for-profit
Public not for-profit
Private not for-profit
Private for-profit
Private for-profit
Private for-profit
Public not for-profit
Online
only?
Yes
No
No
Yes
Yes
No
No
Yes
Yes
Yes
Title IV
eligible?
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Ranking
(1-10)
9.5
9.2
9.1
9.1
9.0
9.0
8.9
8.8
8.7
8.5
Source: www.onlinedegreereviews.org as of August 2013 and National Center of Education Statistics.
Employer
Employers (mixed response, though improving). There is limited empirical research on how
perception of
employers view job candidates with online degrees versus those from a traditional education
setting. Additionally, given how much the technology has changed in recent years, the available
research and surveys are relatively outdated. While initial views of online degrees were likely
more negative in the early and mid-2000s, we believe the mainstreaming of online education in
recent years is slowly having a more positive effect on perceptions of online education. We
provide some more recent survey results below:
online education
is improving
A December 2007 poll conducted by Excelsior College/Zogby International found roughly

83% of business executives surveyed stated an online degree was as credible as one earned
through a traditional campus-based program.
Findings from a 2010 survey of hiring managers by the Society for Human Resource
Management (SHRM) survey of hiring managers titled Hiring Practices and Attitudes:
Traditional vs. Online Degree Credentials included:
1.
34% reported that job candidates with online degrees were viewed as favorably as
those with traditional degrees. 49% viewed them less favorably.
2.
87% agreed or strongly agreed with the statement that online degrees are viewed more
favorably today than they were five years.
3.
55% indicated that if two job applicants with the same job experience were applying, it
would make no difference whether their degrees were obtained through an online or
traditional degree program.
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4.
43% indicated that an online degree credential is acceptable for an entry-level position,
but only 15% indicated that an online degree is acceptable for an executive-level
position.
5.
79% of organizations indicated that they had hired a job applicant with an online
degree in the past 12 months.
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331
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BMO Capital Markets
This survey also asked participants their views of online degrees by school type. As shown in
Exhibit 367, participants generally had a less favorable view of degrees from for-profit and
100% online schools (see Exhibit 367).
Exhibit 367. HR Managers Views of Online Degrees by Type (July-August 2010)

School type
Public not-for-profit that also offers online education
Private not-for-profit that also offers online education
Private for-profit that also offers online education
100% distance learning university
Very
unfavorable
2%
3%
6%
17%
Somewhat
unfavorable
7%
14%
21%
41%
Neither more
nor less
favorable
57%
58%
51%
34%
Somewhat
favorable
17%
16%
14%
6%
Very
favorable
18%
9%
9%
2%
Source: Society for Human Resource Management.
US News rankings. In January 2012, US News and World Report began ranking online higher
education programs, including bachelors degrees, masters programs in business, engineering,

nursing, computer and information technology, and education. Bachelors degree programs were
ranked on three categories faculty credentials and training; student engagement and
assessment practices; and student services and technology while graduate programs used the
same three as well as admissions selectivity. Exhibit 368 contains the top five online degree
programs for each category. There are no for-profit schools on any of these lists.
Exhibit 368. US News & World Report Rankings; Top 5 Online Degrees (2013)
Institution
School Type
Bachelor's Program
1 Pace University
2 Daytona State College
3 St. John's University
4 Westfield State University
5 Graceland University
Institution
School Type
Graduate Engineering Programs

1 University of Southern California
2 Pennsylvania State University - World Campus
3 Columbia University
4 Purdue University - West Lafayette
5 University of Michigan - Ann Arbor
Graduate Business Programs

1 Washington State University
2 Arizona State University
3 Indiana University - Bloomington
4 University of Florida
5 California Sate University - Fullerton
Graduate Computer IT Programs

1 University of Southern California
2 Sam Houston State University
3 Virginia Tech
4 University of Bridgeport
5 Pennsylvania State University - World Campus
Graduate Education Programs

1 St. John's University
2 Auburn University
3 South Dakota State University
4 Northern Illinois University
5 University of South Carolina
Source: US News and World Report.
For many years, we have heard how the not-for-profit sector could be a formidable threat to forprofit schools, given its dominance in higher education, better quality reputation, and often
lower price points. Although a number of early online ventures failed in the 1990s (such as
Columbia (Fathom), New York University (NYU Online), University of Illinois (Global
Campus), and University of Texas (UT Telecampus), we believe advances in technology and
growing acceptance of and demand for online programs are spurring a new era of nonprofit
online ventures. This trend is also being driven by tougher regulatory constraints on for-profit
online schools and a desire on behalf of not-for-profit schools to lower costs to students while
finding new revenue streams from online enrollments
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332
September 2013
Not-for-profit
institutions
dominate online
higher education
and are expected
to increase their
share
BMO Capital Markets
Nevertheless, while the for-profit sector may get credit for having greater acceptance of online
enrollment, the not-for-profit sector still dominates and is expected to increase its share. Based
on Eduventures data, in 2013 (2012-2013 school year), the public not-for-profit sector had
nearly 1.8 million fully online students, or about 55% of the all fully online students, and the
private not-for-profit sector had 519,000 (16% share), with the for-profit sector having roughly
908,000 (28% share; see Exhibit 369). We note the for-profit sector has lost share since
reaching 43% of the total in 2010 (2009-2010 school year) and is expected to continue to lose
share before bottoming at 26% in 2014 and 2015. Nevertheless, for-profits still have a
disproportionate share online relative to their overall share of postsecondary education.
Exhibit 369. Online Enrollment by School Type (2008-2020E)

Private for-profit
60%
54%
55%
56%
57%
57%
55%
54%
52%
Percentage of online enrollment
50%
49%
46%
42%
40%
51%
48%
45%
43%
39%
39%
34%
31%
29%
28%
30%
26%
20%
15%
12%
12%
12%
35%
31%
16%
17%
26%
17%
27%
16%
16%
15%
13%
14%
14%
10%
0%
2008
2009
2010
2011
2012
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Source: Eduventures.
Online enrollment
accounted for
more than half the
for-profit
industrys growth
last decade
A member of BMO
Digging deeper into online enrollment at for-profit schools, we reviewed a February 2012
working paper from the Center for Analysis of Postsecondary Education and Employment
(CAPSEE) entitled The For-Profit Postsecondary School Sector: Nimble Critters or Agile
Predators, in which the authors estimated that online enrollment accounted for roughly 54% of
the total enrollment increase at for-profit institutions from the 2000-2001 to 2009-2010 school
years. By the 2009-2010 school year, online enrollment at for-profit institutions represented
4.1% of all enrollment at Title IV degree-granting institutions, compared with 3.9% for forprofit campus-based chains and 2.8% for for-profit independent schools (see Exhibit 370).
Financial Group
333
September 2013
BMO Capital Markets
Exhibit 370. For-Profit Institution Share of Total Title IV Fall

Enrollment by School Type (2000-2001 to 2009-2010 School
Years)
4.5%
Independents
Chain (not online)
Online
4.0%
% of total enrollment
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Center for Analysis of Postsecondary Education and Employment.
Largest online
schools are
dominated by forprofits
A member of BMO
Although Apollo Groups University of Phoenix remains the largest for-profit online school (we
believe roughly 75%-80% of APOL students are fully online), virtually all the publicly held forprofit universities have rolled out online initiatives, albeit with varying degrees of success. It is
somewhat difficult to create an online market share analysis of the for-profit sector, as certain
companies, such as DeVry (DV), disclose only online coursetakers (one student taking two
courses online would be considered two coursetakers) and not students. However, we are using
fall 2012 data obtained from Eduventures, which lists the top 50 schools ranked by online
headcount (see Exhibit 371). The largest schools are dominated by for-profit providers.
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334
September 2013
BMO Capital Markets
Exhibit 371. Largest Online Providers (Fall 2012)

Rank
1
2
3
4
5
6
7
8
9
9
11
12
12
12
15
16
17
17
19
19
21
22
22
24
25
26
27
27
27
30
31
32
33
33
33
36
37
37
37
37
37
37
43
44
45
46
47
47
47
47
School
American Public University System (APEI)
Ashford University (BPI)
Liberty University
Walden University (Laureate Education)
University of Maryland University College
Capella University
Western Governors University
DeVry University (DV)
Strayer University (STRA)
UMass Online
Thomas Edison State College
Colorado Technical University Online (CECO)
Rio Salado College
Troy University
Nova Southeastern University
Penn State World Campus
American Intercontinental University (CECO)
Southern New Hampshire University
Columbia College of Missouri
Grantham University
Northcentral University
Fort Hays State University
Pima Community College
National University
Arizona State University
Embry-Riddle Aeronautical University
Indiana Wesleyan University
Colorado State University - Global Campus
Baker College
Lone Star College Systems
National American University (NAUH)
University of Central Florida
University of Cincinnati
Webster University
Drexel University
Empire State College
East Carolina University
Colorado Christian University
Bellevue University
Franklin University
Northeastern University
University of Texas at Arlington
Top 50
Others
Total
Type
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Private for-profit
Estimated
Online
Headcount
270,000
124,000
89,000
60,000
48,000
46,000
45,000
44,000
36,000
36,000
34,000
30,000
30,000
30,000
22,000
20,500
20,000
20,000
15,000
15,000
14,000
12,000
12,000
11,000
11,000
10,000
9,000
9,000
9,000
8,500
8,400
8,000
7,000
7,000
7,000
6,500
6,000
6,000
6,000
6,000
6,000
6,000
5,500
5,500
5,400
5,100
5,000
5,000
5,000
5,000
1,261,400
1,980,600
3,242,000
Estimated
Market
Share
8.3%
3.8%
2.7%
1.9%
1.5%
1.4%
1.4%
1.4%
1.1%
1.1%
1.0%
0.9%
0.9%
0.9%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
0.4%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
38.9%
61.1%
100.0%
Est. %
Y/Y
Change
-10%
17%
11%
9%
-16%
-2%
29%
3%
-1%
16%
-11%
16%
4%
-19%
0%
N.A.
-10%
0%
N.A.
-5%
-5%
N.A.
16%
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
15.5%
N.A. Not Available. Source: Eduventures.
Online enablers
A member of BMO
Several companies categorized as online enablers have emerged that specialize in helping
universities transform proprietary curriculum into an online courses and offer many services
including IT support, recruiting, and marketing. Most models work on a revenue-sharing
basis, which is attractive to the more risk-averse not-for-profit postsecondary community.
Financial Group
335
September 2013
BMO Capital Markets
The Parthenon Group estimates this market grew from $105 million in 2003 to $360 million
in 2011 a 17% CAGR. Some key players in this business include the following:
Academic Partnerships
Altius
Bisk Education
Deltak (acquired for $220 million by John Wiley & Sons [JWA] in October 2012)
EmbanetCompass (acquired by Pearson [PSO] for $650 million in October 2012)
2U (formerly 2Tor)
We believe these businesses are gaining traction. For example, in July 2013, Southern
Methodist University, Baylor University, and Temple University announced they would offer
credit to students who completed online courses from other colleges using 2Us platform.
Some for-profit school operators have also entered this space, including Apollo Groups
(APOL) Apollo Education Services and The Washington Posts (WPO) Kaplans Colloquy.
MOOCs gaining
Massive Open Online Courses (MOOC). A MOOC is an online course delivery platform (a
popularity
type of learning management system) that enables anybody anywhere to take a course online
and usually for free. According to a May 2013 survey by Enterasys Networks, while only
13% of schools offer MOOCs, 43% plan to offer them by 2016. Even if these projections
prove optimistic, we nevertheless believe this is more than a fad.
We believe MOOC usership has soared into the millions. According to the aforementioned
Aslanian survey of online students, while 34% of respondents had not heard of MOOCs, 36%
said they had heard of them but have not pursued them and 17% said they plan to pursue
them. As most MOOC courses do not currently offer college credit, we believe they generally
appeal to a different type of learner than those seeking degrees from for-profit universities.
However, there are emerging credit-bearing models where schools may offer credit to a
students for MOOC courses, and we believe that eventually students will be able to complete
substantial portions of their degrees through MOOCs.
Monetization schemes are in the early stages, but there are several emerging models including
Udemy, where professors design their own courses and set the fees themselves, and
UniversityNow, which also offers low-cost courses with some credit opportunities. Other
funding models include selling student data to recruiters (recently adopted by Coursera)
and/or charging students to take proctored exams, which may then result in transferable
credits. In addition, we increasingly see news of various schools developing articulation
arrangement with MOOCs, where students can earn credit for these courses.
MOOCs come in a wide variety of forms, with some operated by longstanding universities,
while others are platforms upon which contributors can add individually created courses.
Several examples are provided in Exhibit 372.
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Exhibit 372. Examples of MOOCs and Other Online Learning Platforms

Name
Coursera
Launched
2012
DreamDegree.org
EdX
National Repository for Online Courses
Open CourseWare (MIT)
Open Learning Initiative (Carnegie Mellon)
Open Yale Courses
Peer 2 Peer
Penn Foster
Propero (Pearson)
2013
2012
2013
2001
2002
2007
2009
Stanford
StraighterLine
2011
2009
The Saylor Foundation

The University of the People
Udacity
2008
2009
2012
Udemy
UniversityNow
2010
2012
Webcast.Berkeley (University of California)
1995
2012
Details
Online learning platform with partnership with over 30 universities, which contribute
courses.
Low-cost online courses, $299 each, and student lead generator.
Joint partnership of Harvard and MIT to provide free courses.
Online network of free online courses available to the public.
Online publication platform of virtually all MIT course content.
Online platform for course content and materials.
Free online courses available to the public.
Free online learning platform that utilizes crowdsourcing technology.
Low cost online vocational courses with potential college credit.
Low cost supplementary online courses ($300/course) to help institutions provide
additional resources to students ootentially for college credit.
Online courses delivered through the EdX platform.
Up to 10 courses for $999, or monthly subscription price of $99. Students can earn
credits from participating colleges.
Free online courses created by professors.
Free tuition apart from small enrollment and exam fees.
Free online courses started by former Stanford professors. Some courses allow
college credit for a low fee.
Course platform allows people to post and sell online courses.
Nationally accredicted online courses; $796 per semester or $199 per month
unlimited.
Free online courses available to the public.
Still in early
stages of
development
We believe MOOCs are still in their very early stages of development, with very little data on
outcomes and very few opportunities for students to earn college credit. We believe
successful credit-bearing models are still a ways off, though there have been some promising
proposals such as the May 2013 announcement by the Georgia Institute of Technology
(Georgia Tech) to offer a $7,000 online masters degree to 10,000 new students over the
next three years with AT&T and Udacity.
However, there have been some setbacks. For example, in July 2013, San Jose State
University suspended its collaboration to offer credit to students who completed courses
through Udacity owing to low completion rates. The pilot program had only been run for one
semester. In addition, many faculty members at traditional schools are still not totally on
board; in an August 2013 survey conducted by Inside Higher Ed and Gallup, 53% of those
surveyed either disagreed or strongly disagreed that MOOCs taught by elite colleges are better
than other forms of online learning.
Pose threat to forprofit colleges

share of online
enrollment
Nevertheless, we believe these emerging online models have enabled traditional schools to
grow online share at a faster rate than for-profit competitors. A September 2012 Moodys
report, entitled Shifting Ground: Technology Begins to Alter Centuries-Old Business Model
for Universities, concluded that online courses will help well-known universities bring in
new revenue, heighten brand recognition, and reduce operating costs. It also predicted that
MOOCs will most hurt the bottom line of low-cost local colleges, primarily commuter
campuses and for-profit colleges. A forecast by Eduventures found the for-profit sectors 43%
share of total online enrollment will likely lose ground to nonprofits in coming years, the first
time such a share shift has taken place.
We have listed some of the advantages and disadvantages nonprofit schools have over for-profit
schools when it comes to online learning:
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Advantages:
Brand name: Provides benefits in marketing programs to local adult learners in bachelors
completion or executive education programs - a core market of for-profit schools.
Public subsidies: Can take the long view as they are not under pressure to be immediately
profitable as are for-profit schools.
Less regulatory scrutiny: Nonprofit schools are not subject to the same regulatory
requirements as for-profit schools (i.e., gainful employment).
Disadvantages:
Community
colleges also
moving online
Not-for-profit and
for-profit
Less experience running profitable online programs: While not-for-profit schools have had
online courses for some time, fully online programs are relatively new.
New costs and management demands: Online programs require more faculty training and
the build-out of online infrastructure including investments in technology, help desk, and
administrative functions.
Less marketing experience: For-profit schools have a long history of marketing online
programs and reaching targeted audiences. This has spurred the development of not-forprofit consortiums, such as the American Association of Community Colleges, to share
resources to be more effective in marketing online offerings.
Additionally we believe that community colleges moving online may pose a more immediate
threat to for-profit schools, as they typically attract a more similar student base. Examples
include:
Ivy Tech Community College (Indiana) claims to have over 32,000 students attending
online, offering 350 classes online and 12 online degree programs.
Northern Virginia Community College's Extended Learning Institute has been offering
distance learning courses for 35 years.
Texas offers the Virtual College of Texas whereby a student at any community college in
the state can attend classes from any of the state's 51 community colleges or four Texas
State Technical College campuses, paying local tuition plus a VCT fee of about $40.
While there are examples of joint ventures in the space between for-profit and not-for-profit
providers, most have not worked out to date. Some examples include:
partnerships
A member of BMO
In 2009, the California Education Assistance Program and The Washington Posts
(WPO) Kaplan University arranged a partnership allowing California community college
students to earn credit through Kaplan. The program was terminated in August 2010.
In March 2010, The Princeton Review announced a plan to help some community
colleges create hybrid online learning programs. The business failed in May 2011.
Financial Group
338
September 2013
BMO Capital Markets
In 2008, for-profit provider Altius Education founded a partnership with not-for-profit

Tiffin University called Ivy Bridge College, which provided online associates degree
program in general studies targeted at traditional-aged students who intend to transfer
into four-year institutions and in September 2008, launched Mt. Lyon Institute, which
provides online degree programs that prepare students for management opportunities in
the elder care industry. In August 2013, the Higher Learning Commission (HLC) of the
North Central Association of Colleges and Schools, Tiffins accreditor, informed the
parties that Ivy Bridge was no longer covered by Tiffins accreditation and must cease
operations by October 20, 2013, citing poor outcomes and quality.
Some not-for-profits have collaborated to share resources and scale their online offerings. One
example is the Online Consortium of Independent Colleges and Universities, spearheaded by
not-for-profit Regis University in 2005, which now includes dozens of colleges (such as Boston
College and Fordham University) and thousands of course enrollments.
Characteristics of Superior For-Profit Postsecondary Schools

We believe investors should focus on additional unique attributes when investing in specific
proprietary postsecondary institutions:
Types of programs offered. For-profit schools are generally more flexible and able to
quickly offer programs that correspond with job demand. While some verticals have
become saturated in recent years, such as business and criminal justice, we believe
healthcare-related and/or education programs remain in relatively higher demand owing
to better job prospects.
Degree versus non-degree. In general, degree-based programs offer greater investment

returns owing to the higher revenue per student and longer duration of the program.
However, in some cases shorter-term non-degree programs may provide more
countercyclical benefits as students may rush to shorter vocational programs in weak job
markets to prepare themselves for a job rebound. Additionally, we believe degree
programs face more competition from traditional schools and may have more branding
difficulties, whereas non-degree programs face more competition from local schools or
community colleges.
Student-loan default rates. The lower the better, as this implies a higher ability of
graduates to pay off debt.
Job placement rates or change in salary. The higher the better.
Percentage exposure online. In the current environment, we believe schools that are
more online have some degree of a competitive edge as fixed costs are lower and
capacity utilization is less of an issue. However, in some instances, ground-based schools
offer better branding opportunities and a higher level of student services.
Accreditation. Regional or national accreditation is necessary to participate in
government lending programs.

A summary of these factors for a selected group of publicly held postsecondary institutions is
shown in Exhibit 373.
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BMO Capital Markets
Exhibit 373. Key Characteristics of Selected US Postsecondary Institutions
Company/ Ticker FY Students Primary Programs Offered
% Title IV
Revenue Cohort Default Rates
Degree Type
Job
Placement
Student Profile
Online
Enrollment/%
of Total
N.A.
1% (Under 20)
45% (20-29)
35% (30-39)
15% (40-49)
4% (50-64)
0.2% (Over 65)
99,500; 100%
N.A.
12.3% (22 and under)

31.9% (23-29)
32.9% (30-39)
16.5% (40-49)
6.4% (50 and older)
N.A
Ashford University
2012; 86%; FY2010 2-yr: 10.2%;
2011; 87% FY2009 2-yr: 15.3%;
FY2009 3-yr: 19.8%
N.A.
Avg Age: 37
Male (29%)
Female (71%)
Minority (48%)
71,000; 99%
Certificate (21%),
Associates (19%),
Bachelor's (50%)
Master's (10%)
FY2010 2-yr: 7.7%-21.8%;

2012; 80%;
FY2009 2-yr: 2%-13.5%;
2011; 83%
FY2009 3-yr: 12.2%-31.5%
N.A.
13% (under 21)

45% (21-30)
42% (over 30)
N.A
Healthcare (43%), Business (23%), Criminal Justice

(22%), Mechanical and Trades (9%), Miscellaneous
(3%)
Diploma (39%),
Associates (55%),
Bachelor's (5%), Masters
(1%)
FY2010 2-yr: 6.3%; (None > 25%)

FY2009 2-yr: 17.7%; Range 5.6%2012; 86%;
29.8% (13 > 25%)
2011; 89%
FY2009 3-yr: 37%; Range: 7.5%37%; (0 > 40%)
69% (2012)
Over 25 (Average Age)
27,740; 34%
36,003
Business and Technology (29%), Health and Human

Services (29%), Education (21%), Public Service
Leadership (21%)
FY2010 2-yr: 7%
Bachelor's (25%), Master's
2012; 79%;
(41%), Doctoral (31%),
FY2009 2-yr: 6.7%
2011; 79%
Certificate (3%)
FY2009 3-yr: 9.7%
N.A.
Avg. age 40
76% Female, 24% Male
36,003; 100%
110,297
Business (41%), Medical and Health (32%),

Technology (24%), Other (2%)
Diploma/Cert. (5%)
Associate's (14%)
Bachelor's (56%)
Master's (20%)
Doctorate (5%)
90% (2012)
22% (24 and under)

55% (25-39)
23% (40 and over)
53% (Male)
47% (Female)
N.A
120,920
Media Arts (23%), Health Sciences (17%), Design

(13%), Behavioral Sciences (12%), Culinary (11%),
Fashion (7%), Business (9%), Legal (5%), Education
(2%), Info. Technology (1%)
Diploma/Certificate (5%),
Associates (33%),
2012; 79%; FY2010 2-yr: 7.4%-14.9%;
Bachelor's (48%), Masters
2011; 78% FY2009 3-yr: 10.4%-28.6%;
(7%),
Doctoral (6%), Other (1%)
75% (2012)
Average age: 29
Art Institutes: 26
Argosy University: 36
Brown Mackie: 30
South University: 33
30,680; 26%
Grand Canyon
12
Education (LOPE)
51,200
Education (52%), Business (20%)

Health/Human Services (14%)
Liberal Arts (14%)
FY2010 2-yr: 12%

Bachelor's (59%), Master's 2012; 80%;
FY2009 2-yr: 9.2%
(38%), Doctoral (4%)
2011; 80%
FY2008 3-yr: 7.4%
27% Male, 73% Female

11.6% (18-24)
30.5% (25-32)
21.7% (33-42)
10.7% (43-47)
16.5% (48+)
47,785; 93%
ITT Educational
Services (ESI)
12
58,617
IT (30%), Drafting & Design (25%), Business/Criminal

Justice (20%), Electronics (20%), Health (5%)
Associates (83%),
2012; 80%; FY2010 2-yr: 6.8%-16.5%
Bachelors/Master's (17%) 2011; 75% FY2009 3-yr: 7%-34.1%
Lincoln
Educational
Services (LINC)
12
14,460
Auto (38%), Health Sciences (35%), Skilled Trades

(12%), Hospitality Services (9%), IT/ Business (6%)
FY2010 2-yr: 11.6%-23.9%

Diploma/Certificate (84%);
2012; 83%;
Associate's (15%):
FY2009 2-yr: 5.2%-35.4%
2011; 84%
Bachelor's (1%)
FY2009 3-yr: 16.8%-49.1%
National American
University
5
Holdings (NAUH)
11,472
Business (38%), Allied Health (29%), Nursing (12%),

Other (14%), IT (8%)
Strayer Education
12
(STRA)
38,627
Business/Economics/Accounting (70%), Information

Systems (13%), Other (17%)
Bachelor's (53%), Master's

2011; 76%; FY2010 2-yr: 8.6%
(33%), Associate's (13%),
2010; 78% FY2009 3-yr: 13.9%
Undeclared (1%)
Universal
Technical Institute
(UTI)
13,000
Automotive Technician and Collision Repair (75%),

Motorcycle and Marine Technicians (25%)
Associate's
Diploma
Certificate
2012; 75%; FY2010 2-yr: 10.7%-11.7%

2011; 75% FY2009 3-yr: 14.3%-16.4%
60% (recent high school

82.0% (2011) grads,18-21)
N.A
40% (adult learners, >25)
75,984
Healthcare, Business, Information Technology,

Education, Criminal Justice, Paralegal
Certificate (23%)
Associate's (29%)
Bachelor's (34%)
Master's (14%)
FY2010 2-yr: 7.5%-25.3%

2012; 80%;
FY2009 2-yr: 9.8%-23.9%
2011; 82%
FY2009 3-yr: 14.9%-33.9%
0.1% (Under 20)

27% (20-29)
38% (30-39)
23% (40-49)
13% (50-64)
0.5% (Over 65)
99,500
Public Safety and Health (26%), Arts and Humanities

(22%), Security and Global Studies (18%),
Management (14%), Business (10%), Science and
Technology (9%), Education (1%)
FY2010 2-yr: 6%
Associates (16%)
2011; 42%;
Bachelors (61%) Masters
FY2009 2-yr: 4%;
2010; 26%
(23%)
FY2009 3-yr: 7.2%
287,500
Univ. of Phoenix: Undergrad Business (41%), Grad

Business (18%), Technology (11%), General/Prof.
Studies (8%), Education (8%), Social/Behav.
Sciences (8%), Health & Nursing (6%)
Associates (31%)
2012; 84%; FY2011 (draft) 2-yr: 14.3%
Bachelors (53%) Masters
2011; 86% FY2010 2-yr: 17.9%:
(14%) Doctoral (2%)
FY2009 3-yr: 26.4%
Bridgepoint
Education (BPI)
12
71,685
Business (40%), Healthcare/ Psychology (21%),

Education (19%), Social Science (19%)
Associates (12%)
Bachelor's (74%)
Master's (12%)
Doctoral (1%)
Career Education
(CECO)
12
57,600
Business (49%), Health (20%), Visual

Communications and Design (13%), Culinary (11%),
IT (7%)
Corinthian
Colleges (COCO)
81,284
Capella University
12
(CPLA)
American Public
Education (APEI)
12
Apollo Group
(APOL)
DeVry
(DV)
Education
Management
(EDMC)
Washington Post's
Kaplan Education 12
(WPO)
Carrington Colleges:
FY2010 2-yr: 9.9%-16.7%
2012; 75%; FY2009 3-yr: 13.8%-25.6%
2011; 81% DV University:
FY2010 2-yr: 13.3%
FY2009 3-yr: 24.1%
FY2011 2-yr: 15%

2012; 85%;
FY2010 2-yr: 15.6%
2011; 79%
FY2010 3-yr: 24.5%
N.A.
4% (19 and younger)

37% (20-24)
73.0% (2009) 29% (25-30)
40% (31 and over)
72% Male; 28% Female
N.A.
21% (High School)

79% (19 and older)
81.0% (2011) Average age is 34
N.A.
N.A.
Median age is 35; 64%

Female, 36% Male;
Average income is
$35,000
N.A
N.A.
6,790; 59%
N.A
37,481; 60%
Note: Enrollment from most recent quarter. Source: Primary programs, degree type, Title IV funding and student profiles from most recent 10K, analyst presentations or other company reports. Cohort default rates from Department of Education website.
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340
September 2013
BMO Capital Markets
Postsecondary Schools: Valuation Trends

Though volatile,
postsecondary
stocks have
outperformed the
S&P 500 over time
When compared with firms in other education sectors, postsecondary institutions have a longer
track record as publicly held companies. We have compared the median return for the stocks
making up the BMO Capital Markets For-Profit Postsecondary Index (BMOCMFPI) to that of
the S&P500 since December 31, 1995. While there has been some volatility (especially
recently), an investment in this index through August 30, 2013, would have returned over four
times the original investment, versus a 165% return for the S&P 500 (see Exhibit 374).
Exhibit 374. BMO Capital Markets For-Profit Postsecondary Index vs. S&P 500
(12/31/95-8/30/13)
Recession
S&P 500
"BMOCM Postsecondary Index"
1,400
1,300
1,200
Indexed: 12/31/95 =1
1,100
1,000
900
800
700
600
500
400
300
200
100
0
12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12
Note: Shaded area indicates recessionary period. Source: ThomsonOne Analytics and BMO Capital Markets estimates.
Forward-looking
P/E multiple has
bounced of alltime lows, though
still well below
historical levels
A member of BMO
In Exhibits 375 and 376, we compare the groups forward-looking P/E multiple to that of the
S&P500. While this has bounced off its all-time lows in recent years, it remains well below prerecession levels. Historically, the groups forward-looking P/E multiples tend to peak just before
a recession and trough at the height of economic expansions. The groups forward-looking P/E
multiple was 14.1x as of 8/30/13 relative to its historical average of 21.3x. This multiple has
bounded of its all-time lows and is trading closer to broader market indices.
Financial Group
341
September 2013
BMO Capital Markets
Exhibit 375. Forward-Looking P/E: BMO Capital Markets For-Profit Postsecondary Index
vs. S&P 500 (12/31/02-8/30/13)
Recession
BMOCM Postsecondary Index
S&P 500
40x
NTM PE
30x
20x
10x
0x
1/03
1/04
1/05
1/06
1/07
1/08
1/09
1/10
1/11
1/12
1/13
Note: Shaded area indicates recessionary period. Source: ThomsonOne Analytics and BMO Capital Markets.
Exhibit 376. Forward-Looking P/E Milestones: BMO Capital Markets ForProfit Postsecondary Index (12/31/02-8/30/13)
Trough
Date
Peak
Date
2000s Expansion (12/01-11/07)
18.9x
Dec-05
36.8x
Nov-03
26.0x
2007-2009 Recession (12/07-6/09)
15.9x
Mar-08
29.5x
Oct-07
23.1x
Current Cycle (7/09-Present)
7.9x
Aug-10
18.4x
Mar-09
12.4x
All-time
7.9x
35.7x
Median
21.3x
Current NTM PE multiples

BMOCM NTM PE
14.1x
S&P 500
14.8x
Source: ThomsonOne Analytics and BMO Capital Markets.
Sector trading at
discount to S&P
500, though not
as steep as the
past record
A member of BMO
Postsecondary stocks have historically traded at a premium to the S&P 500, but this has not
been the case in recent years. When measured on forward-looking earnings, the average
premium has been roughly 36% since December 31, 2002. However, the group currently trades
at a 5% discount to the S&P 500 still above the all-time discount of 44% in May 2010 (see
Exhibits 377 and 378). The groups multiple peaked at a premium of 250% in late August 2008.
Financial Group
342
September 2013
BMO Capital Markets
Exhibit 377. Relative P/E: BMO Capital Markets For-Profit Postsecondary Index vs. S&P
500 (12/31/02-8/30/13)
Recession
BMOCM Postsecondary Index
PS Relative to S&P 500
Median Relative Multiple
30x
NTM PE
2x
20x
1x
10x
0x
1/03
Relative to S&P 500
3x
40x
0x
1/04
1/05
1/06
1/07
1/08
1/09
1/10
1/11
1/12
1/13
Exhibit 378. Relative P/E Milestones: BMO Capital Markets For-Profit

Postsecondary Index (12/31/02-8/30/13)
Trough
Date
Peak
Date
2000s Expansion (12/01-11/07)
1.2x
May-04
2.0x
Aug-03
1.2x
2007-2009 Recession (12/07-6/09)
1.2x
Feb-09
2.5x
Aug-08
1.2x
0.7x
May-10
1.3x
Mar-09
Current Cycle (7/09-Present)

All-time
0.66x
2.47x
Median
0.7x
1.36x
Current Relative Multiple

BMOCM NTM PE
0.95x
Sector trading
well below
historical EV/TTM
EBITDA multiples
A member of BMO
Most of the transactions in this sector are typically priced at enterprise value (EV) to trailing 12
month (TTM) EBITDA multiples. EV/TTM EBITDA multiples tend to peak at the beginning of
a recession and trough at the height of economic expansions. As shown in Exhibits 379 and 380,
while it has rebounded from recent lows, the groups current median EV/TTM EBITDA
multiple of 4.9x is still well below the historical median 13.3x.
Financial Group
343
September 2013
BMO Capital Markets
Exhibit 379. EV/TTM EBITDA: BMO Capital Markets For-Profit Postsecondary Index vs.
S&P 500 (12/31/95-8/30/13)
Recession
Postsecondary Index
Median
30x
27x
EV/TTM EBITDA
24x
21x
18x
15x
12x
9x
6x
3x
1/13
1/12
1/11
1/10
1/09
1/08
1/07
1/06
1/05
1/04
1/03
1/02
1/01
1/00
1/99
1/98
1/97
1/96
1/95
0x
Exhibit 380. EV/TTM EBITDA Milestones: BMO Capital Markets For-Profit

Trough
Date
Peak
Date
2001 Recession (3/01-11/01)
14.5x
Nov-01
21.3x
Jul-01
18.3x
2000s Expansion (12/01-11/07)
9.5x
Oct-06
25.9x
Jan-04
14.5x
13.3x
2007-2009 Recession (12/07-6/09)
8.5x
Mar-08
18.9x
Jan-09
Current Recovery (7/09-Present)
2.5x
Jul-12
14.2x
Oct-09
All-time
2.5x
Current EV/TTM EBITDA
4.9x
25.9x
Median
4.9x
13.3x
Sector trading
near all-time low
EV/TTM sales
multiples
A member of BMO
While rarely used in this sector, we believe an analysis of historical EV/TTM sales multiple is
informative especially given the groups recent low valuations. EV/TTM sales multiples tend
to peak at the beginning of a recession and trough at the height of economic expansions. As
shown in Exhibits 381 and 382, the groups current median EV/TTM sales multiple of 0.6x is
near its all-time low of 0.5x and well below the groups historical 2.7x multiple.
Financial Group
344
September 2013
BMO Capital Markets
Exhibit 381. EV/TTM Sales: BMO Capital Markets For-Profit Postsecondary Index vs.
S&P 500 (12/31/95 8/30/13)
Recession
BMO Postsecondary Index
Median
6x
EV/TTM SALES
5x
4x
3x
2x
1x
1/13
1/12
1/11
1/10
1/09
1/08
1/07
1/06
1/05
1/04
1/03
1/02
1/01
1/00
1/99
1/98
1/97
1/96
1/95
0x
Note: Shaded area indicates recessionary period. Source: ThomsonOne Analytics and BMO Capital Markets estimates.
Exhibit 382. EV/TTM Sales Milestones: BMO Capital Markets For-Profit

Trough
Date
Peak
Date
Median
2001 Recession (3/01-11/01)
3.1x
7/31/01
4.7x
4/30/01
4.0x
2000s Expansion (12/01-11/07)
1.6x
6/30/06
5.2x
7/31/03
3.2x
2007-2009 Recession (12/07-6/09)
2.1x
12/31/07
4.3x
8/31/07
3.0x
Current Recovery (7/09-Present)
0.5x
8/31/12
3.0x
3/31/09
All-time
0.5x
Current EV/TTM Sales
0.6x
5.2x
1.2x
2.7x
We provide recent operating and fundamental statistics for a number of publicly held companies
in Exhibit 383.
A member of BMO
Financial Group
345
September 2013
BMO Capital Markets
Exhibit 383. Trailing 12-Month Operating and Valuation Metrics: Selected Publicly Held
Postsecondary School Operators
Rating
Price Target
Operating Performance
FY End
LTM Qtr. End
Revenue ($MM)
Gross Profit ($MM)
EBITDA ($MM)
EBIT ($MM)
Pretax Income ($MM)
Net Income ($MM)
Free Cash Flow ($MM)
Gross Margins (in %)
EBITDA (in %)
EBIT (in %)
Pretax Income (in %)
Net Income (in %)
Free Cash Flow Yield (in %)
ROIC: LTM
Valuation Metrics
FY End
LTM Qtr. End
Price (08/30/13)
Shares Outstanding (MM)
Market Cap ($MM)
Net Debt/(Cash) ($MM)
Enterprise Value ($MM)
CY EPS:
2012A
2013E
2014E
Two-Year CAGR
P/E:
2012A
2013E
2014E
EV/Rev. (LTM)
EV/EBITDA (LTM)
EV/EBIT (LTM)
EV/Free Cash Flow (LTM)
Student Metrics (TTM)
Total Student Population
Revenue/Student
EBITDA/Student
Operating Profit/Student
Free Cash Flow/Student
EV/Student
American
Public
Education
APEI
Apollo
Group
APOL
Bridgepoint
Education
BPI
Capella
Education
CPLA
Outperf
$41
Outperf
$27
Market
Perform
$17
Market
Perform
$48
Market
Perform
$3
12
06/13
$327.9
203.9
90.5
74.4
74.7
46.1
21.8
62.2%
27.6%
22.7%
22.8%
22.8%
3.1%
25.9%
8
05/13
$3,810.6
1,989.3
643.9
475.6
464.4
302.4
421.7
52.2%
16.9%
12.5%
12.2%
7.9%
20.2%
35.0%
12
06/13
$881.0
451.9
175.4
141.4
138.0
84.8
65.2
51.3%
19.9%
16.1%
15.7%
9.6%
7.3%
35.0%
12
06/13
$415.2
223.2
90.0
56.0
55.7
32.9
46.1
53.8%
21.7%
13.5%
13.4%
7.9%
6.8%
17.9%
12
06/13
$40.02
17.7
$706.5
(114.9)
$591.6
8
05/13
$18.57
112.4
$2,086.5
(1,122.5)
$964.0
12
06/13
$16.52
54.2
$895.2
(392.9)
$502.3
$2.35
2.42
2.54
4.1%
$3.51
2.62
2.28
-19.4%
17.1x
16.5
15.7
1.8
6.5
8.0
27.1
5.3x
7.1
8.1
0.3
1.5
2.0
2.3
Career Corinthian
Education
Colleges
CECO
COCO
Lincoln Natl Amer.

Educ. University
Strayer
Services
Holdings Education
LINC
NAUH
STRA
Universal
Technical
Inst.
UTI
Not Rated
N.A.
Market
Perform
$40
Underperf
$9
12
06/13
$372.8
191.2
17.1
(9.7)
(25.3)
(30.3)
(14.0)
51.3%
4.6%
-2.6%
-6.8%
-8.1%
-11.6%
-6.8%
5
05/13
$129.2
93.0
15.8
10.2
9.2
5.5
7.3
72.0%
12.2%
7.9%
7.1%
4.2%
8.5%
7.6%
12
06/13
$535.7
240.3
117.4
92.7
87.8
53.0
61.4
44.9%
21.9%
17.3%
16.4%
9.9%
14.1%
29.9%
9
06/13
$385.8
78.2
34.2
10.6
8.6
5.0
3.0
20.3%
8.9%
2.8%
2.2%
1.3%
1.2%
2.6%
12
06/13
$28.81
23.4
$673.3
(62.0)
$611.2
12
06/13
$5.10
23.7
$121.1
31.6
$152.7
5
05/13
$3.43
25.0
$85.9
(21.4)
$64.5
12
06/13
$39.96
10.9
$434.4
55.9
$490.3
9
06/13
$10.63
24.5
$259.9
(74.5)
$185.5
$1.53
1.81
2.00
14.0%
$5.85
3.85
2.64
-32.8%
($1.08)
(1.22)
(0.61)
-24.5%
$0.19
0.21
0.26
17.3%
$5.76
3.89
2.19
-38.3%
$0.37
0.17
0.17
-31.4%
-21.9%
22.5x
19.1
17.3
2.7
9.6
11.3
N.M.
4.9x
7.5
10.9
0.5
3.6
4.3
13.9
N.M.
N.M.
N.M.
0.4
8.9
N.M.
N.M.
18.5x
16.7
13.5
0.5
4.1
6.3
8.9
6.9x
10.3
18.2
0.9
4.2
5.3
8.0
28.6x
63.3
60.8
0.5
5.4
17.4
61.6
11.6x
17.2
16.5
0.5
4.7
6.3
10.0
DeVry
DV
Education
Mgmt
EDMC
Grand
Canyon
LOPE
ITT Educ.
Services
ESI
Market
Perform
$3
Market
Perform
$28
Market
Perform
$7
Outperf
$40
Not Rated
N.A.
Underperf
$4
12
06/13
$1,321.5
716.1
(23.8)
(111.0)
(209.7)
(141.2)
(148.3)
54.2%
-1.8%
-8.4%
-15.9%
-10.7%
-84.4%
-16.6%
6
03/13
$1,570.4
639.7
108.5
139.6
36.6
(6.0)
41.3
40.7%
6.9%
8.9%
2.3%
-0.4%
27.9%
3.1%
6
06/13
$1,964.4
1,002.2
261.8
266.4
165.0
106.8
152.2
51.0%
13.3%
13.6%
8.4%
5.4%
8.1%
8.2%
6
06/13
$2,498.6
886.8
376.3
216.6
(255.9)
(268.0)
108.1
35.5%
15.1%
8.7%
-10.2%
-10.7%
10.7%
-13.0%
12
06/13
$558.4
320.4
155.8
131.9
130.3
79.4
(1.7)
57.4%
27.9%
23.6%
23.3%
14.2%
-0.1%
25.4%
12
06/13
$1,163.2
650.8
172.0
143.1
138.9
85.4
44.1
56.0%
14.8%
12.3%
11.9%
7.3%
6.5%
24.6%
12
06/13
$54.35
12.4
$673.6
(144.8)
$528.8
12
06/13
$2.62
67.1
$175.8
(241.8)
($66.1)
6
03/13
$2.21
67.1
$148.3
(13.2)
$135.0
6
06/13
$30.01
63.0
$1,890.0
(206.6)
$1,683.4
6
06/13
$8.12
124.6
$1,011.8
958.2
$1,970.0
12
06/13
$34.51
46.0
$1,586.4
(93.7)
$1,492.7
$2.33
0.94
0.87
-39.0%
$2.81
2.70
2.89
1.5%
($0.12)
(1.00)
(0.13)
0.4%
$0.38
0.09
0.16
-35.2%
$2.81
2.51
2.37
-8.2%
$0.65
0.33
0.24
-39.2%
7.1x
17.6
19.0
0.6
2.9
3.6
7.7
19.3x
20.1
18.8
1.3
5.9
9.4
11.5
N.M.
N.M.
N.M.
0.0x
2.8
0.6
0.4
5.9x
25.7
14.0
0.1
1.2
1.0
3.3
10.7x
11.9
12.7
0.9
6.4
6.3
11.1
12.5x
24.3
33.9
0.8
5.2
9.1
18.2
99,500
$3,295
910
287,500
$13,254
2,240
71,685
$12,290
2,447
36,003
$11,534
2,501
57,600
$22,943
(413)
81,284
$19,319
1,335
110,297
$17,810
2,374
120,920
$20,663
3,112
747
219
5,946
1,654
1,467
3,353
1,973
909
7,006
1,556
1,280
14,686
(1,928)
(2,574)
(1,147)
1,718
508
1,661
2,415
1,380
15,262
1,791
894
16,292
51,200
$10,905
3,042
2,575
(34)
29,154
58,617
$19,845
2,934
2,441
752
10,428
14,460
$25,779
1,184
(671)
(968)
10,558
GROUP
MEDIAN
51.7%
14.9%
12.4%
10.2%
6.4%
7.1%
13.1%
11,472
$11,260
1,374
38,627
$13,868
3,039
13,000
$29,673
2,631
58,109
$15,839
2,410
892
635
5,622
2,401
1,589
12,693
819
232
14,266
1,686
693
10,493
N.A. Not Available. N.M. Not Meaningful. Source: BMO Capital Markets and FactSet Research.
A member of BMO
Financial Group
346
September 2013
Two recent IPOs

and a SPACacquisition
Three publicly
BMO Capital Markets
Since 2008, there have been two IPOs and one-quasi IPO in this space.
On November 20, 2008, Grand Canyon Education (LOPE), which operates Grand
Canyon University, went public at $12 per share. The initial company valuation was
roughly $523 million. This was the first IPO on a US exchange since August 2008,
ending one of the longest IPO droughts in the markets history.
On April 15, 2009, Bridgepoint Education (BPI), which operates Ashford University and
University of the Rockies, went public at $10.50 per share. The initial company valuation
was roughly $558 million, or about 9x EV/TTM EBITDA (through March 31, 2009).
In April 2007, Camden Learning Corporation was incorporated as a special purpose

acquisition company (SPAC) formed to serve as a vehicle for the acquisition of an
operating business. On November 23, 2009, Camden Learning completed a business
combination with Dlorah, Inc., a privately held company doing business as National
American University, whereby Dlorah continued to own and operate National American
University, and Camden, now known as National American University Holdings, Inc.
(NAUH) became the publicly traded holding company of Dlorah.
This contrasted a prior trend of publicly held companies going private.
held companies
were taken private
Education Management was acquired by Providence Capital Partners and Goldman Sachs
Capital Partners on June 1, 2006. The final takeout price was roughly $3.2 billion, or
about 11.4x EV/LTM EBITDA. When the deal was announced on March 6, 2006, the
stock was trading at 9.7x EV/LTM EBITDA (versus the industry median of 10.2x),
implying roughly a 17.5% premium for the takeout. The $43 per share price was a 16%
premium to the stocks close prior to the announcement ($36.98) and a 26% premium to
the average closing price of $34.02 during the previous 30 trading days. EDMC went
public again on October 1, 2009.
Concorde Career Colleges was acquired by Liberty Partners on September 1, 2006, for
roughly $99 million, or about 12.9x EV/LTM EBITDA (based on the data available at the
time of the announcement though likely calculated off a depressed ["trough"] EBITDA
base). When the deal was announced on June 21, 2006, the proposed $19.80 per share
price represented roughly a 34% premium over Concorde's prior close.
On August 17, 2007, Laureate Education completed its merger with a private investor
group led by its CEO Doug Becker and a consortium of firms, including Kohlberg Kravis
Roberts & Co. (KKR), Citi Private Equity, and S.A.C. Capital Management. When the
transaction was initially announced on January 28, 2007, the $3.8 billion price ($60.50
per share) was roughly 17.1x EV/LTM EBITDA, about a 10% premium to the 15.6x
EV/LTM EBITDA multiple for the stock at the time (the group was trading at roughly
11x EV/LTMEBITDA). The proposed purchase price of $60.50 per share was an 11%
premium over the stocks prior close ($54.41), though a 23% premium over the closing
price of the stock on January 4, 2007 the day the companys Special Committee began
negotiating on this transaction. Prior to closing, the price was raised to $62 per share
($3.82 billion), implying a takeout value of roughly 15.5x LTM EBITDA (through June
30, 2007), by our estimates.
in 2006 and 2007
A member of BMO
Financial Group
347
September 2013
BMO Capital Markets
A listing of recent acquisition activity of postsecondary school operators can be found in Exhibit
384.
Exhibit 384. Postsecondary School Operators Transactions (2009-2013)

($ in millions)
Annc.
Date
Aug-13
May-13
Apr-13
Apr-13
Feb-13
Jan-13
Jan-13
Nov-12
Oct-12
Oct-12
Oct-12
Oct-12
Sep-12
Jul-12
Jun-12
Jun-12
May-12
Apr-12
Apr-12
Apr-12
Mar-12
Feb-12
Feb-12
Feb-12
Feb-12
Feb-12
Feb-12
Jan-12
Dec-11
Nov-11
Nov-11
Nov-11
Oct-11
Aug-11
Aug-11
Jul-11
Jun-11
May-11
May-11
Apr-11
Apr-11
Jan-11
Nov-10
Jul-10
Jul-10
Jul-10
Jul-10
Jul-10
Jun-10
May-10
May-10
May-10
Apr-10
Apr-10
Apr-10
Mar-10
Mar-10
Mar-10
Feb-10
Feb-10
Jan-10
Jan-10
Jan-10
Dec-09
Dec-09
Dec-09
Dec-09
Dec-09
Dec-09
Nov-09
Nov-09
Nov-09
Nov-09
Oct-09
Oct-09
Oct-09
Oct-09
Oct-09
Sep-09
Sep-09
Aug-09
Aug-09
Aug-09
Jul-09
Jun-09
Jun-09
Jun-09
May-09
Apr-09
Apr-09
Apr-09
Apr-09
Apr-09
Apr-09
Apr-09
Apr-09
Mar-09
Mar-09
Mar-09
Mar-09
Mar-09
Mar-09
Mar-09
Jan-09
Jan-09
Jan-09
Jan-09
Target
Acquiror
Benchmark Learning
Faculdade Diferencial Integral (Facid)
Linkman International Language Institute
Faculdade de Cincias Sociais e Tecnolgicas
Wise Up
Anhenbi Morumbi (49% stake)
Spartan College of Aeronautics and Technology
InfiLaw
EmbanetCompass
Southern Technical Institute
Midwest Technical Institute
Faculdade do Vale do Ipojuca (FAVIP)
Pro Education
Texas Wesleyan University School of Law
Tribeca Flashpoint Media Arts Academy
Oxford Aviation Academy
College of Law
Sophia Learning
Falcon Physician Reviews
Anthem Education Group
Emergency Training Services
Cours Florent
B Street Design School Of International Hair Styling
Strate College
The Career Training Academy
Faculdade Boa Viagem
University Cruzeiro do Sul Educacional
Universidade de Ensino Presencial e a Distancia
ChinaCast Education Corporation
Istituto Marangoni
Chancellor University, Jack Welch Management Institute
Cortiva Group Inc
Full Sail (Minority Stake)
American University of the Carribean
Resource Development International
Boston Reed
Carrick Education Group
Centro de Ensino Atenas Maranhense (CEAMA)
EDEX (Minority Stake)
Instituto Superior de Linguas e Administracao
Keiser University
CTI Education Group (75%)
EduServices
WSI International
Everonn Education (26%)
SC Academy Holdings (Star Career Academy)
Study Group
Ross Education
Culinary Tech Center and Professional Culinary Institute
Instituto de Banca y Comercio
B&H Education
AcadeMedia AB
National Hispanic University
International University of Monaco
Private Chinese University
Canadian International Schools
SEG International
Oriental University City (10%)
S&S Training Services
IUNI Educacional
Domus Academy
Waldorf College
MedTech College
Nouva Accademia de Belle Arti
KGIC Education Group
Career Quest Learning
Sebai Institutes Group (75%)
The Refrigeration School
Babington Business College
ATI Enterprises
MedVance
Piccolo International University
Heald College
Penn Foster
Southwest Florida College
Platt College Business
Southern Career Insitute
Lijiang College of Guangxi Normal University
Vatterott Educational Centers
Ashworth College
Vina del Mar University
Two Jordanian Schools
Kroton Educacional (28%)
Aston Education
Wall Street Institute International
American Institute of Allied Health
BPP Holdings
Edutech Middle East (55% - 80%)
Connecticut School of Broadcasting (11 Schools)
NTI Nederlands Talen Instituut
Institute of Technology Australia
Santo Tomas University (57%)
Wall Street Institute (Chinese Division)
Al Maaref School (UAE)
Morrison University
Faculdades Nordeste (82%)
Career Step
Florida Technical College
Piccolo International University
Javelin Technical Training Center
Clemens College
Baran Institute of Technology
BrightStar
West of England Language Services
ITT Educational Services Inc.

DeVry
CIBT Education Group Inc.
Estcio Participaes S.A.
Abril Educao
Laureate
Sterling Partners
ABRY Partners
Pearson
The Wicks Group of Companies
Summer Street Capital
DeVry
NCOI
Texas A&M University
Sterling Partners
CAE Inc.
Montagu Private Equity
Capella Education
Becker Professional Education (sub of DeVry)
Florida Career College
International Education Corporation
Studialis
Scope Beauty Enterprises
Studialis
HCP & Company
DeVry
Actis Capital LLP
Kroton Educacional
Private Investor
Strayer Education
Steiner Leisure
TA Associates
DeVry
Capella Education
Ascend Learning
Kaplan Australia
Kroton Educacional
University Ventures
Laureate Education
Everglades College
Pearson
Duke Street
Pearson
SKIL Infrastructure
Gemini Investors, Quad Partners, Summer Street Capital
JLL Partners
Educational Training Institute
Private Investor
ABRY
EQT Partners
Laureate Education
Career Education Corporation
ChinaCast Education
Knowledge Universe
Rexter Capital
Khazanah Nasional Berhad
Woodspeen Training
Kroton Educacional
Laureate Education
JTC Education
Laureate Education
CIBT Education Group
Sverica International
AlAnwar Education
Beam Reach Education
Bridges Community Ventures
BC Partners
Education Affiliates / JLL
FL-EX Holdings
Corinthian Colleges
Princeton Review
AEA Investors
AEA Investors
Endeavour Capital
ChinaCast Education
TA Associates
Sterling Partners
Laureate Education
Camden Learning
First Education Holding
Advent International
SQLI
Management Buyout
ATI Enterprises (Riverside)
Apollo Group
Navis Capital Partners
Private Investor
Cornelsen Verlagsholding
Kip McGrath Education Centres
ITT Technical Institute
Apollo Group
Pearson
First Education Holding
TCI Education
DeVry
BB&T Capital & DW Healthcare Partners
EduK Group
Maple Mountain Pumpkins & Agriculture
Excellere Partners
Kaplan
Kaplan
Transaction
Value
NA
NA
NA
$18.1
$443.4
NA
NA
$2,400.0
NA
$650.0
NA
NA
NA
NA
$25.0
NA
$311.3
$318.5
NA
NA
NA
NA
NA
NA
NA
NA
NA
$102.0
$702.7
NA
NA
$7.0
$33.0
NA
$235.0
$14.9
NA
NA
$29.0
NA
NA
NA
$49.5
NA
$92.0
$44.9
$43.6
$601.1
$232.0
$4.3
NA
NA
$440.1
NA
NA
$66.2
NA
$9.2
$43.9
$1.2
$231.2
NA
NA
NA
$31.4
$8.4
NA
$36.4
NA
NA
$500.0
NA
NA
$395.0
$170.0
NA
NA
NA
$14.0
NA
NA
$18.3
$162.0
$14.0
$112.7
$2.5
NA
NA
$540.0
NA
$1.0
NA
NA
NA
$57.0
$145.0
NA
NA
$40.4
NA
NA
NA
NA
$2.8
$28.3
NA
NA
Mean
Median

Revenue
EBITDA
NA
NA
NA
NA
NA
NA
NA
1.1 x
NA
NA
NA
NA
NA
NA
NA
NA
1.1 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
1.2 x
1.3 x
NA
4.7 x
1.1 x
NA
NA
NA
NA
NA
NA
NA
NA
1.5 x
2.6 x
NA
1.9 x
NA
NA
NA
NA
1.5 x
NA
NA
4.2 x
NA
0.8 x
NA
1.5 x
1.7 x
NA
NA
NA
2.3 x
0.6 x
NA
4.8 x
NA
NA
NA
NA
NA
2.2 x
1.8 x
NA
NA
NA
NA
NA
NA
NA
2.7 x
NA
2.2 x
NA
NA
NA
2.0 x
NA
NA
NA
NA
NA
NA
2.1 x
NA
NA
1.6 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
5.7 x
NA
NA
NA
NA
NA
NA
NA
NA
9.0 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
9.9 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
8.0 x
NA
15.7 x
NA
NA
NA
NA
14.0 x
NA
NA
NA
NA
7.8 x
NA
NA
7.2 x
NA
NA
NA
NA
NA
NA
18.6 x
NA
NA
NA
NA
NA
10.3 x
NA
NA
NA
NA
NA
NA
NA
NA
17.6 x
NA
12.9 x
NA
NA
NA
10.9 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
2.0 x
1.8 x
11.4 x
10.3 x

A member of BMO
Financial Group
348
September 2013
Transactions
between not-forprofit institutions
and for-profit
entities
BMO Capital Markets
Last decade, we had seen a pickup in acquisitions of not-for-profit institutions by either a private
equity firm or for-profit institution. Many of these transactions incorporated a not-for-profit
conversion to a for-profit entity. Institutions that were acquired are usually facing some financial
issues, limiting their viability. We believe the repeal of the 50% rule effective July 1, 2006,
(which had limited institutions to have under 50% of courses offered via "telecommunications
courses" (i.e., online) or else lose Title IV eligibility) has likely increased interest in these type
of transactions, as the new entity typically uses the acquired platform (and often regional
accreditation) as a base to dramatically expand its online presence. Exhibit 385 contains a list of
recent acquisitions of not-for-profit institutions by for-profit entities.
Exhibit 385. Selected List of Transactions Between For-Profit and

Not-For-Profit Institutions (2004-2012)
Date
Feb-04
Target
Acquirer
Comments
Grand Canyon Education (LOPE) LOPE went public in November 2008
Oct-04
Generation Partners
Mar-05
Post University (formerly Teikyo Post

University)
The Franciscan University of the Prairies
Apr-05
Salem International University
Palm Ventures LLC
Jul-05
New England College of Finance
Nov-05
Barat College (DePaul University)
Apr-07
Sierra Nevada College
Apr-07
Heald College
Whitney International University

System (Best Associates)
American College of Education
(Best Associates)
Knowledge Universe Learning
Group LLC
Palm Ventures LLC
Aug-07
Touro International University
Summit Partners
Sep-07
May-08
Colorado School of Professional

Psychology
Myers University
SignificantFederation
Mar-09
InterAmerican College
Apr-09
Jul-08
Jun-09
Waldorf College
Kendall College

Laureate Education
Jul-09
College of Santa Fe
Laureate Education
Acquires 1st regionally accredited

institution
Lease with purchase option
Dec-09
Crichton College
Subsequently renamed Victory University
Jul-12
Patten University
UniversityNow
Subsequently renamed Ashford University;

BPI went public in April 2009
Part of Whitney International University

System
Sold to Corinthian Colleges (COCO) in

January 2010
Subsequently renamed Trident University
Subsequently renamed University of the
Rockies; BPI went public in April 2009
Subsequently renamed Chancellor
University; to launch Jack Welch
Management Institute
Subsequently renamed United States
University
Source: BMO Capital Markets, Bloomberg, and company reports.
Recent decision
may slow these
types of
transactions
A member of BMO
However, these types of transactions have recently lost some momentum. In June 2010, the
Higher Learning Commission of the North Central Association of Colleges and Schools (HLC)
rejected two "change of control" requests to have accreditation continue with the purchases of
not-for-profit colleges the proposed acquisition of Dana College by Dana Education
Corporation (a group of investors and an unnamed private equity firm) and Rochester College
by University Education, a subsidiary of K12 (LRN). This decision subsequently led to the
closure of Dana College after 126 years of operations. The HLC cited a new set of policies that
required the purchaser to maintain the schools mission post-transaction to keep its
accreditation, to stop what it deemed to be accreditation shopping. Some believe this was a
reaction to the increased scrutiny that HLC has been under following the December 2009 OIG
report, which asked the ED to review its actions when accrediting Career Educations (CECO)
American Intercontinental University (AIU) for possible violations. Nevertheless, decisions
such as these could limit the number of future transactions between not-for-profit institutions
and for-profit entities.
Financial Group
349
September 2013
Some for-profits
converting to not-
BMO Capital Markets
Interestingly, likely owing to enhanced regulatory scrutiny on the for-profit sector, we have
started to see for-profit providers convert to not-for-profit status. Among the transactions:
for-profit status
In January 2011, privately held Keiser University announced its conversion via
Everglades College Inc., which runs an institution previously converted from for-profit to
nonprofit status by the Keiser family. Everglades is receiving part of the family-owned
Keiser University as a "huge donation" from the Keiser family (quoting Mr. Keiser) and
is acquiring the rest though a purchase financed with a loan from the sellers.
The same month, privately held Remington College sold itself to a nonprofit entity called
Remington College Inc. The entity paid for the college with a loan from the sellers,
which the college will pay back from its excess cash flow over a period of up to 15 years.
International Postsecondary Education

In December 2011, we published a separate report on the international postsecondary education
market. We have summarized some of our findings here.
International
market is much
larger than US
market
We realize there is no such thing as an international postsecondary market as each country has
its own growth drivers and risks; still, we group together all postsecondary opportunities outside
the US under this framework for discussion purposes. According to UNESCO statistics, roughly
157.3 million students attended postsecondary (classified as tertiary per UNSECO) institutions
outside the US in 2010 (the 2009-2010 school year; latest data available), compared with roughly
20.4 million enrolled at US institutions during that year.
A summary of some regional data can be found in Exhibit 386.
Exhibit 386. Summary Statistics by Region (2000-2010)
Region
Arab States
Central and Eastern Europe
Central Asia
East Asia and the Pacific
Latin America and the Caribbean
North America and Western Europe
South and West Asia
Sub-Saharan Africa
World
Tertiary School Age

Total Tertiary Enrollment
Population (000s)
(000s)
CAGR:
CAGR:
200020002010
2010
2000
2010
2000
2010
27,442
33,185
1.9%
5,638
8,048
3.6%
32,696
32,231
-0.1% 13,521
21,233
4.6%
6,779
8,622
2.4%
1,545
2,088
3.1%
159,106 189,151
1.7% 24,630
54,886
8.3%
50,076
53,911
0.7% 11,316
21,448
6.6%
46,292
48,779
0.5% 29,590
36,896
2.2%
141,066 166,099
1.6% 12,239
27,857
8.6%
59,188
77,299
2.7%
2,344
5,228
8.4%
522,645 609,277
1.5% 100,823 177,684
5.8%
Gross Enrollment Ratio
2000
19%
43%
21%
15%
23%
59%
9%
4%
19%
2010
24%
66%
24%
29%
41%
76%
17%
7%
29%
%
change
5%
23%
3%
14%
18%
17%
8%
3%
5%
Note: Tertiary school age population represents the five year period following the secondary school leaving age. In many countries, this is the
ages 18-23 years. Source: UNESCO Institute for Statistics and BMO Capital Markets.
US is now third
behind China and
India
A member of BMO
A list of the worlds top 25 markets (when measured by 2010 tertiary, or postsecondary,
enrollment) can be found in Exhibit 387. In 2010, India took over the worlds number two spot
from the US.
Financial Group
350
September 2013
BMO Capital Markets
Exhibit 387. Countries With Largest Postsecondary Enrollment (2000 versus 2010)
2010
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Country
China
India
United States
Russian Federation
Brazil
Indonesia
Japan
Iran, Islamic Republic of
Turkey
Republic of Korea
Mexico
Philippines
Egypt
Ukraine
Argentina
United Kingdom
Thailand
France
Poland
Venezuela
Viet Nam
Italy
Canada
Spain
Colombia
Region
South and West Asia
South and West Asia
Arab States
Total
Enrollment (millions)
2000
2010
CAGR
7.4
31.0
15.5%
9.4
20.7
8.2%
13.2
20.4
4.5%
6.3
9.3
4.0%
2.8
6.6
8.9%
3.1
5.0
4.8%
4.0
3.8
-0.4%
1.4
3.8
10.4%
1.6
3.5
8.3%
3.0
3.3
0.9%
2.0
2.8
3.8%
2.4
2.7
0.9%
2.4
2.6
0.8%
1.8
2.6
3.8%
1.8
2.5
3.6%
2.0
2.5
2.0%
1.9
2.4
2.5%
2.0
2.2
1.1%
1.6
2.1
3.1%
0.7
2.1
12.3%
0.7
2.0
10.7%
1.8
2.0
1.1%
1.2
1.9
4.6%
1.8
1.9
0.3%
0.9
1.7
6.0%
100.8
177.7
5.8%
Market Share
2000
2010
7.3%
17.5%
9.3%
11.7%
13.1%
11.5%
6.3%
5.3%
2.8%
3.7%
3.1%
2.8%
3.9%
2.2%
1.4%
2.1%
1.6%
2.0%
3.0%
1.8%
1.9%
1.6%
2.4%
1.5%
2.4%
1.5%
1.8%
1.5%
1.8%
1.4%
2.0%
1.4%
1.9%
1.4%
2.0%
1.3%
1.6%
1.2%
0.7%
1.2%
0.7%
1.1%
1.8%
1.1%
1.2%
1.1%
1.8%
1.1%
0.9%
0.9%
100.0%
100.0%
Note: Ranked by 2010 enrollment. N.A. Not Available. Source: UNESCO Institute for Statistics, US Department of Education National Center
for Education Statistics, and BMO Capital Markets.
We believe the international postsecondary education market has some features differentiating it
from the US market. In Exhibit 388, we compare the US and international postsecondary
markets on several key metrics. While this data is a bit old, we believe the comparisons are still
fairly valid.
Exhibit 388. International vs. US Postsecondary Market
Pricing flexibility (i.e., annual tuition increases)

Attrition rate
Campus size
Program length
Primary source of financing
International
US
5%-10%
4%-6%
11%
>20%
1-10K
1-2K
4-6 years
1-3 years
Private
Title IV
Source: Laureate Education and BMO Capital Markets.
A member of BMO
Financial Group
351
September 2013
However, it is
much more
fragmented with
fewer private
universities
US still dominates
top higher
education ranks,
though others like
China are gaining
share
BMO Capital Markets
We believe the postsecondary market is much more fragmented overseas than in the US. The
competition for postsecondary students overseas is relatively limited, as governments, such as
those in France and Spain, have only recently allowed private universities to begin operations.
We believe many of the existing for-profit schools are relatively small with limited access to
capital. In addition, most state-run universities are overcrowded, and the lack of a structured
financial aid program makes it more difficult for students to attend institutions away from home.
This is one reason we believe most of the existing universities overseas tend to be congregated
in major urban areas, providing for-profit universities with potential expansion opportunities.
While we believe the US is still recognized as the worlds leader in higher education by most, the
market is becoming more globalized. Each year, Shanghai Jiao Tong University publishes its
Academic Ranking of World Universities, which ranks institutions of higher education on a
number of criteria, including the quality of education, faculty, research output, and size. While
some may argue with the specifics, we highlight the countries with the most top 500
universities over the past six years to show the growth of top universities in a number of locations
outside the US (see Exhibit 389). Specifically, China has nearly tripled its share on this list,
with 28 top 500 universities in 2013, up from 10 in 2003, while the USs share has fallen
slightly to 149 from 170 over the same period. While the US still dominates this list and will
likely continue to do so for some time, we believe it will gradually lose some share as other
countries invest in their higher education systems. Other up and coming countries include
Singapore, Malaysia, South Korea, and India.
Exhibit 389. Academic Ranking of World Universities: Share of

Top 10 Universities (2003-2013)
2003
% of Top 500 Universities
35%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
30%
25%
20%
15%
10%
5%
Ko
re
a
So
ut
h
Sw
ed
en
ly
et
he
rla
nd
s
N
Ita
lia
Au
st
ra
Ja
pa
n
Fr
an
ce
C
an
ad
a
na
C
hi
U
K
an
y
er
m
G
U
SA
0%
Note: Share represents percentage of top 500 universities. Source: Shanghai Jiao Tong University.
International
market has
grown 6% CAGR
since 2000, vs. a
2.2% CAGR
increase in the US
A member of BMO
Based on UNESCO data, global tertiary (postsecondary) enrollment (excluding the US) grew at
roughly a 5% annual rate from 1970 to 2010 (see Exhibit 390). More recently from 2000 to
2010 this rate accelerated to 6%, as total enrollments increased to 157.3 million from 87.6
million. This compares with US tertiary enrollment, which generated 2.2% and 4.5% annual
growth rates over the same respective periods. According to UNESCO, the US lost considerable
share during this period, as its share of global tertiary enrollments decreased to about 11.5% in
2010 from 28% in 1970.
Financial Group
352
September 2013
BMO Capital Markets
Exhibit 390. Tertiary Enrollment in the US vs. Rest of World (19691970 to 2019-2020E School Years)
Rest of World Enrollment
US Share of Total
300
30%
250
25%
200
20%
150
15%
100
10%
50
5%
0
1970
1980
1990
2000
2010
US as % of Total
Global Enrollment (millions)
US Enrollment
0%
2020
Source: UNESCO Institute for Statistics, US Department of Education National Center for Education
Statistics, and BMO Capital Markets.
Non-US private
sector higher
education market:
projected 9%-10%
CAGR through
2020
Uneven growth
across
geographies
A member of BMO
While growth will likely slow (law of large numbers), we project tertiary enrollment outside the
US will grow at a 4% CAGR through 2020, reaching over 232 million in the 2019-2020 school
year. This would be more than four times the rate of growth we expect in the US over the same
period (0.9% CAGR). Similar to in the US, we believe that private sector enrollment could grow
slightly faster than the overall market, and have assumed a 5%-6% CAGR growth in non-US
private sector enrollment over this period. Adding in tuition increases (assuming roughly 4% to
5% in line with the 4.4% average annual increase in the World CPI per the International
Monetary Fund since 1996), we project the private sector higher education market outside the
US could grow at a 9%-10% CAGR through 2020.
Enrollment growth is somewhat uneven across geographies (see Exhibit 391), with some of the
fastest-growing regions being South and West Asia (8.6% CAGR), Sub-Saharan Africa (8.4%)
and East Asia and the Pacific (8.3%) all outpacing the CAGR for the entire world (5.8%) and
the US (4.5%) from the 1999-2000 through 2009-2010 school years. While the higher
international growth rates may result from the fact that most regions started from a smaller base,
we nevertheless believe these data are enlightening. In addition, we find it interesting that
postsecondary enrollment in Western Europe actually shrunk over the past decade (-0.4%
CAGR), with expectations of that to continue owing to expected school age population declines.
Financial Group
353
September 2013
BMO Capital Markets
Western Europe
Central Asia
Arab States
USA
Central and Eastern

Europe
Canada
World
Latin America and the

Caribbean
Sub-Saharan Africa
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
South and West Asia
CAGR: 2000-2010
Exhibit 391. International Postsecondary Enrollment CAGR (19992000 to 2009-2010 School Years)
Source: UNESCO Statistical Yearbook, US Department of Education.
Countries with
fastest growing
enrollment
Exhibit 392 lists those countries with sizable postsecondary enrollments that have still outpaced
growth in most other countries, where postsecondary enrollment has grown at or near doubledigit rates (through 2009-2010 school year; latest data available). As shown, the fastest-growing
list is spread throughout the world.
Exhibit 392. Countries with Fastest-Growing Postsecondary

Enrollment (1999-2000 to 2009-2010 School Years)
Enrollment (000s)
Rank
1
2
3
4
5
6
7
8
9
10
Country
Ethiopia
Cuba
China
Venezuela
Viet Nam
Iran
Brazil
Saudi Arabia
Romania
India
Region
Sub-Saharan Africa
South and West Asia
Arab States
South and West Asia
2000
67.7
158.7
7,364.1
668.1
732.2
1,404.9
2,781.3
404.1
452.6
9,404.5
2010
577.6
800.9
31,046.7
2,123.0
2,020.4
3,790.9
6,552.7
903.6
999.5
20,740.7
CAGR
2000-2010
23.9%
17.6%
15.5%
12.3%
10.7%
10.4%
8.9%
8.4%
8.2%
8.2%
Note: Countries chosen have more than 500,000 enrolled in postsecondary institutions in the 2009-2010
school year. Source: UNESCO Statistical Yearbook and BMO Capital Markets.
Global
penetration rates
on the rise, but
some still well
below developed
regions
A member of BMO
As postsecondary enrollment in many regions has grown at a faster rate than that of the US,
postsecondary penetration (the percentage of the eligible school-age population actually
enrolled; termed gross enrollment ratio by UNESCO) has also improved substantially though
less developed regions (e.g., Sub-Saharan Africa) still lag significantly behind more developed
regions. As shown in Exhibit 393, global penetration rates have increased to 29% in 2008 from
9% in 1970, with the bulk of this growth occurring in recent decades as the penetration rate has
more than doubled since 1990s 13%.
Financial Group
354
September 2013
BMO Capital Markets
Exhibit 393. Global Postsecondary Penetration Rates (1969-1970

76
Penetration rate (100=100%)
80
66
70
60
1970
1980
1990
2000
2010
50
41
40
30
29
30
29
24
24
17
20
10
Latin
North
Central and
America and
America and
Eastern
the
Western
Europe
Caribbean
Europe
East Asia
and the
Pacific
Central Asia Arab States
South and
West Asia
SubSaharan
Africa
World
Source: UNESCO Institute for Statistics and BMO Capital Markets.
US has the sixthhighest

postsecondary
participation rate
per UNESCO
A member of BMO
Exhibit 394 looks at the growth of penetration rates in selected countries. As shown, with
roughly 86% of eligible students taking at least some postsecondary coursework in the 20092010 school year (latest data available), the US ranked sixth in the world behind Cuba (118%),
Republic of Korea (100%), Finland (91%), Greece (91%), and Slovenia (88%). (We have
doubts about the Cuba number given the sizable penetration rate increase and the 2009 data
point above 100).
Financial Group
355
September 2013
BMO Capital Markets
Exhibit 394. Postsecondary Education Penetration Rates (1999-2000 to 2009-2010

School Years; ranked by 2009-2010 school year)
RANK COUNTRY
REGION
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

Arab States
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Republic of Korea
Greece
Cuba
United States
Finland
Slovenia
Puerto Rico
Canada
New Zealand
Australia
Ukraine
Iceland
Spain
Venezuela
Belarus
Russian Federation
Argentina
Norway
Lithuania
Sweden
Denmark
Poland
Belgium
Austria
Ireland
Chile
Barbados
Israel
Portugal
Netherlands
Italy
Macao, China
San Marino
Estonia
Czech Republic
Uruguay
Hungary
Latvia
United Kingdom
Japan
Hong Kong SAR of China
Romania
Grenada
Bulgaria
France
Turkey
Slovakia
Switzerland
Croatia
Lebanon
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
78
51
22
68
83
56
N.A.
59
66
65
49
45
59
28
53
N.A.
53
69
50
67
58
50
58
56
49
37
N.A.
50
48
52
49
N.A.
N.A.
56
29
N.A.
37
56
58
48
N.A.
24
N.A.
45
53
23
29
38
31
34
83
59
26
68
84
61
N.A.
N.A.
67
67
52
48
61
N.A.
56
N.A.
58
70
57
70
60
55
59
56
50
N.A.
N.A.
52
51
54
52
N.A.
N.A.
60
31
N.A.
41
63
59
49
N.A.
28
N.A.
43
54
23
30
39
33
39
87
66
28
79
85
67
N.A.
60
69
76
57
54
62
38
58
N.A.
62
74
62
75
63
58
60
47
54
41
N.A.
57
53
56
55
N.A.
N.A.
62
35
N.A.
45
67
63
51
N.A.
32
N.A.
40
54
24
32
41
36
41
89
73
34
81
87
69
N.A.
N.A.
70
74
61
63
64
39
60
66
64
79
68
81
67
60
61
47
56
43
N.A.
57
55
56
58
N.A.
N.A.
64
37
N.A.
52
71
63
52
N.A.
36
N.A.
41
55
28
34
44
39
40
90
80
55
81
90
72
N.A.
62
85
72
65
69
65
41
62
70
65
79
73
83
74
62
62
48
58
43
N.A.
57
56
58
62
N.A.
N.A.
65
44
N.A.
59
75
60
54
N.A.
40
N.A.
41
55
29
36
45
N.A.
42
92
90
63
82
92
79
N.A.
N.A.
81
72
69
71
66
N.A.
64
72
65
78
76
81
81
64
62
48
58
48
N.A.
58
56
59
64
N.A.
N.A.
66
48
N.A.
64
75
59
55
N.A.
45
N.A.
44
55
32
40
45
44
44
94
95
88
81
93
83
N.A.
N.A.
79
73
73
73
67
N.A.
66
73
68
77
76
78
80
66
63
49
59
47
N.A.
58
55
60
66
N.A.
N.A.
65
50
46
67
74
59
57
N.A.
52
N.A.
46
55
35
45
46
45
46
96
91
109
82
94
85
N.A.
N.A.
79
75
76
72
68
N.A.
68
75
68
76
76
75
80
67
62
50
61
52
N.A.
60
57
60
67
N.A.
N.A.
65
54
64
67
71
59
58
N.A.
58
N.A.
49
55
37
50
47
47
49
98
91
118
83
94
87
N.A.
N.A.
78
77
79
75
71
79
73
77
68
73
77
71
80
67
63
55
58
52
N.A.
60
57
61
67
57
N.A.
64
59
64
65
69
57
58
34
66
N.A.
51
55
38
54
49
47
53
100
91
118
86
91
88
78
N.A.
84
82
81
74
73
78
77
77
69
73
80
72
77
71
66
59
61
55
N.A.
63
61
62
67
63
N.A.
64
61
65
62
67
59
59
57
67
N.A.
54
55
38
56
51
49
53
103
102
95
95
94
90
86
83
83
80
79
79
78
78
78
76
75
74
74
74
74
72
71
68
66
66
66
66
65
65
65
65
65
64
64
63
61
60
60
60
60
59
57
57
57
55
55
55
54
54
Note: N.A. - Not Available. Source: UNESCO and BMO Capital Markets.
International
postsecondary
market has great
potential
We believe a key driver of recent and future growth in international postsecondary enrollment
has been the relative rise of a middle class and concurrent recognition of the wage premium
associated with higher education trends that began much earlier in the US. Nevertheless,
postsecondary penetration rates in most countries are still significantly below that in the US. We
attribute the disparity mainly to a lack of relevant available programs (most schools are run by
the public sector, with limited capacity and financing).
According to the Observatory of Higher Education, among the factors driving international
growth in higher education are the following:
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Competition;
The need to secure alternative funding sources to replace reduced government allocations
to tertiary education;
The exponential adoption of English as the global language in commerce;
Interconnectedness of a global society and economy;
Diversification and an increase in international student mobility;
Workforce needs and skills migration; and
Demand by developed and developing countries for technology transfer and research
collaboration.
Many countries with traditionally low penetration rates have witnessed sharp increases;
however, they still significantly lag the penetration rates of the US. Among the worlds most
highly populated countries, most countries have shown sizeable improvement in the past decade,
especially China (from 8% in 2000 to 26% in 2010) and Brazil (from 16% in 2000 to 37% in
2010) though both are still considerably lower than the US (95% in 2010). Exhibit 395 lists
the postsecondary participation for the worlds 10 largest countries outside the US.
Among larger
countries, China
and Brazil have
made great
strides
Exhibit 395. Postsecondary Penetration Rates in Worlds Largest Countries (1999-2000

Rank
1
2
4
5
6
7
8
9
10
11
COUNTRY
China
India
Indonesia
Brazil
Pakistan
Nigeria
Bangladesh
Russian Federation
Japan
Mexico
3 United States
Population
(Million)
1,349.6
1,220.8
251.2
201.0
193.2
174.5
163.7
142.5
127.3
116.2
316.7
2000
8
10
N.A.
16
N.A.
N.A.
5
N.A.
48
20
2001
10
10
15
18
N.A.
N.A.
6
N.A.
49
21
2002
13
10
15
20
2
N.A.
5
N.A.
51
22
2003
15
11
17
22
2
9
6
66
52
23
2004
18
11
17
24
3
10
5
70
54
24
2005
19
11
18
25
5
10
6
72
55
25
2006
21
12
18
N.A.
5
N.A.
6
73
57
25
2007
22
13
18
30
5
N.A.
7
75
58
26
2008
23
13
21
34
5
N.A.
7
77
58
27
2009
25
13
24
N.A.
5
N.A.
8
77
59
28
2010
26
18
23
37
5
N.A.
11
76
60
28
68
68
79
81
81
82
81
82
83
86
95
N.A. Not Available. Source: UNESCO, US Census Bureau and BMO Capital Markets.
Key drivers: rising

per capita income,
and increased
accessibility of
education
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Rising per capita income in emerging market countries tends to result in higher per capita
spending on postsecondary education, so we expect the penetration gap to decline fastest in
countries with faster-growing economies. In addition, the attainment of postsecondary education
tends to have a larger impact on those workers from lower-income countries. As shown in
Exhibit 396, average wage increases for those with postsecondary education are much higher in
countries such as China and Brazil than they are in the US.
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Exhibit 396. Average Wage Increases for Workers With

250%
>200%
200%
171%
150%
150%
124%
100%
62%
50%
0%
U.S.
Mexico
Chile
Brazil
China
Source: College Board Education Pays 2004, Valora Consultants (Mexico), ECLAC (Chile and Brazil), and
Laureate Education analysis.
Additionally, we believe the massification of higher education has helped increase

accessibility in poorer countries, as these countries have continued to increase their total share of
global enrollments. Essentially, this refers to how providers of higher learning (both governments
and private enterprises) have commodified and scaled up educational offerings to meet the flood
of new demand, primarily from emerging economies. We believe this trend will likely continue,
as higher education becomes more available to people of varying income levels, rather than just
the affluent class. For example, historically, 80% of Chile's university students have come from
the wealthiest 40% of the population (according to the Chronicle of Higher Education).
According to UNESCO, low-income and lower-middle-income countries have consistently
accumulated global share of enrollments since 1970; however, this trend has accelerated since
1995 as total share among these countries increased to 48% in 2007 (latest data available) from
34% in 2000. The opposite has been the case among high-income countries, where total share
was 30% in 2007, down from 46% in 1995 (see Exhibit 397).
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Exhibit 397. Global Postsecondary Enrollment Distribution by

Income Level (1969-1970 to 2006-2007 School Years)
Low-income countries
Lower middle-income countries
Upper middle-income countries
High-income countries
100%
% of Global Enrollment
90%
80%
70%
57
55
50
46
46
39
60%
30
22
22
40
42
21
50%
40%
30%
32
17
20%
19
22
22
19
29
35
22
23
24
28
1970
1975
1980
1985
1995
2000
2005
2007
10%
0%
Note: Data for 2006-2007 school year is latest available. Source: UNESCO Institute for Statistics and BMO
Capital Markets.
High secondary
participation rates
may indicate
stronger demand
for postsecondary
programs
A potential indicator of demand for tertiary education is the supply of students coming out of
primary and secondary schools. As participation in secondary education grows, it follows that
demand for postsecondary programs will increase. One way to measure the impact of this is by
comparing the participation rate of secondary enrollments to that of postsecondary enrollments.
In general, the wider the disparity (the more students at the secondary level), the greater the
likelihood demand for postsecondary education will increase.
Using global data provided by UNESCO (see Exhibit 398), we can see that from 1999 to 2009
(latest data available), participation rates in upper secondary programs (defined as secondary
schooling intended to prepare graduates for tertiary programs) increased in all regions of the
world except in North America and Western Europe (where participation rates were near 100%
already). When looking at the multiple of this rate to the tertiary participation rate, one sees the
disparities across regions. For example, the upper secondary participation rate in Sub-Saharan
Africa in 2009 was 4.5x its tertiary participation rate. This is lower than 1999s 5.3x, but we
believe it implies that growth potential for postsecondary education is likely stronger relative to
more developed regions such as North American and Western Europe, where the multiple is
much lower: only 1.4x in 2009 (vs. 1.6x in 1999). This analysis is by no means a perfect
predictor of postsecondary demand, and the data is likely skewed by variations in population
growth; yet in general, we believe it serves as a reasonable proxy for identifying long-term
postsecondary growth trends.
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Exhibit 398. Global Upper Secondary and Tertiary Penetration

Rates (1999-2009)
Upper Secondary
Participation Rate
1999
47%
80
83
46
62
98
31
19
46
Region
Arab States
Central Asia
South and West Asia
Sub-Saharan Africa
World
2009
48%
84
94
66
75
98
44
27
56
Upper Secondary as Mutliple

of Tertiary Participation
1999
2009
2.4x
2.2x
2.1
1.3
4.5
3.8
3.3
2.4
2.9
2.0
1.6
1.4
4.2
3.4
5.3
4.5
2.6
2.1
Note: Data not available for 2010. Source: UNESCO Institute for Statistics and BMO Capital Markets.
Many countries
provide free or
subsidized tuition
at public
institutions
One major difference between the US and many other countries across the globe is the sources
of funding for higher education. According to the OECDs 2012 Education at a Glance, there are
a number of countries such as the five Nordic countries (Denmark, Finland, Iceland, Norway,
and Sweden), Czech Republic, and Mexico, where the public institutions do not charge any fees.
In addition, even in those countries that charge fees, they are typically very heavily subsidized;
for example, the same report cites that outside the US (where public institution tuition average
roughly $6,300 per student in the 2008-2009 school year), only Australia, Japan, Korea, and the
UK charged more than $4,000 (in US$), while many countries charged tuition well below
$2,000 (see Exhibit 399).
Exhibit 399. Average Annual Tuition at Public Institutions (20082009 School Year)
Country
United States
Korea
United Kingdom
Japan
Australia
Canada
New Zealand
Ireland
Netherlands
Portugal
Italy
Spain
Switzerland
Austria
Belgium (Fr.)
France
Denmark
Finland
Iceland
Mexico
Norway
Sweden
Tuition (in US$)

$6,312
5,193
4,731
4,602
4,222
3,774
3,031
2,800
1,861
1,259
1,289
1,052
889
859
608
$190 to $1,309
No tuition fees
No tuition fees
No tuition fees
No tuition fees
No tuition fees
No tuition fees
Source: OECD 2012 Education at a Glance.
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International
postsecondary
has inherent risks
BMO Capital Markets
We see a number of factors that we believe should be important to investors when seeking
opportunities to invest in postsecondary education outside the US, in addition to the sovereign
and political issues crucial to any international investment. These include:
A large and growing potential target market in terms of both traditional age postsecondary
students (18-23 years old in many countries), as well as older potential students, the socalled working adult market, which has driven much of the historical stellar growth of this
sector in the US.
A relatively wealthy population when measured in such terms as GDP, disposable income,
or median income per capita.
A fairly long average tenure for tertiary students (when measured in average length of stay).
A fairly low higher education penetration rate providing industry growth potential, as this
rate can be increased.
Supply constraints, e.g., a saturated public university system that cannot handle current and
projected demand.
A friendly regulatory environment that would encourage (or at least not discourage)
private institutions.
Funding availability, from either the public or private sector (preferably both).
In addition to the risks typically accompanying any type of international expansion strategy
(e.g., sovereign, currency), certain risks are inherent within the international postsecondary
market, in our view.
Regulatory changes. While we believe most investors in US-based postsecondary
stocks are somewhat aware of the regulatory issues inherent domestically, the
international postsecondary education is also highly vulnerable to regulatory changes, in
our view. For example, in 2001, Spain's Bureau of Education increased the admissions
standards for its postsecondary students by raising the passing threshold on its national
entrance examination (known as selectividad). We believe this change in policy made
higher education far less accessible in Spain and subsequently reduced the prospects for
the country's near-term enrollment growth.
Risks of investing
in international
postsecondary
education
Maturing markets. The overall international postsecondary landscape remains highly
fragmented; however, we believe some markets have seen rapid growth and recently have
shown signs of maturation. Following several acquisitions as well as strong organic
growth, Laureate Education possesses an estimated 10% share of the overall Chilean
postsecondary market. By contrast, no US for-profit operator possesses more than 2% of
the total market.
Financing education. Most countries outside the US do not have a government-
sponsored financing system similar to the Title IV system in the US. In addition, private
student loan financing is also virtually nonexistent except in the US and UK, and
increasingly China. While the majority of state-run higher institutions are free or fairly
inexpensive, students at private institutions of higher education get little financial
support. In recent years, there has been some progress in securitizing student loans in
countries such as Brazil, Chile, and Peru, which we believe has helped spur enrollment
growth in those countries, albeit to a limited extent.
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International
branch campuses
BMO Capital Markets
Competition from the not-for-profit sector. Another risk for the for-profit providers has
been the rise of not-for-profit schools in this market. In recent years, a sizable number of
not-for-profit providers have expanded their presence overseas, mainly via partnerships
with existing institutions. According to a December 2006 report by the US Government
Accountability Office (GAO), US universities and colleges offer degree programs in at
least 40 countries; the number is likely much larger today. We believe this is a sizable
threat for for-profit providers, as the brand recognition for many of these schools is likely
stronger than that for most for-profit providers.
Economic downturn. While some demand aspects of education may be countercyclical,

we believe the current economic downturn will likely have a negative impact on more
speculative educational ventures that took place over the past several years. In particular,
there has been reduced demand in Persian Gulf states as foreign workers return to their
countries as a result of a weakened economy and lost jobs. Additionally, budget
constraints around the globe are likely to delay or reduce investments in education at least
in projects where the net present value is not positive, while cash-strapped students may
increasingly prefer less expensive programs. Nevertheless, countries with stable studentloan financing systems are likely to withstand the recession better as laid-off workers and
new students can obtain the financing needed to enroll in educational programs.
Periodically, the Observatory on Borderless Higher Education (OBHE) conducts a survey of

international branch campuses, which it defines as an off-shore entity of a higher education
institution operated by the institution or through a joint venture in which the institution is a
partner in the name of the foreign institution. Upon successful completion of the course
program, which is fully undertaken abroad, students are awarded a degree from the foreign
institution.
For the 2011-2012 school year, OBHE identified 200 international branch campuses up 77%
from the 113 identified campuses when it published its first study in the 2006-2007 school year.
Only 35 of these campuses existed prior to 1999. Among the findings:
The US dominated with 78 international branch campuses (39% of total). While there
were a number of openings and closures in the two years since the last report was
released, the net number remained constant. Following the US were France, with 27, and
the UK, with 25.
Among the host countries, the United Arab Emirates was the clear leader with 37
international branch campuses, roughly 18% of the total, though this was down from 40
in the prior report. Most are in the countrys Dubai International Academic City.
However, the greatest growth in recent years has come in China, which has 17 branches
now, up from 10 in 2009, and Singapore, which has 18, up from 12.
Universities were planning 37 more international branch campuses. All but two were
slated to open in 2012 or 2013. This included 13 planned by US-based institutions.
Global Higher Education maintains a list of international branch campuses (see Exhibit 400).
US-based institutions dominate this list.
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Exhibit 400. International Branch Campuses

Host Country
Argentina
Australia
Australia
Australia
Australia
Austria
Bahrain
Bahrain
Bahrain
Bangladesh
Belgium
Botswana
Bulgaria
Cambodia
Canada
Canada
Canada
Canada
Canada
Canada
Chile
China
China
China
China
China
China
China
China
China
Cyprus
Czech Republic
Dominican Republic
Dubai Health Care City (Free Zone)
Dubai Health Care City (Free Zone)
Dubai Intl. Academic City/Dubai Knowledge Village (Free Zone)
Dubai International Financial City (Free Zone)
Dubai International Financial City (Free Zone)
Ecuador
Ecuador
Finland
France
France
France
France
France
Germany
Germany
Germany
Greece
Greece
Greece
Hong Kong SAR
Hong Kong SAR
Hong Kong SAR
Hong Kong SAR
Hungary
Israel
Istanbul
Italy
Jamaica
Japan
Japan
Japan
Japan
Jordan
Jordan
Korea
Kuwait
Institution Name
University of Bologna
Esmod Jakarta, International University Fashion Group
SP Management - Plan to open in 2012 at Sydney Olympic Park
University College London
Webster University
AMA Computer University
New York Institute of Technology
Royal College of Surgeons
Grameen Caledonian College of Nursing
Boston University
Limokokwing University
City University of Seattle
Limkokwing University of Creative Technology
Charles Sturt University
DeVry University
Fairleigh Dickinson University
Potsdam, The State University of New York
University of Phoenix-Calgary and Vancouver
Apollo Group - purchased UNIACC, University of Arts, Sciences, and Communication
Baruch College, City University of New York
Florida International University
Johns Hopkins University
Lancaster University - Partner with Sunway University
Missouri State University
University of Nottingham
University of Surrey
Webster University [2 campuses]
University of Northern Virginia
Stevens Institute of Technology
Boston University Institute for Dental Research and Education
Royal College of Surgeons
Bharati Vidyapeeth University
Birla Institute of Technology and Science
Cambridge College International
French Fashion University Esmod
Heriot-Watt University
Hult International Business School
Institute of Management Technology
Islamic Azad University
Manchester Business School
Manipal University
Middlesex University
Murdoch University
Saint Joseph University
Saint-Petersburg State University of Engineering and Economics
Shaheed Zulfikar Ali Bhutto Institute of Science and Technology
SP Jain Centre of Management
University of Bradford
University of Exeter
University of Wollongong
CASS Business School
London School of Business
Brookdale College Ecuador
Universidad Tcnica Federico Santa Mara de Chile
Estonian Business School
Georgia Institute of Technology
Parsons - The New School for Design
Schiller International University
University Fernando Pessoa
ESMOD, International Fashion School
Troy University
City University of Seattle in Greece
Empire State University with SUNY New Paltz
University of Indianapolis
Savannah College of Art Design
University of Western Ontario
McDaniel College
Clark University
ESMOD
Johns Hopkins University
University of New Orleans
Lakeland College
Lakeland College
McGill University @ Spohia University of Tokyo, 2yr MBA [Tokyo]
Temple University
DePaul University
State University of New York - Korea Campus
Box Hill Institute
Home Country
Italy
USA
France
India
United Kingdom
USA
The Philippines
USA
Ireland
Scotland
USA
Malaysia
USA
Malaysia
Australia
USA
USA
USA
USA
USA
USA
USA
USA
USA
Malaysia
USA
USA
United Kingdom
United Kingdom
USA
USA
USA
USA
USA
Ireland
India
India
Australia
France
United Kingdom
USA
India
Iran
United Kingdom
India
United Kingdom
Australia
Lebanon
Russia
Pakistan
India
United Kingdom
United Kingdom
Australia
United Kingdom
United Kingdom
USA
Chile
Estonia
USA
USA
USA
USA
Portugal
France
USA
USA
USA
USA
USA
United Kingdom
USA
USA
Canada
USA
USA
France
USA
USA
USA
USA
Canada
USA
USA
USA
USA
Australia
Note: Updated as of May 7, 2013. Source: Global Higher Education.
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Exhibit 400. International Branch Campuses (cont.)

Host Country
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Mexico
Mexico
Mexico
New Zealand
Nicaragua
Nigeria
Norway
Panama
Panama
Poland
Poland
Poland
Qatar
Qatar
Qatar
Qatar
Qatar, Education City
Shanghai
Shanghai
Shanghai
Shanghai
Silicon Oasis (Free Zone)
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Slovakia
South Africa
South Africa
South Africa
South Korea
Spain
Spain
Switzerland
Switzerland
Switzerland
Taiwan
Thailand
Thailand
The Netherlands
Tunisia
Tunisia
United Arab Emirates, Abu Dhabi
United Arab Emirates, Ras Al Khaimah
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Uzbekistan
Vietnam
Yemen
Institution Name
Curtin University of Technology
Monash University
Newcastle University
Royal College of Surgeons Penang Medical College
Swinburne University of Technology
University of Nottingham
Xiamen University
Alliant International University
Endicott College
Central Queensland University
Ave Maria University Latin America
Business School Netherlands
ESMOD Oslo, Moteskolen AS
Florida State University
Monterrey Institute of Technology
Clark University
Russia Federation
Stockholm School of Business
College of North Atlantic
Houston Community College
Stenden Hogeschool
University of Calgary
Cornell University- Weill Medical College
Georgetown University School of Foreign Service
Northwestern University
Virginia Commonwealth University
New York University in Shanghai
Webster University
Rochester Institute of Technology
Culinary Institute of America
Curtin University of Technology
Digipen Institute of Technology
ESSEC Business School
INSEAD
James Cook University
New York University Tisch School of Arts
Queen Margareth University, Edinburgh
Shanghai Jiao Tong University
SP Jain Centre of Management
The University of Chicago Booth School of Business
University of Las Vegas, Nevada
University of Newcastle
De Montfort University
Monash University
Stenden Hogeschool
STC Group/Netherlands Maritime University Rotterdam
Berklee College of Music
Webster University
Stenden Hogeschool
Webster University
Webster University [2 campuses]
Esmod Tunisia
Paris- Dauphine University, Tunisia- Dauphine Institute
INSEAD
New York Film Academy
New York University
Sorbonne University
Federal Institute of Technology Lausanne-EPFL
Madurai Kamaraj University
Mahatma Gandhi University (Appears to be moving to RAK from Dubai)
University of Bolton
University of Pune
Vatel International Business School
American Intercontinental University
Glion Institute of Higher Education
Limkokwing University of Creative Technology
The University of Chicago Booth School of Business
Webster University
Xian Jiaotong University
Westminster International University
Royal Melbourne Institute of Technology
International University College of Technology Twintech
Home Country
Australia
Australia
United Kingdom
Ireland
Australia
United Kingdom
China
USA
USA
USA
Australia
USA
Netherlands
France
USA
Mexico
USA
Russia
Sweden
Canada
USA
Netherlands
Canada
USA
USA
USA
USA
USA
USA
USA
United Kingdom
USA
USA
USA
USA
USA
Australia
USA
France
France
Australia
United Kingdom
USA
United Kingdom
China
India
USA
USA
Australia
USA
United Kingdom
Australia
Netherlands
Netherlands
USA
USA
USA
USA
USA
USA
Netherlands
USA
USA
France
France
France
USA
USA
USA
France
Switzerland
India
India
United Kingdom
India
France
USA
Switzerland
USA
Malaysia
USA
USA
China
United Kingdom
Australia
Malaysia
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We note that not all these international branch expansions have been successful, as there have
been a number of closures, owing to economic and political reasons, among others (see
Exhibit 401).
Exhibit 401. Examples of Closed International Branch Campuses

Host Country
Fiji
Greece
Greece
India
Malaysia
Malaysia
Pakistan
Singapore
South Africa
Institution Name
EHSAL-Hogeschool-Universiteit Brussels
Michigan State University
Postgraduate Institute of Management, The University of Sri Jayewardenepura
University of Southern Queensland
Central Queensland University
Carnegie Mellon University - Athens
University of La Verne
Sylvan
Dublin Business School
Royal Melbourne Institute of Technology
Griffith College, Dublin
University of New South Wales
Bond University
George Mason University Campus turned into American University of RAK
Home Country
Belgium
USA
Sri Lanka
Australia
Australia
USA
USA
USA
Ireland
Australia
Ireland
Australia
Australia
USA
Year
Opened
N.A.
2008
2007
2004
1998
2002
1975
2003
N.A.
1996
2001
2007
1997
2005
Year
Closed
2009
2010
2009
2005
2007
2010
2004
2004
2007
1999
2006
2007
2004
2009
Foreign
institutions in US
A member of BMO
While there were a few starts and stops, we are starting to see more foreign institutions establish
a presence in the US, though mostly at the graduate level. Some examples can be found in
Exhibit 402.
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BMO Capital Markets
Exhibit 402. Examples of Foreign Postsecondary Institutions in US

School
INSEAD
Home Country
France
Comments
In the fall of 2007, this school established an Americas office in New York. Its current US
offerings are executive education programs offered through companies like the New York
Stock Exchange and Pfizer (PFE).
University of
Queensland
School of
Medicine
Australia
In January 2009, this school opened a clinical school in New Orleans, in cooperation with
Louisiana's Ochsner Health System. Under the arrangement, students travel to Brisbane,
Australia for the first two years of medical school, then return to the US to complete their thirdand fourth-year clinical training at Queensland's new outpost at Ochsner. Those enrolled in
the collaborative program will graduate with an Australian medical degree, a Bachelor of
Medicine/Bachelor of Surgery (MBBS), which is equivalent to an M.D., from Queensland .
Instituto de
Empresa
Business
School
Spain
In March 2010, this school launched a joint program with Brown University to offer an
executive MBA program that aims to infuse the humanities and social sciences into the
typical business curriculum. The program will include five in-person sessions, four of which
will be at Browns campus in Providence, and the fifth in Spain .
IESE Business Spain

School
In June 2010, this school opened a branch in New York City . The school is intended to be an
outpost of its Barcelona campus, but will not offer its own degrees.
Manchester
Business
School
UK
In September 2010, this school opened a campus in Miami, becoming the first British
business school to teach in the US .
SKEMA
France
In January 2011, this school began to offer classes in English to more than 200 of its own
students on the Raleigh campus of North Carolina State University; this was the first French
school to do so.
Technion
University
Israel
In December 2011, after a lengthy and competitive process, Cornell and Technion were
chosen to build an applied sciences and engineering school in New York City, the first
component of Applied Sciences NYC Initiative, a plan to expand the regions influence. The
project, called CornellNYCTech, plans to begin enrolling students at Cornells Ithaca, New
York campus in 2013, with the New York City campus completed and operational in 2017.
Various
Various
In April 2012 , NYU was chosen to complete the NYU Center for Urban Science and
Progress the second component within New York Citys Applied Sciences NYC Initiative.
The consortium is to include the City University of New York, Carnegie Mellon University,
University of Toronto, University of Warwick, Indian Institute of Technology Bombay, as well
as IBM and Cisco, with plans to grant academic degrees in engineering and sciences. It
expected to begin enrolling students in September 2017.
Jose Maria
Vargas
University
Venezuela
Has a campus in Pembroke Pines, FL
Source: Company reports, websites and BMO Capital Markets.
Laureate is
dominant
international forprofit provider
A member of BMO
Although other for-profit postsecondary school providers have identified the international
market, we believe Laureate Education has made the most inroads internationally; it operated 70
accredited campus-based and online universities serving more than 780,000 students in 29
countries (as of July 2013). Other for-profit providers with a significant overseas presence
include Apollo Group (APOL), The Washington Posts (WPO) Kaplan Education, DeVry (DV),
and Career Education (CECO). Most other US for-profit providers have limited their
international penetration strategies to Canada (at least so far). Exhibit 403 contains information
about the international penetration of selected US-based for-profit postsecondary providers.
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Exhibit 403. US For-Profit Operators International Exposure

School Operator
Apollo Group (APOL)
DeVry (DV)
Laureate Education (Private)
Washington Post (WPO)
Countries With Campuses Outside US

Chile, India, Mexico, United Kingdom
UK-based online provider
France, Monaco, United Kingdom
Canada
Brazil, Canada, Dominica, Grand Bahama, St. Kitts/Nevis,
St. Maarten
Canada
Australia, Brazil, Chile, China, Costa Rica, Cyprus, Ecuador,
France, Germany, Honduras, India, Indonesia, Italy, Japan,
Jordan, Malaysia, Mexico, Morocco, New Zealand, Panama,
Peru, Portugal, Saudi Arabia, Spain, Switzerland, Thailand,
Turkey, United Kingdom
Australia, Canada, China, Hong Kong, Ireland, India, Mexico,
New Zealand, Singapore, United Kingdom
International
Campuses
N.A.
N.A.
12
14
International
Enrollment
N.A.
N.A.
11,400
N.A.
13
1
150+
32,555
N.A.
780,000+
(worldwide)
N.A.
N.A.
Note: Enrollment data is for Fall 2012 except for Laureate, where data is most current off its website (July 2013). Source: Company reports
and BMO Capital Markets. N.A. Not Available.
Study Abroad Programs

Foreign students
represent roughly
2% of worldwide
postsecondary
enrollment
The number of
foreign students
coming to the US
is accelerating
Foreign students
3.7% of total US
postsecondary
enrollment, tying
an all-time high
A member of BMO
According to UNESCOs Global Education Digest 2012 roughly 3.6 million students were
enrolled in higher education institutions outside their country of origin in the 2009-2010 school
year (latest data available) about 2% of worldwide tertiary enrollment of roughly
177.7 million. This represents a 6.3% average annual increase from 1.8 million in the 1998-1999
school year and an 11.4% annual increase from roughly 82,000 in the 1974-1975 school year
well outpacing growth of worldwide tertiary enrollment over that period.
Historically, the US has attracted a large number of students from outside the country a
potential revenue booster as foreign students are generally not eligible for Title IV funding and
tend to pay full price. While this pipeline had been shrinking in the first half of the prior
decade largely attributed to limitations placed on foreign students who wish to travel to the US
in the post-September 11 environment it has once again started to flow.
According to the Institute of International Education (IIE), there were more than 764,000
foreign students enrolled in US postsecondary institutions in the 2011-2012 school year (latest
data available), up 5.7% over the prior year and representing the sixth straight year of annual
growth.. Foreign students represented approximately 3.7% of the total US postsecondary student
population in the 2011-2012 school year, tying the 3.7% peak reached in both the 2001-2002
and 2008-2009 school years (see Exhibit 404). According to IIE, international students
contributed nearly $23 billion to the US economy.
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September 2013
BMO Capital Markets
Exhibit 404. Foreign Students as Percentage of US Postsecondary

Enrollment (1984-1985 to 2011-2012 School Years)
4.0%
Foreign Students
% of Total
Number of Students
700,000
3.5%
600,000
500,000
3.0%
400,000
2.5%
300,000
2011-12
2008-09
2005-06
2002-03
1999-00
1996-97
1993-94
1990-91
1987-88
2.0%
1984-85
200,000
% of US Postsecondary Enrollment
800,000
Source: Institute of International Education and BMO Capital Markets.
Factors driving
this growth
We attribute the recent rebound in growth primarily to improvements in the visa process,
stronger recruitment efforts by US schools (e.g., increase usage of paid recruiters), and to a
lesser extent, the declining US dollar during much of that time. However, in addition to these
pull factors, we believe there are several push factors that drive foreign students to the US.
Among these are the often limited and low quality of educational options in a students home
country and the increased availability of student financing, along with higher family incomes
that enable travel abroad.
However, competition among countries for students is increasing and will likely intensify as
countries continue to invest in their educational systems. Some of the pressures on foreign
enrollment growth include:
Countries trying to hold onto their own students. A number of foreign governments
have implemented policies to entice their potential postsecondary population to stay at
home rather than go abroad. For example, China has significantly increased its spending
on postsecondary education (one of the reasons we believe its participation rate
increased), while in December 2006, South Korea created an English-only town with the
express purpose of giving students a chance to learn English without having to study
abroad. According to a March 2007 report titled, The Race to Attract International
Students by Education Sector and the US General Accountability Office (GAO), other
countries, such as New Zealand and Germany, have introduced comprehensive marketing
campaigns. In addition, European countries launched the European Higher Education
Area (the Bologna Process) in March 2010, with hopes for greater student mobility and
degree comparability within the EU, thereby potentially reducing the number of foreign
students wishing to study in the US.
Increasing competition for foreign students. A number of other countries have taken
advantage of this opportunity to more aggressively court international students. This

competition has particularly been intense from English-speaking countries, such as
Australia, New Zealand, and the UK, with educators indicating that in light of the Great
Recession, international student recruitment is even more important. Even other
countries, where English is not the native language, such as Finland, have been
A member of BMO
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September 2013
BMO Capital Markets
expanding their English-language offerings to entice these students. Another example is

UKs University of Surrey, which, in November 2007, announced plans for a Global
Partnership Network whereby students would be able to spend each year of their
coursework in a country of their choosing and still finish with a University of Surrey
degree. Two schools are participating: North Carolina State University (US) and
Universidade de So Paulo (Brazil). The American International Recruitment Council
(AIRC) was created to work toward bringing more clarity and common standards to the
business of recruiting overseas.
In addition, Europes move to adopt the Bologna Process in 2010, whereby its schools
offer three-year bachelors degrees has begun to intensify this foreign competition.
Countries such as Canada and the UK have recently enacted rules enabling foreign
students to stay and work in their countries for a few years after graduation, hoping to
entice more foreign students to their schools.
This pressure could continue as other regions are not standing idly by. In July 2010, a
consortium of business schools of Hong Kong University of Science & Technology,
Nanyang Technological University, the China Europe International Business School and
the Indian School of Business created a venture to do joint recruiting and marketing, trying
to position themselves as an "Asian Ivy League" of business schools. The group formed a
joint website (http://www.topasiabschools.com/) to facilitate this process. In addition, the
South Asian University, the regions first cross-borders university, opened in late August
2010 in New Delhi with two post-graduate academic programs, one each in economics and
computer sciences. Four additional post-graduate academic programs in law, sociology,
international relations, and biotechnology were slated to be added in July 2011.
The US has been a bit behind here, although some cross-border efforts have been made.
For example, in 2002, San Diego State University was the first US university to offer a
transnational triple degree program in international business, joining with Mexicos
Universidad Autnoma de Baja California, in Mexico and Canadas Universit du
Qubec Chicoutimi in the CaMexUs program.
The Great Recession and its aftermath. The 2007-2009 recession forced many US
institutions to raise prices and cut costs. Given that most foreign students are not eligible
for Title IV funds, we believe they may be more sensitive to tuition increases at US
institutions as they cannot rely as much on financial aid sources. In addition, schools may
be less likely to provide stipends for graduate students. We also believe that the sluggish
US job market has taken its toll on recruiting some foreign students and that many
foreign schools in countries with slightly better outlooks may be using this to their
advantage.
A member of BMO
Becoming more competitive in the US. Many more US institutions are now looking
overseas for financial reasons. According to Inside Higher Eds July 2013 survey of
college and university business officers, 37% of those surveyed described recruiting more
international students as a very important strategy in increasing institutional revenues.
Additionally, community colleges are starting to pursue a strategy of attracting foreign
students as a gateway to entering US universities. Community colleges can offer foreign
students a lower-cost option and a chance to get into a university to which they otherwise
might not be accepted.
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September 2013
BMO Capital Markets
Immigration and visa issues. While the debate over immigration reform lingers, many
foreign students especially those in graduate programs may be hindered in their

pursuit of US degrees.
US is largest
destination
among foreign
students, but
other markets
growing faster
As shown in Exhibit 405, while the US still has the largest number of inbound foreign enrollees
(nearly 685,000 in the 2009-2010 school year, using UNESCO data), the 3.8% annual growth
rate from the 1998-1999 school year is among the second lowest when compared with the other
top 15 host countries. However, when compared with this same group, the disparity in the US
between inbound student growth and total tertiary enrollment growth is relatively small (3.8%
vs. 3.2% annually). Over the same period, a number of countries have seen much higher growth
rates for foreign students than in total tertiary enrollment, including Korea (31.7% vs. 1.3%),
New Zealand (16.7% vs. 4.3%), and Japan (8.7% vs. (0.2)%), as these countries have become
more aggressive marketers in attracting foreign students.
700,000
Inbound Students
35%
600,000
Inbound Student CAGR (1999-2010)
30%
500,000
Total Tertiary CAGR (1999-2010)
25%
20%
400,000
15%
300,000
10%
200,000
5%
100,000
0%
Eg
yp
t
Si
ng
ap
or
e
Sw
itz
er
la
nd
N
ew
Ze
al
an
d
ea
Sp
ai
n
Ko
r
of
ic
ly
R
ep
ub
l
Ita
Au
st
ri
na
C
hi
Ja
pa
n
lia
Au
st
ra
s
at
e
Ki
St
te
d
U
ni
te
d
Fr
an
ce
G
er
m
an
y
-5%
ng
do
m
U
ni
CAGR
Total Students
Exhibit 405. Top 15 Student Destinations (1998-1999 to 2009-2010

School Years)
Source: UNESCO and BMO Capital Markets.
China
aggressively
courting foreign
students
While Chinas total tertiary growth rate of 15.5% over this period was the fastest among the
group by a large margin, historical comparisons of inbound student growth were not available
owing to a lack of data. However, inbound students grew roughly 18.5% (CAGR) from 20052006 to 2009-2010. We expect this growth rate was just as high (if not higher) during the earlier
period, given Chinas efforts to attract foreign enrollment.
While the data show a relatively solid rate of growth of inbound study abroad students in
Australia, other research has found that this country has become a relatively less attractive
destination for foreign students, although we believe it is still a top five country. According to
Sean Gallagher, a US studies expert at the University of Sydney, the issues are: 1) prestige, i.e.,
relatively lesser reputation relative to other foreign schools as well as a damaged reputation after
a series of attacks on Indian students in recent years; 2) places, i.e., fewer available seats; and
3) price, i.e., the stronger Australian dollar eroded much of Australia's price-competitive
advantage. In addition, Australia has recently raised the requirements for entering foreign
students, including requiring students to have more money in the bank and mandating higher
English language skills and previous work experience.
A member of BMO
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Australia, US, and

UK are most
expensive for
BMO Capital Markets
In August 2013, HSBC released an analysis of the average annual cost of studying abroad for
international students (2012-2013 school year). As shown in Exhibit 406, Australia was the most
expensive region, followed by the US and UK.
study abroad
students
Exhibit 406. Average Annual Cost of Studying Abroad for

International Students (2012-2013 School Year)
Country
Australia
United States
United Kingdom
United Arab Emirates
Canada
Singapore
Hong Kong
Japan
Russia
China
Taiwan
Spain
Germany
Fees
$25,375
25,226
19,291
21,371
18,474
14,885
13,182
6,522
3,131
3,983
3,270
1,002
635
Cost of
Living
$13,140
10,479
11,034
6,004
7,537
9,363
9,261
12,642
6,310
4,783
4,987
6,004
5,650
Total
costs
$38,516
35,705
30,325
27,375
26,011
24,248
22,443
19,164
9,441
8,766
8,257
7,006
6,285
Note: All costs in US dollars. Source: HSBC.
China, India, and

Korea are most
popular countries
of origin for
foreign students
in the US
We have done a bit more analysis on the leading countries of origin for those postsecondary
students choosing to come to the US. As shown in Exhibit 407, the most popular countries of
origin in the 2011-2012 school year were China, India, and South Korea, which together
represented 48% of all foreign postsecondary students studying in the US. We note that since
the 1995-1996 school year, those three countries had gained the most share of foreign-sourced
students, at the expense of Japan, Taiwan, and Malaysia, among others.
Exhibit 407. Leading Countries of Origin for US Inbound

Postsecondary Students (1995-1996 vs. 2011-2012 School Years)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Country
Market Share
Japan
10.1%
China
9.3%
South Korea
8.1%
India
6.7%
Taiwan
6.7%
Canada
5.0%
Malaysia
3.2%
Thailand
2.9%
Indonesia
2.7%
Hong Kong
2.4%
Germany
2.0%
Mexico
2.0%
Turkey
1.8%
United Kingdom
1.6%
Brazil
1.3%
Top 15
65.7%

Rank Country
Market Share
1 China
25.4%
2 India
13.1%
3 South Korea
9.5%
4 Saudi Arabia
4.5%
5 Canada
3.5%
6 Taiwan
3.0%
7 Japan
2.6%
8 Vietnam
2.0%
9 Mexico
1.8%
10 Turkey
1.6%
11 Nepal
1.3%
12 Germany
1.2%
13 United Kingdom
1.2%
14 Brazil
1.2%
15 France
1.1%
Top 15
72.9%
A member of BMO
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BMO Capital Markets
The most popular destinations for these students are typically brand name not-for-profit
institutions - both private (e.g., USC, NYU, Columbia) and public (University of Illinois, Purdue
University, University of Michigan; see Exhibit 408). Many states are forming their own
consortia, such as Study Washington and Study Oregon, to attract overseas students to their
states. In addition, a number of community colleges have started to attract foreign students,
using their low price as a recruiting tool.
Exhibit 408. Most Popular Destination for US Inbound Postsecondary Students (20112012 School Year)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Institution
University of Southern California
University of Illinois - Urbana-Champaign
New York University
Purdue University - Main Campus
Columbia University
University of California - Los Angeles
Northeastern University
University of Michigan - Ann Arbor
Michigan State University
Ohio State University - Main Campus
Indiana University - Bloomington
Penn State University - University Park
Boston University
University of Minnesota - Twin Cities
Arizona State University - Tempe Campus
University of Florida
Harvard University
University of Washington
SUNY University at Buffalo
University of Texas - Austin
University of Pennsylvania
University of California - Berkeley
Georgia Institute of Technology
University of Houston
Top 25 Total
Other Schools
All International Students in US
Location
Los Angeles, CA
Champaign, IL
New York, NY
West Lafayette, IN
New York, NY
Los Angeles, CA
Boston, MA
Ann Arbor, MI
East Lansing, MI
Columbus, OH
Bloomington, IN
University Park, PA
Boston, MA
Minneapolis, MN
Tempe, AZ
Gainesville, FL
Cambridge, MA
Seattle, WA
Buffalo, NY
Austin, TX
Philadelphia, PA
College Station, TX
Berkeley
Atlanta, GA
Houston, TX
Institution Type
Program
Length
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Four-year
Total Intl.
Enrlmt.
9,269
8,997
8,660
8,563
8,024
6,703
6,486
6,382
6,209
6,142
6,123
6,075
6,041
5,661
5,616
5,588
5,453
5,372
5,357
5,324
5,296
5,013
5,004
4,973
4,879
157,210
607,285
764,495
Many countries
are more foreignstudent friendly
than the US
A member of BMO
An October 2007 study by the Observatory on Borderless Higher Education identified the
comparative advantages that various countries have in attracting foreign students (see Exhibit
409). As shown, a number of countries - such as New Zealand and Canada are more foreignstudent friendly when compared with the US.
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Exhibit 409. Competitive Advantages of Countries in Recruiting

Foreign Students
Student visa not
required for study
Moderate tuition
of less than 3
Low tuition (up to ($5,000 $15,000
months
$5,000 a year)
a year)
Low living costs
Moderate living
costs
Australia
Programs to
prepare foreign
students before
they start classes
Britain
Canada
China
France
Germany
Japan
Malaysia
New Zealand
Singapore
U.S.
China is the
largest student
exporter; the US
is importing
foreign students
at a faster rate
than exporting
them
Similarly, we believe it is worthwhile to look at which countries are supplying the highest
number of outbound students, as these countries are essentially driving the growth in student
mobility (i.e., these countries are exhibiting the push factors). As shown in Exhibit 410, China is
by far the largest supplier of outbound students with nearly 563,000 in the 2009-2010 school year
(latest data available), with a 13.7% CAGR since the 1998-1999 school year. However, this was
slower than the countrys 15.5% annual growth for its own tertiary students over that same
period. India has also been exporting students at high rate of roughly 13.3% CAGR, which is far
above the countrys tertiary growth rate (9.2% CAGR from 1999-2000 to 2009-2010 school
years; latest data available). The US is exporting students at a rate slightly lower than its tertiary
growth rate (2.7% vs. 3.2%, respectively; we note the US inbound rate of 3.8% is higher than its
2.7% outbound rate, i.e., it is importing foreign students at a faster rate than it is exporting them).
Exhibit 410. Top 15 Student Exporting Countries (1998-1999 to

600,000
Outbound Students
CAGR (1999-2010)
Total Tertiary CAGR (1999-2010)
20%
15%
450,000
375,000
10%
300,000
5%
225,000
150,000
CAGR
Total Students
525,000
0%
75,000
es
ia
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),
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al
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C
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-5%
na
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373
September 2013
Study abroad
programs from
the US growing
again
BMO Capital Markets
We have drilled down a bit further into the US market to analyze study-abroad trends for USbased students. According to the IIEs Open Doors project, more than 270,000 US
postsecondary students studied abroad in the 2010-2011 school year, increasing 1.3% from
roughly 270,600 in the prior school year. The number of outbound US students has increased at
a 7.2% CAGR from the roughly 48,400 students that studied abroad in the 1985-1986 school
year, although growth has been slower in recent years including a decline during the Great
Recession (see Exhibit 411).
No. of students
300,000
y/y % change
16%
14%
250,000
12%
10%
200,000
8%
150,000
6%
4%
100,000
y/y % change
US Students Studying Abroad
Exhibit 411. US Postsecondary Students Studying Abroad (19851986 to 2010-2011 School Years)
2%
50,000
0%
-2%
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
Note: Shaded area represents US recessionary period. Source: Institute of International Education and
UK most popular
destination for US
students but
China and Italy
are gaining share
The UK has remained the top destination for outbound US students every year that this data has
been measured, likely because of similar language and the strong reputation of its institutions.
However, its market share has declined to 12.1% of outbound US students in the 2010-2011
school year from 22.5% in the 1995-1996 school year, as a number of countries have become
more popular destinations, including China (share increased to 5.3% from 1.6%) and Italy (share
increased to 11.1% from 8.8%; see Exhibit 412).
Exhibit 412. Leading Destinations for US Outbound

Postsecondary Students (1995-1996 vs. 2010-2011 School Years)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13

Country
Market Share
United Kingdom
22.5%
Spain
9.1%
Italy
8.8%
France
8.7%
Mexico
7.0%
Germany
4.0%
Australia
3.7%
Costa Rica
2.6%
Japan
2.3%
Israel
1.9%
Ireland
1.8%
Russia
1.7%
China
1.6%
Top 13
75.4%
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13

Country
Market Share
United Kingdom
12.1%
Italy
11.1%
Spain
9.5%
France
6.2%
China
5.3%
Australia
3.6%
Germany
3.3%
Costa Rica
2.6%
Ireland
2.6%
Argentina
1.7%
India
1.6%
South Africa
1.6%
Mexico
1.5%
Top 13
62.6%
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Most US institutions (at least the not-for-profit institutions) offer some type of study abroad
opportunities for their students. According to the American Council on Educations (ACE)
Mapping Internationalization on U.S. Campuses: 2008 Edition, the proportion of institutions
offering study abroad opportunities increased to 91% in 2006 from 65% in 2001. While these
data were not provided in the surveys 2012 edition, we see no reason this percentage would
have fallen dramatically.
Disconnect
between what
students want and
what institutions
However, there appears to be a disconnect between the types of programs students want (shorter
term) and the types of programs available at campuses outside the US (longer term).
According to IIEs Open Doors 2012 report, 58% of US students participated in shortterm study abroad trips (summer, January term, or any program of eight weeks or less
during the school year), while the rest attend mid-length programs (a semester or full
school year abroad). Interestingly, much of the decline from the prior year was in these
shorter-term programs.
The vast majority of responding host campuses to the ACE study offer longer-term
programs for their non-degree seeking international students: approximately 85% of all
responding institutions reported that they offer programs lasting a full academic year,
while 89% offered programs for at least one academic session (e.g., a quarter, semester,
or term). Only about 38% offer programs of two months or shorter duration, a category of
study-abroad duration (short term).
offer
Study abroad
supported by
federal programs
Recruitment
industry growing
Given the high demand among foreign students to come to the US and among US students to
study internationally, we expect this industry will continue to grow, and note there have been
government initiatives to support study abroad. In June 2009, the US House of Representatives
passed the Foreign Relations Authorization Act (HR 2410), which included funding for the
Senator Paul Simon Study Abroad Foundation Act. The Simon fund would appropriate
$80 million to create a foundation whose goal would be to send 1 million American students
abroad each year within the next 10 years.
While there are a number of not-for-profit companies that assist students in their study abroad
programs (e.g., Institute for the International Education of Students), there are also for-profit
providers such as Education Dynamics, Hobsons, and Australias IDP International.
Given the explosive growth in study abroad, particularly from China, the recruitment industry
has attracted some negative publicity. In August 2007 and March 2008, the New York Times
published articles comparing study abroad providers to student lenders in terms of providing
perks to attract students to their program. Additionally, the industry has been criticized for its
practice of writing student admission essays or falsifying information on applications,
particularly when it comes to non-English speaking students from China. While there have been
announced investigations by both the New York and Connecticut attorneys general, there has
been little update since the initial announcement.
In addition, there have historically been some complaints regarding aggressive marketing and
dissatisfied students. In 2008, the American International Recruitment Council was formed to
develop standards of ethical practices and a system for certifying overseas recruiters. There are
now over 50 agencies that are certified (see Exhibit 413).
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Exhibit 413. Student Recruiting Agencies Certified by the American

International Recruitment Council
Company
A W Education International
Aaditya Education and Migration Services
Acadia Talent / J M Consulting
Access American Education, LLC
Headquaters
China
India
France
Philadelphia
Scope
Beijing
Ahmedabad
France
Vietnam: Ho Chi Minh City
Aoji Enrolment Centre of International

Education Ltd.
China
2016
Beijing Huaheng Education and Cultural

Exchange Center
China
China: Beijing, Changchun, Changsha, Chengdu, Chongqing, Jinan, Dalian, Guangzhou,

Haerbin, Hangzhou, Hefei, Kunming, Lanzhou, Nanchang, Nanjing, Nanning, Neimenggu,
Shanghai, Shenyang, Shenzhen, Qingdao, Xiamen, Xinjiang, Taiyuan, Tianjin, Wenzhou,
Wuhan
China: Beijing, Chengdu, Chongqing, Guangzhou, Nanjing, Shanghai, Shenyang, Tsingtao,
Wuhan, Xian
Beijing New Oriental Vision Overseas

Consulting Company
Beijing
2018
Canam Consultants Limited
India
Can-Achieve Consultants
Career Mosaic Pvt. Ltd
China
Ahmedabad,
India
Taiwan
China: Beijing, Shanghai, Xi'an, Zhengzhou, Dalian, Shenyang, Shijiazhuang, Jinan,

Qingdao, Changsha, Tianjin, Guangzhou, Nanjing, Shenzhen, Fuzhou, Hangzhou, Ningbo,
Chengdu, Chongqing, Suzhou, Kunming, Xiamen, Wuhan, Harbin, Changchun, Hefei,
Lanzhou, Nanning, Nanchang, Wuxi, Wulumuqi
India: Ahmedabad, Amritsar, Bangalore, Chandigarh: 1. Sector 17-D Headquarters, 2.
Sector 35-C, Chennai, Gurdaspur, Hyderabad, Jamshedpur, Jaipur, Kochi, Kolkata,
Ludhiana, Mangalore, Meerut, Mumbai, Nawanshahr, New Delhi, New Delhi House,
Barakhamba Ro
Beijing
China Educational Development and

Consulting Associates (CEDCA)
CJR Education
College StudyUS
Disha Consultants
EDU Danmark
EduGlobal
Hong Kong
New York
India
Denmark
China
EduKorea
EduShanghai International Co., Ltd.
Edwise Foundation
EIC Group Ltd.
Seoul
China
Nepal
China
ELS Educational Services, Inc./ELS

International Education Counseling and
Admissions Services
Princeton, NJ,
USA and
Chennai, India
Global Reach
India
Glory Educational Services

GreatChina International Education
Gyansaraswati Consultants Pvt. Ltd.
Henry Global Consulting Group
Nigeria
China
India
China
IAE Global
Korea
IDP Education
Australia
IAA - International Academic Alliance

IEC - International Education for Global
Minds
Intelligent Partners
The International Group For Educational
Consultancy
India
Taipei | China: Beijing, Chengdu, Guangzhou, Hangzhou, Nanjing, Shanghai, Shenyang,
Shenzhen, Wuhan
Kowloon, Tuen Mun, Maucau
New York
Ahmedabad
Copenhagen, serving Denmark and the Faroe Islands
Beijing, Changchun, Changsha, Chingdu, Chongqing, Dalian, Guangzhou, Guiyang,
Hangzhou, Hefei, Jinan, Nanjing, Qingdao, Shanghai, Shenyang, Taiyuan, Tianjin, Wuhan,
Xian, Xinjiang, Zhengzhou
Seoul
Shanghai
Kathmandu
China: Guangzhou, Shenzhen, Beijing, Xiamen, Changsha, Shanghai, Nanjing, Dalian,
Chongqing, Shenyang, Wuhan, Dongguan, Jinan, Qingdao, Chengdu, Xian, Hangzhou,
Zhuhai, Zhongshan | Australia: Sydney
Argentina | Armenia | Aruba | Austria | Australia: Sydney | Azerbaijan | Belgium | Bolivia |
Brazil | Bulgaria | Canada: Toronto, Vancouver | Chile | China: Shanghai, Beijing,
Guangzhou | Colombia | Costa Rica | Croatia | Czech Republic | Cyprus | Dominican
Republic | Ecuador | El Salvador | France: Sophia Antipolis | Germany | Hungary | India:
New Delhi, Mumbai, Kolkata, Hyderabad, Ahmedabad, Chandigarh, Pune | Indonesia |
Israel | Italy | Japan | Jordan | Kazakhstan | Korea: Seoul | Kuwait | Kyrgyzstan | Latvia |
Lebanon | Libya | Malaysia: Johor Bahru, Kuala Lumpur, Penang, Sugang Jaya, Universiti
Putra Malaysia | Mexico | Morocco | Netherlands | Oman | Panama: Panama City |
Paraguay | Peru | Poland | Portugal | Puerto Rico | Romania | Russia | Saudi Arabia:
Dammam, Riyadh | Serbia | Slovenia | Spain | Sudan | Sweden | Switzerland | Syria |
Taiwan | Tajikistan | Thailand | Turkey: Istanbul | Ukraine | United Arab Emirates | United
Kingdom | Uruguay | Venezuela | Vietnam: Ho Chi Minh City
Ahmedabad, Gujarat | Baroda, Gujarat | Bhubaneswar, Orrisa | Chennai, Tamil Nadu |
Guwahati, Assam Hyderabad, Andhra Pradesh | Kolkata, West Bengal | New Delhi, Delhi |
Patna, Bihar | Salt Lake, Kolkata
Lagos, Kano, Abuja, Ibadan, Port Harcourt
Chengdu, Beijing, Chongqing, Guangzhou, Hainan, Kumming, Shanghai
Mumbai
Shanghai, Hangzhou, Ningbo, Wenzhou, Shuzhou, Nanjing, Wuxi, Nantong, Jinan,
Qingdao, Yantai, Changsha, Haerbin, Changchun, Dalian, Senyang, Zhengzhou, Xian,
Chengdu, Kunming, Nanning, Tianjing, Shenzheng, Shijiazhuang, Tiayuan, Tangshan,
Nanchuang, Wuhan, Guangzhou, Hefei, Lanzhoum, Changzhou
Australia: Adelaide, Brisbane, Gold Coast, Melbourne, Perth | Brazil: Sao Paulo | Canada:
Toronto, Vancouver | China: Beijing, Chengdu, Hangzhou, Nanjing, Ningbo, Qingdao,
Shanghai, Shaoxing, Suzhou, Wuxi | Hong Kong: Wanchai, Kowloon | India: New Delhi,
Australia: Adelaide, Brisbane, Canberra, Melbourne (2), Perth, Sydney (2) | Bahrain: Isla
Town | Bangladesh: Dhaka | Cambodia: Phnom Penh (2), Siem Reap | China: Beijing,
Chengdu, Guangzhou (2), Shanghai (2), Tanjing, Zhengzhou | Hong Kong | India:
Ahmada
New York, USA Beijing
Germany
Berlin
United Arab
Emirates
Saudi Arabia
Jiangsu Education Services for International

Exchange
China
Kanan International Pvt Ltd

Kangaroo Studies PVT. LTD.
India
India
Kathmandu Alfa Beta Institute Pvt. Ltd.
Nepal
Keyword International Corporation Ltd

KOKOS International
China
Korea
Marconis Institute Pvt. Ltd.

Mentor International
Oceanic Consultants PTY LTD
India
Thailand
India
Certification Expires
2017
2016
2017
2014
2017
2015
2015
2017
2016
2016
2015
2015
2014
2014
2018
2016
2015
2015
2017
2014
2013
2018
2015
2017
2015
2014
2018
2014
United Arab Emirates: Dubai, Abu Dhabi | Qatar: Doha
2015
Saudi Arabia: Jeddah, Khobar, Riyadh | UAE: Sharjah Australia: Sydney | Canada:
Toronto | Iran: Tehran | Jordan: Amman Libya: Tripoli |Sudan: Khartoum | Syria:
Damascus | USA: Chicago
Nanjing
2015
Vadodara, Vallabhvidyanagar, Surat

Amritsar, Chandigarth, Jalandar, Kanpur, Karnal, Ludhiana, Luchnow, New Delhi, Patiala,
Mohali, Phagwara
Nepal: Kathmandu, Pokhara, Chitwan, Banepa, Itahari, Butwai India: Faridabad |
Australia: Sydney
Shenzhen, Wuhan
Seoul, Busan | Australia: Adelaide, Brisbane, Canberra, Melbourne, Sydney, Perth |
Canada: Vancouver | New Zealand: Auckland | Thailand: Bangkok | United States:
Easton,PA
Vadodara, Ahmedabad, Bharuch, Navsari, Surat, Vallabh Vidyanagar
Bangkok, Chiang Mai
India: Chandigarh, New Delhi, Amritsar, Bathinda, Jallandhar, Ludhiana, Patiala,
Ahmedabad, Anand, Vadodara, Chennai, Coimbatore, Tirruchirappalli, Errakulam,
Kottayam, Thiruvananthapuram | Australia: Melbourne | United Kingdom: Birmingham
2015
2015
PAC Asia
India
QS - Quacquarelli Symonds, Ltd.

Raj Consultants Pvt. Ltd.
Shanghai Liu-Xue-Gang Education Service
Co. Ltd.
SIEC
England
India
China
India
Shanghai
Australia: Melbourne | India: Ahmedabad, Amristar, Bangalore, Chandigarh, Chennai,
Dehradun, Gujarat, Haryana, Gurgaon, Faridabad, Hyderabad, Jalandhar, Kerala, Kochi,
Ludhiana, Meshana, Mumbai, New Delhi, Janakpuri, Safdurjung Enclave, Pala, Patiala, Pun
Study Abroad Association

Study Overseas Global Pvt. Ltd. India
Japan
India
Sun Bridge Consulting (Chivast)

Uhak.com
China
Korea
UStudy
Valmiki Group
Wiseway International Co., Ltd.
Israel
India
China
World Education Group

Zhejiang Shinyway Overseas Studies, Ltd. /
Shinyway International
United States
Hangzhou,
China
Tokyo
Ahmedabad, Bangalore, Chandigarh, Chennai, Coimbatore, Hyderabad, Indore, Kochi,
Mumbai, New Delhi, Pune, Vishakapatnam
Beijing
Korea: Seoul (Jong-gu, Jonggak, Jongno 3-ga, Gangnam, Shinchon), Bundang, Busan,
Daejeon, Daegu, Gwangju | Canada: Vancouver
Tel Aviv
Hyderabad
Beijing, Shanghai, Nanjing, Wuhan, Ningbo, XiAn, Wenzhou Zhengzhou, Jinan, Wuxi,
Taiyuan, Chengdu, Guangzhou, Urumqi
Belmont, North Carolina
China: Hangzhou, Beijing, Ningbo, Wenzhou, Nanjing, Suzhou, Guangzhou, Shenzhen,
Chengdu, Chongqing, Shanghai, Hefei, Changsha, Wuhan, Xi'an, Tianjin, Nanchang,
Shenyang, Dalian, Changshun, Harbin, Jinan, Qingdao, Taiyuan, Zhengzhou
Australia: Sydney | India: New Delhi, Amritsar, Baroda, Chandigarh, Jaipur, Ludhiana,
Mumbai | Nepal: Kathmandu | Sri Lanka: Colombo
England: London | India: New Delhi
Hyderabad
2016
2015
2015
2016
2016
2014
2015
2015
2018
2015
2017
2015
2014
2016
2016
2016
2018
2018
2015
2014
2018
Source: American International Recruitment Council.

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International Education Providers

Most of the publicly traded education providers outside the US trade in their local markets, with
the Chinese companies most of which listed in the US being the main exception. A summary
of some of the larger public and private international education providers follows:
Global
EduCo International
Group is a leading provider of education and related services for
students and partners around the world. With several campuses in Australia and Canada,
EduCo's institutions offer their students a broad and exciting range of courses and
outcomes across the English, Vocational, Career, and Higher Education sectors.
Australia
Navitas
Limited (ASX:NVT) operates in five segments: University Programs, English,

Workforce, Student Recruitment, and Corporate. The University Programs segment
delivers education programs, through pathway colleges and managed campuses, to
students requiring a university education. The English segment delivers English language
instruction. The Workforce segment delivers vocational and job skills training. The
Student Recruitment segment delivers student recruitment services to students seeking
international education experience. The company enrolls every year more than 55,000
students, and it has more than 4,000 staff employed in their 100+ campus locations in 28
countries.
Brazil
Anhanguera
Educacional S.A., (BOVESPA.AEDU11) provides higher education

(undergraduate and graduate), distance learning programs, preparatory courses for public
office selection and other specialization courses. Anhanguera offers its courses through
three segments: the Campus segment provides all of its academic programs, such as onsite undergraduate, distance undergraduate, graduate and other programs; the Distancelearning centers unit, which is operated by the company and in partnerships with local
education companies, offers a range of courses, including distance undergraduate,
graduate and extension programs; and the Professional Degree division offers specific
professional education courses under the Microlins brand. As of March 31, 2013, the
company enrolled an average of over 490,000 students at its 70 campuses. On April
2013, Kroton Educational announced the acquisition of Anhanguera Educational for $2.5
billion. The deal is still pending regulatory and shareholder approval.
Estcio Participaes S.A. (BOVESPA.ESTC11) offers traditional and technological
graduate, undergraduate, master and doctorate degree programs in the area of sciences,
humanities, engineering, technology, life and health sciences, as well as distance learning
programs. As of March 31, 2013, it had roughly 334,200 students in its distance learning
and campus programs of undergraduate and graduate courses. The company runs one
university, four university centers, 33 colleges, and 52 distance learning units in 20
Brazilian states. Its direct subsidiaries are Sociedade de Ensino Superior Estcio de S
LTDA, Sociedade de Ensino Superior Mdio e Fundamental LTDA. and Sociedad de
Enseanza Superior SA.
Kroton Educacional S.A. (BOVESPA.KROT11) is engaged in the management of
preschool, elementary, secondary and college preparatory schools, as well as higher,

professional and post-graduation education, free courses, and other related educational
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activities. In addition, it is involved in the wholesale, retail, distribution, import and

export of textbooks, course books, magazines and other publications related to preschool,
elementary, secondary and adult high schools, college preparatory schools, as well as
higher, professional, and post-graduation education. The company has 53 higher
education units, with a presence in 39 cities in 10 Brazilian states and 447 DistanceLearning Graduation Centers accredited by the Ministry of Education (MEC). The
company also has 810 associated schools in all Brazilian states, as well as five units in
Japan and one in Canada, under the Pitgoras brand. As of March 2013, it had roughly
519,000 students. On April 2013, Kroton Educational announced the acquisition of
Anhanguera Educational for $2.5 billion. The deal is still pending regulatory and
shareholder approval.
Sistema Educacional Brasileiro S.A. (BOVESPA.SEBB11) SEB was founded in 1963,
offering college-admission test preparation. It expanded into secondary education in 1973

and into the post-secondary market in 1999. SEB operates 31 schools providing full-time
preschool, primary, secondary, and test preparation courses. It also offers primary and
secondary learning systems, providing primary and secondary education methodology,
content, training for teachers, and other educational services for associated private
schools and associated municipalities; post-secondary education, undergraduate and
graduate programs through its own campuses, and distance education undergraduate
programs offered through distance learning. As of June 30, 2010 (latest data available),
the company has more than 70,000 students at its own schools and another 491,000
students at its associated schools.
Universidade Positivo (Positivo University), which offers 30 undergraduate programs,
two doctoral programs, four masters degree programs, dozens of certificate of graduate
study programs, and hundreds of extension courses.
China
Ambow
Education (AMBO) provides educational and career enhancement services in

high school entrance examination and college entrance examination markets in China.
The company operates through two business lines: Better Schools that provides K-12
programs and tutoring services with curriculum that enables students to improve their
academic results and educational opportunities; and Better Jobs that offers career
enhancement service programs that help postsecondary students obtain employment. As
of December 2011 (latest data available) total enrollments in the Better Schools and
Better Jobs divisions were 881,000 and 111,800 respectively.
ATA, Inc. (ATAI) provides computer-based testing services in China, used for
professional licensure and certification tests in various industries, including information

technology, services, banking, teaching, securities, insurance, and accounting. It also
offers career-oriented, test-based educational programs, including single course
programs, degree major course programs, and pre-occupational training programs; and
test preparation solutions, such as test preparation and training platforms for the securities
and banking industries and test preparation software for the teaching industry. The
company operates 2,804 test centers throughout China and covers every province in
mainland China.
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China Education Alliance (CEU) provides online education and on-site training in
China. The company, through edu-chn.com, offers a database of exams and test papers
and courseware under the name of Famous Instructor Test Paper Store for colleges and
secondary and elementary schools, and video on demand, which includes tutoring of
exam papers and exam techniques. These examinations cover primary, middle, and high
school exams that are used by students who are primarily in the age range of 6-18. The
company markets its on-site teaching services under the name of Classroom of Famed
Instructors. It also offers a program of online vocational training services, and operates a
website that offers job search capability and career planning courses for university
students. In addition, the company sells prepaid debit cards that permit its subscribers to
download materials from its website over a specified period and engages in the
publication and distribution of Scientific Discovery, a scientific information newspaper
with a focus on education.
China Distance Education Holdings Limited (DL) is a leading provider of online
education in China, focusing on professional education. The courses offered are designed
to help professionals and other course participants obtain and maintain the skills, licenses,
and certifications necessary to pursue careers in China in the areas of accounting, law,
healthcare, construction engineering, information technology, and other industries. The
company also offers online test preparation courses to self-taught learners pursuing
higher education diplomas or degrees and to secondary school and college students
preparing for various academic and entrance exams. In addition, the company offers
online foreign language courses, offline GaoKao retake courses, and offline business
start-up training courses. The company operates 16 education websites, offers 174
courses and more than 2,100 classes in its online platforms. As of September 2012, total
course enrollments were 2,203,000.
ChinaCast Education Corporation (CAST) provides postsecondary education and e-
Learning services provider in China. Through its two universities - The Foreign Trade
and Business College of Chongqing Normal University and the Lijiang College of
Guangxi Normal University the company offers fully accredited, career-oriented
bachelor's degree and diploma programs in business, economics, law, IT/computer
engineering, hospitality, and tourism management, advertising, language studies, art, and
music. The company provides its e-Learning services to post-secondary institutions, K-12
schools, government agencies, and corporate enterprises via its nationwide satellite/fiber
broadband network. These services include interactive distance learning applications,
multimedia education content delivery, and vocational training courses.
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ChinaEdu (CEDU) provides comprehensive services to the online degree programs of

leading Chinese universities, including academic program development, technology
services, enrollment marketing, student support services, and finance operations. The
company's other lines of businesses include the operation of private primary and
secondary schools, online interactive tutoring services and providing marketing, support
for international curriculum programs and online learning community for adult students.
The company believes it is the largest service provider to online degree programs in
China in terms of the number of higher education institutions that are served and the
number of student enrollments supported. ChinaEdu also performs recruiting services for
18 universities through its nationwide learning center network. ChinaEdu also performs
recruiting services for 23 universities through its nationwide learning center network (122
operational centers).
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CIBT Education Group (MBA) is an education management company with a special

focus on the global education market. It owns and operates a network of business,
technical and language colleges, and cooperative joint programs at more than 70
locations in 18 countries through which it delivers Western and Chinese accredited
business and management degree programs, college preparation programs, automotive
maintenance programs, IT programs, hotel management and tourism programs, language
training and certification programs, and career/vocational programs. The company enrolls
over 13,000 students annually.
Hao Yue Education Group (private) was founded in 1997. Its flagship school is
approved by the Beijing municipal government as a full-time, integrated private
vocational university, which is able to independently grant government-accredited
academic certifications. The school has grown to more than 30,000 students with two
campuses in Beijing and more than 200 hectares of campus area. It has more than 1,500
full-time and 2,000 part-time teachers, and nearly 30 secondary colleges and schools
offering more than 130 majors. The school provides a career-oriented curriculum that
equips students with strong practical skills.
Lionful Education (private) is a leading higher education provider in northern China that
has expanded into early childhood education service, K-12 after-school tutoring service,
continuing education service for adults and other fields.
New Oriental Education & Technology Group (EDU) is the largest provider of private
educational services in China based on the number of program offerings, total student
enrollments and geographic presence. The company offers a wide range of educational
programs, services and products consisting primarily of English and other foreign
language training, test preparation courses for major admissions and assessment tests in
the US, the PRC, and Commonwealth countries, primary and secondary school
education, development and distribution of educational content, software, and other
technology and online education. As of May 2013, the company operated 726 learning
centers and 57 schools, with total student enrollments of 2,540,300.
TAL Education Group (XRS) provides K-12 after-school tutoring services in China. It
offers tutoring services to K-12 students covering various academic subjects, including
mathematics, English, Chinese, physics, chemistry, and biology. The company provides
tutoring services through small classes, personalized premium services (one-on-one
tutoring), and online course offerings. The company also provides education and
management consulting services, as well as sells software. As of May 2013 the company
operated 225 learning centers, located in 15 Chinese cities.
Xueda Education Group (XUE) claims it is the leading national provider of tutoring
services for primary and secondary school students in China, with a focus on offering
personalized tutoring services.
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Dubai
GEMS
Education (private) is an expatriate international school that provides an
international baccalaureate (IBO) program delivery for students aged 3-18. It is a member
of the Council of International Schools (CIS) and is an authorized IBO school offering
three authorized IB programs, PYP, MYP, and the Diploma Program, and offering the
Diploma Program (IBDP) and a standard international high school diploma.
France
Studialis (private) focuses on the higher education sector in French-speaking countries.
So far, Studialis has acquired four French private education groups, which provide
recognized undergraduate and graduate courses to a total of 14,000 students in the fields
of general management, marketing and communication, finance and accounting, graphic
design and visual arts, tourism and home care, as well as IT. The company operates 24
schools and 14 campuses in France.
India
Amity Education Group (private) has more than 80,000 students pursuing 240 programs
spread across 150 institutions and four universities. Amity offers hi-tech infrastructure in
its 23 campuses spread over 1,000 acres with five million sq. ft. of built-up area and a
faculty of more than 4,000 professors, scientists, researchers, and staff. Amity Education
Group also has campuses in London and Singapore. The school offers both MBA and
bachelors degrees and specializes in business-oriented programs.
Aptech (NSE: APTR) is a global retail and corporate training solutions provider. Its
services include information technology (IT), multimedia and animation, hardware and
networking, aviation, hospitality, and travel and tourism. Corporate solutions include
corporate training, assessment solutions for corporate and universities/academic
institutions and custom content development for overseas and domestic customers.
Career Point Information Systems (private) provides education services and test
preparation utilizing classroom, distance, and e-learning methods.
Core Education and Technologies (NSE: CETL) develops and markets education
management software. The company offers educational assessment, case management,

financial data management, operations management, safety, registration,
communications, consulting, and curriculum software.
Educomp Solutions Ltd. (NSE: EDSL) is a globally diversified education solutions
provider and the largest education company in India. The company operates in four
business segments: School Learning Solutions, which comprises SmartClass and
Edureach (ICT); K-12 Schools, which comprises preschools and high schools; Higher
Learning Solutions, which comprises higher education, vocational business, and
professional development; and Online Supplementary & Global, which comprises online
business such as LearnHub.com, WiZiQ.com, supplemental businesses such as Learning
Hour, study places, tuition centers and global businesses such as Learning.com in the US
and AsknLearn in Singapore. The company runs 209 preschools, 51 K-12 schools, 6
colleges, 1 higher education campus, and 94 test centers as of April 2013.
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Everonn Education Ltd. (NSE: EVED) is an education service provider for computer
education, computer literacy, computer-aided learning education in government schools

through turn-key projects on a build, own, operate, and transfer (BOOT) model and
teachers' training projects. Everonn is associated with a number of state governments for
implementing computer education in government schools. As of June 30, 2011, Everonn
served over 8 million students through 10,139 learning centers across 27 states and
worked with 16 state governments of India. Everonn provides education and training
solutions through satellite-based Very Small Aperture Terminal (VSAT) technology. The
ViTELS division includes iSchool, colleges, retail, and Web products. Global Institute of
Teacher's Training (GITT) provides comprehensive and world class training programs for
teachers, principals, and other educational professionals.
Manipal (private) is a deemed university and global provider of higher education
established in 1953, serving roughly 122,000 undergraduate and graduate students across
nine campuses (five in India and four abroad) and three universities that offer 14
professional disciplines. Manipal University (MU) has branch campuses in Bangalore,
Malaysia, Dubai, and Antigua, in the Caribbean. There is also a campus in Mangalore
with a medical college, a dental college, and a nursing college with attached teaching
hospitals. MU has an international academic collaboration for twinning programs in
engineering with universities in the US, UK, Australia, and other countries.
NIIT (NSE: NIITLTD) is an Indian-based global provider of education and training, which
established the NIIT University in 2009 and hopes to eventually enroll 7,000 students.
The company provides training solutions in information technology (IT), business
process outsourcing, banking, finance and insurance, executive management education,
and communication and professional life skills. NIIT has provided computer-based
learning to more than 15,000 government and private schools. Its individual learning
business offerings include programs for students seeking careers in IT. Its learning
solutions for enterprise include instructor-led and e-Learning training in IT and soft
skills, advisory services, custom content development, application, and process rollout
training, learner management systems, learner support services and managed training
services. In October 2011, the company sold its Rochester, N.Y. unit Element K Corp. to
SkillSoft Corp.
Malaysia
Masterskill Education Group Berhad (KUL:MEGB) provides nursing and allied health
education in Malaysia, operating six campuses geographically located throughout the
country - in Selangor, Johor, Perak, Kelantan, Sabah, and Sarawak. It offers more than 32
different types of courses ranging from doctorate, masters, and bachelor degree programs,
including a top-up degree program, diploma, as well as foundation programs. As of
December 31, 2012, it had 8,643 students. Its subsidiaries include Masterskill (M) Sdn.
Bhd, which provides education in nursing and allied health sciences in the healthcare
industry; Masterskill Worldwide Management Sdn. Bhd, which is consultancy services,
and Masterskill Resources Sdn. Bhd., which provides support services.
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Puerto Rico
EduK Group is a for-profit education system that is uniquely focused on Spanish and
English postsecondary education. EduK is the largest for-profit provider of postsecondary
education in Puerto Rico and is building a presence in key Hispanic markets within the
U.S. At present, EduK provides education at 36 locations. Headquartered in San Juan,
Puerto Rico, EduK employs approximately 3,000 faculty and staff and has average
enrollment exceeding 27,000 students.
Singapore
Raffles Education
Corporation Limited (SIN:NR7) is a publicly traded education

company in Singapore. Raffles operates in four segments: Private Education System
(PES), National Education System (NES), Oriental University City Campus Management
(OUC Campus Management), and Corporate and Others. The company offers students a
range of degree, diploma, and full-time certification programs in design and businessoriented disciplines at post-secondary level. Raffles runs programs within the Chinese
national public school system. Located in the Langfang Economic and Development
Zone in Langfang city, Hebei province, China, between the cities of Beijing and Tianjin,
Oriental University City (OUC) owns and leases out investment properties to colleges.
OUC also operates its own colleges. The company operates 34 colleges in 31 cities across
12 countries in Asia-Pacific. As of June 2012, more than 48,800 students were enrolled in
its tertiary programs and the OUC.
South Korea
MegaStudy
Co., Ltd (KDQ:072870). Through its Internet portal sites,

www.megastudy.net and junior.mbest.co.kr, the company provides online educational
contents, teaching materials, video on demand (VOD) content, and learning management
consulting services for pre-university students and primary and middle school students.
The company also offers off-line education services through its educational institutes.
Woongjin Thinkbig Co., Ltd. (KDQ:095720) provides educational and publishing

services. The company mainly operates three businesses: culture education business,
which provides home-school materials, including Korean language learning books, math
books, Chinese-character learning books and society and science books mainly for
elementary school students; future education business, which provides learning
encyclopedias, experiential knowledge picture books, science complete collections,
language complete collections, music animations and others, as well as others businesses,
which is engaged in the after-school education business, English private educational
institute business, and production and development of publications.
South Africa
Advtech Limited
(JNB:ADH) provides education, training and staff placement within

South Africa, operating in two divisions: Education and Resourcing. The Education
division comprises a network of school, tertiary, skills and learnership brands, focusing
on schooling (from pre-primary to matric), higher and further education and training
(certificates, diplomas, undergraduate and postgraduate degrees), short learning
programs, skills programs, short programs, and adult basic education and training. The
Resourcing division includes a portfolio of specialist resourcing brands. This division
focuses on areas including permanent, temporary, and contract staffing solutions, as well
as recruitment advertising, e-recruitment and advertising response handling. The
company operated 87 sites and delivered services to 46,769 students in 2012.
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United Kingdom
Alpha Plus (private) was established in 1931 and is an English education company,
which runs a network of independent schools including 15 primary and secondary
schools and five colleges. The companys schools are geared toward providing traditional
educational services for special needs children, preparatory schools, and broad college
curriculums to prepare students for college placement exams. Total students as of
February 2013 were 3,665.
Cognito Education (private) works with education establishments and local authority
departments to better understand the needs of all key stakeholders (parents, pupils,
teachers, community). Services include stakeholder engagement, strategic development,
project management, coaching, and mentoring. Consultants at Cognito Education have
worked within either the education or business sectors and are able to draw from
experiences as governors, members of interim executive boards, research specialists,
local authority advisors, SIPs, ex-head teachers, life coaches, and marketing consultants.
Greenwich School of Management (private) is a university college business school

offering a wide range of undergraduate, postgraduate, and doctoral degree programs
validated by top-ranking British Universities including the MBA (master of business
administration), MSc (master of science), EMBA (executive MBA), Foundation stages,
BSc (bachelor of science), LLB, BBA, and Mphil/PhD. It also provides many
professional development courses from the Chartered Institute of Purchasing and Supply
(CIPS) and a wide range of travel and tourism short courses. Founded in 1973, it operates
two campuses in London and enrolls 3,500 students.
Nord Anglia Education (private) was founded in 1972 and is a UK-based global
operator of premium K-12 schools and government-financed outsourced education

services. The company enrolls about 14,500 students in 25 schools across Southeast Asia,
China, Europe, North America, and the Middle East. Instruction is primarily in English
(except the Swiss schools, which are also taught in French) and is mainly marketed to
children of expatriate professionals (ex-pats), who represent roughly 75% of the total
population, while children of local families constitute the remaining 25%.
Study Group (private) is an international education company specializing in the
provision of university access and English language programs that service more than
50,000 students annually from more than 130 countries. The company has a global
network of education specialists and partnerships with over 200 universities across the
United States, Canada, the United Kingdom and Europe, Australia, and New Zealand.
The companys three main divisions include English language education, higher
education including university preparation and university placement, and career
education vocational programs.
United States
EF Education First (private) was founded in 1965 and has a global network of 20,000
teachers, 15000 staff, and 450 schools and offices in more than 50 countries, EFs 16
divisions offer educational travel, cultural exchanges, language training, and academic
degrees. EF offers travel programs for schools groups, adults, and other organizations;
language programs for individuals and corporate executives; International Baccalaureate
(IB) diploma and IB prep programs; and it facilitates student exchange programs.
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Laureate Education (private) is an international network of higher education
institutions, including more than 70 accredited campus-based and online universities

offering undergraduate and graduate degree programs to more than 780,000 students
around the world. Laureate institutions span 29 countries throughout North America,
Latin America, Europe, and Asia and offer career-focused, undergraduate, master's, and
doctoral degree programs in fields including architecture, art, business, culinary arts,
design, education, engineering, health sciences, hospitality, information technology, law,
and medicine.
Mertias (private) is a worldwide network of 10 college-preparatory schools across three
continents enrolling roughly 11,500 students worldwide. In addition to regional

accreditations, Meritas schools offer the international baccalaureate (IB) curriculum and
advanced placement (AP) courses. Schools offer broad curriculum and extracurricular
activities including sports and music, and international exchange opportunities are also
available.
Mosaica Education (private) was founded in 1997 and currently operates more than 90
elementary, middle and high school programs serving more than 15,000 students in 12
states and the District of Columbia, the U.K., India, the United Arab Emirates, and online
programs. Mosaica Education acquired Advantage Schools, Inc. in 2001. Mosaica
Educations focus is on developing charter school programs using the Paragon
curriculum, state-of-the-art classroom technology, and learning that is tailored to
students individual successes.
Schiller International University (private) has campuses on two continents in five
countries including Largo, Florida; Paris, France; Madrid, Spain; and Heidelberg,
Germany, and students are encouraged to study among the campuses during their degree
program. Schiller offers associate, bachelor, and master degrees, primarily in business
programs, and offers online degrees through its distance learning division. The programs
include international business, business administration, international relations and
diplomacy, management of information technology, hospitality and tourism management,
psychology, computer engineering, and communications.
Whitney International (private) is an international educational system that focuses on
countries where education is underdeveloped and capacity constrained such as Brazil and
Mexico and other countries in Latin America. Courses are a mix of both online and inclass formats. Whitney enables educational institutions in other countries to establish
partnerships with US universities through the American University System to focus on
critical projects such as global standards for academic quality, accreditation, research
funding, online learning, student support and retention, and foreign language learning.
World Class Learning Group (private) owns and operates British Schools in New York,
Boston, Charlotte, Chicago, Houston, and Washington, DC, in addition to schools in

Madrid, Doha, and Al Khor. There are almost 3,000 students being educated each year in
World Class Learning Schools, with 5,000 students being educated when managed schools
are included. Teachers are trained in the UK and teach the English National Curriculum and
the International Primary Curriculum. The company also owns Fieldwork Education, which
offers the International Primary Curriculum in more than 1,300 schools worldwide. It was
acquired by Nord Anglia Education in May 2013. The combined business operates 25
schools in 11 countries and enrolls more than 14,500 students.
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Postsecondary Publishing Market

Postsecondary
publishing
market: 5.1%
CAGR through
2018
While we could devote an entire report to the postsecondary publishing sector, we have briefly
summarized our thoughts here. According to private equity firm Veronis Shuler Stevensons
(VSS) annual Communications Industry Forecast (2012 edition) and removing the
postsecondary tuition component of its forecast, we calculate that an estimated $12.5 billion will
be spent on publishing (instructional media and services") in the not-for-profit postsecondary
sector in 2013, having grown at a 5.6% CAGR since 2004. Contrary to the K-12 publishing
market, postsecondary publishing continued to increase during the Great Recession, following
enrollment trends, which tend to be somewhat countercyclical. While annual growth has slowed
a bit in line with enrollment trends, we still expect growth to continue. Using VSS estimates, we
project the postsecondary publishing sector will generate nearly $16 billion in 2018, growing at
a 5.1% CAGR over that time (see Exhibit 414). Unfortunately, spending on publishing at forprofit postsecondary schools was not broken out separately; thus, the postsecondary publishing
market is likely larger than this estimate and has likely historically grown at a faster rate given
the relatively faster growth in for-profit enrollment.
Exhibit 414. Postsecondary Publishing Market (2004-2018E)

$18
New print books
Used print books
Custom content and electronic
y/y % change
10%
8%
12
6%
9
4%
6
y/y % change
Revenues (Billions)
15
2%
3
0
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013E 2014E 2015E 2016E 2017E 2018E
Industry Forecast (Sept. 2012) and BMO Capital Markets.
VSS segments the postsecondary content market into three groups:

The printed college books market is the traditional market of books created for courses and
used in formal settings. It also includes accompanying materials, CDs, workbooks, and includes
the used-book market (we have combined new print and used print books for our discussion).
Printed college
books market:
expected to
increase 1.6%
CAGR through
2018
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According to VSS estimates, just over $9.8 billion will be spent on printed college books in the
not-for-profit postsecondary sector in 2013, having grown at a 3.7% CAGR since 2004. Growth
is expected to continue, albeit at a slower rate. Using VSS estimates, we forecast this market
will increase roughly 1.6% CAGR, reaching roughly $10.7 billion in 2018 (see Exhibit 415).
Again, this excludes spending on printed college books at for-profit postsecondary schools,
although arguably the declining enrollments in that sector could offset some of this expected
growth.
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Exhibit 415. Printed College Books Market (2004-2018E)

$12
Printed College Books ($ bil.)
8%
% y/y change
6%
10
5%
4%
3%
% y/y change
Revenues (Billions)
7%
2%
1%
6
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012 2013E 2014E 2015E 2016E 2017E 2018E
Dominated by
larger players
Books and supply

costs continue to
increase; annual
CAGR of 4.4%5.4% since 20022003
The postsecondary textbook market is dominated by the major publishing companies Cengage
Learning (formerly Thomson Learning, which acquired the Houghton-Mifflin College Division
in June 2008 and filed for bankruptcy protection in July 2013), Pearson Higher Education (PSO)
and McGraw Hill Higher Education (acquired by funds affiliated with Apollo Global
Management in March 2013). According to Digital Pricing in the Textbook Market, in 2008
(the latest data available), those three companies combined had 83% of the college textbook
market. However, other companies, such as Bedford, Freeman & Worth, MacMillan Higher
Education, W.W. Norton, and Wiley Higher Education (JW.A) also specialize in this area.
There seem to be a number of varied estimates regarding the average spending per college
student on textbooks and related materials. Each year, as part of its Trends in College Pricing,
the College Board provides an estimate for average spending per student on books and supplies.
In the 2012-2013 school year, the amounts spent ranged from $1,200 (public not-for-profit fouryear schools) to $1,229 (public not-for-profit two-year schools) to $1,244 (private not-for-profit
four-year schools). Unfortunately, data for for-profit schools was not available. According to the
Lumina Foundations Turning the Page (June 2013), roughly 75% of such costs was spent on
textbooks. Per this report, these costs have increased 4.3%, 5.4%, and 4.4% (CAGR),
respectively, since the 2002-2003 school year (see Exhibit 416).
Exhibit 416. Annual Amount Spent per College Student on Books

and Supplies (2002-03 to 2012-13 School Years)
Public two-year not-for-profit
$1,250
Public four-year not-for-profit
Private four-year not-for-profit
Average annual cost
1,000
750
500
250
0
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Source: College Board and BMO Capital Markets.
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Textbook price
increases well in
excess of inflation
BMO Capital Markets
This price increases have been well in excess of inflation. Using another metric the Bureau of
Labor Statistics pricing data for educational books and supplies, the majority of which
represent college textbooks from December 2000 through June 2013, the price of college
textbooks increased 107% (6% CAGR), while the CPI-All Items index was up only 34.2%
(2.4% CAGR; see Exhibit 417). A July 2005 report by the US Government Accountability
Office (GAO) cited that most of the 6% average annual increase in textbook pricing since 1986
(per their records) was driven by extra features (e.g., supplemental materials such as CDROMs), which accompany the core textbook.
Exhibit 417. Consumer Price Index All Items vs. Educational

Books and Supplies (12/2000 6/2013)
CPI-U (all items)
Indexed (12/00=100)
230
CPI-U (college textbooks)
210
190
170
150
130
110
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
90
Source: Bureau of Labor Statistics and BMO Capital Markets.
Many options to
new print
textbooks
Despite the price increase, average student spending on new textbooks per semester dropped
from $192 in the fall of 2008 to $138 in the spring of 2013, according to Student Monitor. There
are now a number of different options for students to use. According to Student Monitor, in fall
2012, only 33% of student purchased a new print version, while 42% purchased a used print
version and 15% rent a printed version. E-books (whether purchased or rented) composed only
about 10% of the market. A discussion of each of these options follows.
Used textbook purchase. The used textbook market has been enhanced by a number of online
resellers such as Amazon (AMZN), eBay (EBAY), and niche providers as well. According to
the National Association of College Stores (NACS), used textbooks are typically priced at 75%
of the retail price of a new book. College stores report that, on average, used books make up
35% of their course materials inventory, and the percentage is increasing annually.
The used book market has gained sizeable share. VSS estimates that, in 2013, new print books
will make up roughly 71% of the total printed college books market, down from 77% in 2004.
The share shift is expected to accelerate, shrinking to 68%/32% (new/used) by 2016.
Textbook rental. A number of companies offer textbook rentals (e.g., BookRenter.com,
CampusBookRentals.com, Chegg.com), while others offer free textbooks (e.g., Freeload Press,
Project Gutenberg), typically using an advertising model (although their offerings may be
limited). We believe these alternatives have been making some inroads with traditional
publishers. In August 2009, for example, Cengage Learning announced the launch of
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CengageBrain.com, offering to rent textbooks at 40%-70% below the suggested retail price;
Cengage claims it was the first higher education publisher to offer a print textbook rental option
directly to students. Other companies expanding their textbook rental presence include
McGraw-Hill (via Chegg.com) and bookstores Barnes & Noble College Booksellers and Follett
Higher Education Group.
There are also a number of companies that provide related assistance to students such as
Flashnotes, an online marketplace where college students buy and sell notes and study materials
of all kinds, and Sparknotes, which provides online study guides and discussion forums. In
addition, companies such as Turnitin provide assistance to teachers to help prevent plagiarism.
However, the traditional sellers are not standing pat. According to the NACS, the number of
college stores offering textbook rental has increased dramatically, from about 300 in fall 2009 to
an estimated 3,000 in fall 2012.
Open educational
resources
E-textbooks. The increasing use of open educational resources (OER) also poses a threat to
the traditional textbook market, in our view. OER refers to the increasing number of companies
or organizations that offer free educational materials online, including textbooks and reference
material. For example, in October 2011, the state of Washington unveiled the Open Course
Library, which brings together resources for 42 courses. The materials include syllabi,
readings, activities, assessments, and textbooks. Anyone can access the courses online. The idea
is that in the courses that are part of the project, students would pay no more than $30 for the
course content.
While some sites have links to free texts, such as TextbooksFree.org, others provide free access
to online texts that can be downloaded for a small fee, such as Flat World Knowledge. Other
organizations such as Khan Academy offer a library of free online courses, potentially enabling
students to learn about certain subjects without purchasing specific course material. This is in
addition to the MOOCs discussed earlier in the online education section.
eTextbooks price
advantage
However, just because materials are available online, it does not necessarily mean they are all
free. Nevertheless, they are typically less expensive that the print version. According to the
NACS, digital textbooks are roughly 40% less expensive than their print counterparts. A joint
pilot study from Indiana University and Internet2 found that the average price of an e-textbook
was $80.67 56% lower than the publishers average list price and 39% below the price
available on Amazon for the print version. However, that was still 1.7% more expensive than
the paperback versions (if available) and 81% higher than renting on Chegg.
For-profit schools, such as Apollo Groups (APOL) University of Phoenix and Bridgepoint
Educations (BPI) Ashford University, have been early adopters of e-textbooks, making it easier
to mandate usage systemwide. It allows these companies to generate profits that at one time were
shared only by the publishing houses and college bookstores (many run by third-party entities).
However, the traditional publishing sector has also made some advances. In 2007, a group of
major publishers including Pearson Education (PSO), Cengage Learning, McGraw-Hill
Higher Education (MHP), John Wiley & Sons (JW.A), Bedford, Freeman & Worth (now part of
MacMillan Higher Education), and Jones & Bartlett founded CourseSmart LLC, which brings
together thousands of textbooks across hundreds of courses in an eTextbook format on a
common platform. CourseSmart boasts that it offers 90% of all course textbooks in digital
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formats available on most e-readers, although we note such companies likely do not carry the
self-produced titles created by some of the for-profit schools. In April 2012, Barnes & Noble
announced plans to spin off its college textbook and digital divisions into a new subsidiary,
bolstered by a $300-million investment by Microsoft (MSFT), aimed at driving greater
acceptance of e-textbooks. Other companies that specialize in e-textbooks for the higher
education sector include CafeScribe, VitalSource, and Xplana.
Most students
surprisingly
prefer printed
textbooks . . .
. . . though that
may be changing
quickly, as more
students use
other devices
Despite recent publicity, most students still apparently prefer printed textbooks. According to
the 2012 Student Watch study Student Attitudes and Perceptions: Linking Course Materials to
the Connected College Student, if the choice were entirely up to them, 77% of the students
surveyed said they would prefer a print textbook over its digital counterpart. This percentage is
similar to those in prior studies conducted by the National Association of College Stores
(NACS).
However, we believe this could change as more products become available on computer tablets
and other mobile devices. In a July 2013 survey of college students conducted by Wakefield
Research and CourseSmart, 53% of respondents said they would be more likely to complete
required reading in time for class if it was available digitally or could be accessed on a mobile
device, while 88% said they have used a mobile device to study for a test at the last minute.
Almost all (99%) students surveyed reported having at least one digital device and while laptops
were the most common (93%), many students now own smart phones (78%) and tablets (35%).
This is a significant increase from the 2011 survey when only 47% of students said they owned
a smart phone and 7% reported owning a tablet.
Research by Simba Information found that the digital course materials market was expected to
reach $1.9 billion by 2013. That estimate is likely conservative. In January 2012, a venture was
announced by Cornell University, the University of California at Berkeley, the University of
Minnesota, the University of Virginia, and the University of Wisconsin. They jointly negotiated
for bulk purchasing e-textbooks in a process led by Internet2, as part of its relatively new
program to try to pool the buying power of colleges in technology purchases. Indiana University
recently tried the bulk-textbook-purchasing approach in a project of its own, and its leaders are
working with Internet2 on the new project.
Legislation aimed
at curbing rising
costs to students
Regulatory
developments
both positive and
negative
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In an effort to curb the rising cost of course materials to students, Congress passed new textbook
rules as part of the 2008 Higher Education Act reauthorization that went into effect July 1, 2010.
The main provisions of the rule include: 1) publishers must give professors detailed information
about textbook prices, revision histories and a list of alternate formats; 2) publishers have to sell
materials typically bundled with textbooks -- such as CDs, DVDs and workbooks -- separately
so students don't have to buy them; and 3) colleges have to include in-course schedules with
required textbooks for each class, including the book's price and International Standard Book
Number, an identifying tool. While it is difficult to gauge the impact of this on textbook
vendors, it should allow students to spend less if they can avoid buying un-needed materials.
There have also been some positive regulatory developments in this sector. Effective January
2010, the state of California enacted a law requiring that all textbooks used in public and private
colleges be available in electronic form by 2020. As California is the countrys largest state, this
could accelerate the continued adoption of this medium.
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On the flip side, in July 2012, a California law (SB1539) was signed requiring publishers,
beginning in 2013, to describe the changes in new editions to professors and buyers. The intent
is to help students determine whether they really need to buy an expensive new version or if a
previous edition will suffice. Publishers will also be required to tell buyers about other products
they offer on the same topic. In addition, in May 2012, the California State Senate passed a
number of bills, including SB1052, which would require free online, open-source material for
the top 50 college courses at Californias public colleges and universities. Moves such as these
could limit some future growth for textbook publishers.
The custom-content and electronic spending market comprises companies that develop and
package content specifically for an instructor or institution. Custom-designed books, case
studies, and coursepacks are included in this segment. E-books and materials, such as online
tests, are also included.
Postsecondary
custom content
market: over 15%
CAGR through
2018
According to VSS estimates, an estimated $2.6 billion will be spent in custom content and
electronic spending in the not-for-profit postsecondary sector in 2013, having grown at a 19.5%
CAGR since 2004. Using VSS forecasts, we project slightly slower, though still strong, growth
(15.2% CAGR) with revenues over $5.3 billion in 2018 (see Exhibit 418). Again, this excludes
spending on printed college books at for-profit postsecondary schools, where growth will likely
be slower. We believe much of this growth will be fueled by the online course material trends
already discussed.
Exhibit 418. Postsecondary Custom Content and Electronic

Spending Market (2004-2018E)
Custom Content and Electronic Spending ($ bil.)
30%
% y/y change
25%
20%
15%
10%
5%
% y/y change
Revenues (Billions)
$6
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012 2013E 2014E 2015E 2016E 2017E 2018E
Postsecondary Technology Market

Postsecondary
technology
market: 3.2%
CAGR through
2018
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Similar to the K-12 sector, a large number of technology providers serve the postsecondary
sector. According to Gartner, an estimated $12.1 billion will be spent in the US postsecondary
technology market in 2012, up roughly 3.3% from 2012 levels. Using Gartner forecasts, we
project roughly similar growth (3.2% CAGR) through 2018, reaching $14.2 billion that year
(see Exhibit 419).
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Exhibit 419. US Postsecondary Technology Revenues: 20102018E

$15
Software
Internal Services
Hardware
IT Services
Telecommunications
Total Spending ($ in bil.)
12
2010
2011
2012
2013E
2014E
2015E
2016E
2017E
2018E
Source: Gartner estimates.
According to Gartner, much of the growth over the next few years will be driven by software
purchases (8% CAGR) and IT Services (5.8% CAGR), offsetting expected declines in
telecommunications (down 2.5% CAGR) and internal services (down 6.5% CAGR).
Eduventures segments the postsecondary technology market into three groups (unfortunately
size estimates by market segment are a bit outdated):
The infrastructure computing market comprises companies that provide technologies

that support the connection of computer systems, voice, video, data storage, data security,
and data analysis.
The administrative computing market comprises companies that provide technology

that facilitates the delivery, processing, and analysis of data for institutional
administrative functions.
The academic computing market comprises companies that provide technologies that
support the learning objectives of an institution. While this is the smallest of the three
types of content markets, it is also the fastest growing.
The two larger technology markets academic and administrative computing are served by
traditional hardware and software providers, such as Apple (AAPL), Cisco (CSCO), Dell
(DELL), Hewlett-Packard (HPQ), IBM (IBM), Oracle (ORCL), and SunGard (in January 2012
private equity firm Heller & Friedman combined SunGards higher education unit with its
Datatel unit, which is now called Ellucian). In addition, they are supported by such large
consulting and professional service firms such as Accenture (ACN) and IBM (IBM). Along with
the course management systems providers (to be discussed below), other technology companies
that focus almost exclusively on the education sector include Campus Management,
EmbanetCompass (acquired by Pearson in October 2012), iParadigms, Jenzabar and Synergis
Education.
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For purposes of this report, we have chosen to drill down a bit further into the academic
computing market, a market somewhat unique to the education sector and expected to be the
fastest growing of the three postsecondary technology markets.
Postsecondary
LMS
As with the K-12 sector, we believe Learning Management Systems (LMS) development is one
of the fastest areas of growth in this segment. These systems provide Web-based platforms and
front-end tools (i.e., collaborative) to augment traditional instruction, course design services and
consulting, digital course materials (i.e., online bulk packs, Web-based library), content and
research engines, and ASP hosting. In addition, we believe the LMS provider-infrastructure is
expanding to incorporate enhanced social media tools and mobile applications, which are
gaining in use across campuses.
We believe this newer and emerging LMS and other online course platform tools are making
significant inroads into traditional nonprofit universities in recent years and note that
EmbanetCompass has established partnerships with many institutions included Arizona State
University and California State University Online.
We believe education LMS will remain fertile territory for M&A and venture capital for several
years as the postsecondary education market is relatively underpenetrated by open-source Web
2.0 products such as Moodle (an acronym for Martin's Object-Oriented Dynamic Learning
Environment) and Sakai (built by four institutions, The University of Michigan, Indiana
University, MIT, and Stanford University).
Blackboard still
dominant though
losing share to
others
Whereas Blackboard has held the dominate position in the postsecondary LMS market for many
years, we believe its market share is eroding as newer competitors enter the market. As shown in
Exhibit 420, Blackboard has lost significant share in recent years to newer players including
Desire2Learn and open source systems such as Moodle and Sakai. We note Blackboard has
taken recent steps to shore up its position through the March 2012 acquisition of Moodlerooms
and NetSpot, two leading partners with Moodle.
Exhibit 420. Postsecondary LMS Market Share (2006 and 2012)

100%
90%
6%
20%
3%
11%
Other
80%
2%
70%
4%
60%
Sakai
20%
Desire2Learn
50%
40%
Moodle
71%
30%
45%
Blackboard
20%
10%
0%
2006
2012
Source: Campus Computer Survey 2011 and BMO Capital Markets
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Postsecondary
LMS market
should grow at
BMO Capital Markets
While it was difficult to estimate the size of the LMS market, we believe it represents the bulk
of the academic computing market and should grow at the high-single-digit rate projected for all
academic computing services.
high-single-digit
rate
We believe the core drivers of postsecondary LMS market include:
The ability to augment traditional education with online learning environments;
Greater acceptance among professors who see online as a teaching aid, and not a teaching
replacement;
Ease of course material delivery, online communication, grade distribution and scaling
ability to more students; and
Greater analytical capability.
Still, we believe the open source market remains a difficult one to substantially penetrate and
note that even Google ultimately pulled the plug on its LMS Wave platform in the summer of
2010 owing to slow user adoption (the product was launched in spring 2009). Therefore we
believe there are considerable hurdles to successful LMS development, including technological,
adoption, and patent litigation risk.
As with most technology-related products, the LMS space is not without its share of patent
litigation risk. In this instance, Blackboard sued competitor Desire 2Learn in July 2006,
claiming infringement of a core technology patent. The case was ultimately settled in 2009,
although we believe investors in this space should be aware of such risks.
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Postsecondary Institutional Services Market

Postsecondary
institutional
services market:
7.1% CAGR
through 2018
This is a fairly broad category, ranging from marketing services providers to student services
providers to teacher development. Unfortunately, it was difficult to get a true gauge as to the
size of this market. According to Eduventures, an estimated $8.8 billion was to be spent in the
postsecondary institutional services market in 2010. We note this forecast was made in 2006
before the onset of the Great Recession, and thus, it may be somewhat misleading. Nevertheless,
based on this estimate and Eduventures forecasts, we project this spending will grow at an 7.1%
CAGR, reaching $17.6 billion in 2018. This is by far the fastest growing of the three other
services markets (see Exhibit 421).
Exhibit 421. Postsecondary Institutional Services Market (20062018E)

$18
Academic Services
Administrative Services
Revenues (Billions)
15
12
9
6
3
2006
2007
2008
2009
2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Source: BMO Capital Markets estimates and Eduventures.
Eduventures segments the postsecondary institutional services market into two groups:
The administrative services market comprises professional service firms that help
institutions address their non-instructional objectives in areas such as marketing, financial
aid, and IT support. According to Eduventures, an estimated $7.6 billion was spent on
postsecondary administrative services in 2010. Even though it is the larger of the two
markets, it is also the faster growing. Based on this estimate and Eduventures forecasts,
we project this spending will grow at a 7.4% CAGR, reaching $15.6 billion in 2018. As
we mentioned, this estimate is based on outdated data; others have pegged the lead
generation/marketing services component of this market as being closer to $1$1.5 billion.
The academic services market comprises professional service firms that help
institutions support teaching and learning objectives such as online educational and
facility recruitment services. According to Eduventures, roughly $1.2 billion was spent
on postsecondary academic services in 2010. Based on this estimate and Eduventures
forecasts, we project this spending will grow at a 4.6% CAGR, reaching roughly
$2 billion in 2018.
While definitions of the postsecondary institutional services market may vary, Education
Dynamics has defined the services underlying what it calls the education student lifecycle,
aimed at four different target markets (see Exhibit 422):
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Potential students and their parents (e.g., college planning, test preparation);
Current students (e.g., transferring to other schools);
Colleges and universities themselves (e.g., lead generation); and
Graduates and employers (e.g., career planning).
Other areas of
Exhibit 422. Postsecondary Student Lifecycle Services
outsourced
Student/Parents
EDUCATION LIFECYCLE SERVICES

College Transition
College/University
Graduate/Employers
postsecondary
College Planning
Information Portals
Career Planning
Test Prep
Transcript Exchange
Direct Marketing
Resume Services
services
Essay Services
Application Management
Lead Generation
Career Advising
Financial Aid
Lead Management
Job Placement
Scholarship Information
Agency Services
Internships
Recruitment Services
Loan Servicing
Enrollment Management
Continuing Education
Call Centers
Alumni Development
List Procurement
CRM/ERP
Retention Services
Financial Aid Management
Payment Processing
Source: Education Dynamics.
Enrollment
management/
outsourced lead
generation
For-profit schools
led the way
Some lifecycle services functions are covered in other sections of this report (test preparation in
the K-12 section), and others, we believe, are beyond the scope of this report. One area that has
attracted much investor attention is student enrollment management, which incorporates a
number of lifecycle services to the colleges and universities themselves. Many schools
outsource all or portions of their marketing function to companies that help generate new
students. These companies provide students with the tools to conduct searches for programs and
provide postsecondary institutions with an organized and specialized way to build and process
leads. While it was difficult to obtain estimates for the size of the enrollment management
market, we believe it is one of the larger components within the postsecondary administrative
services market (estimated $7.6 billion in 2010). Companies that provide enrollment
management services include specialists, such as Education Dynamics GoalQuest, Hobsons,
Intelliworks, and Noel-Levitz, along with a number of information technology providers (e.g.,
Ellucian, formerly Datatel and SunGard).
Although not-for-profit schools have not marketed to potential students in the traditional sense,
we believe the environment has changed, as they have seen their for-profit competitors quickly
gain share, often as a result of marketing practices typically foreign to this sector. While forprofit schools had long advertised via traditional media (e.g., television, newspapers, billboards),
it is now fairly commonplace to see not-for-profit schools advertise there as well (take a look
next time youre in an airport). In addition, for-profit providers were quick to embrace the online
advertising model not only more quickly than their not-for-profit peers, but also more quickly
than many other industries.
Although the market still appears to be evolving, there are currently three types of sources of
online enrollment leads:
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The schools own websites, which may be self-managed or managed by an outside firm
to help process leads.
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Online education directories (OED) manned by such companies as ClassesUSA.com and

eLearners.com, among others. The core function of OEDs is to funnel traffic from a
variety of sources to a directory that provides information on online programs and serves
as a means for institutions to obtain contact information. Institutions typically pay a fee
for each prospective student that OEDs direct to them.
Affiliated networks of smaller providers, managed by larger firms such as CUnet,

Datamark, PlattForm Advertising, and QuinStreet (QNST), among others.
In addition, companies such as Datamark and PlattForm not only help colleges obtain
enrollment leads, but more important, help shape a schools overall marketing strategy and
provide assistance in other areas such as media placement and admissions support.
In our discussion of sales and marketing trends, we showed how the for-profit schools generate
the bulk of their enrollment leads via online sources. While we do not expect the not-for-profit
sector to exactly follow suit, we do believe they will increase their focus on online lead
generation. Given the sheer size of the not-for-profit sector (over 19 million students in fall
2011, or nearly 91% of total postsecondary enrollment), even if only a small portion of these
schools move more of their lead generation online, this should portend continued strong growth
for this sector.
Initially, there were some fears that, under proposed change to incentive compensation as part of
the Negotiated Rulemaking (Neg Reg) process, the ED would disallow payments to thirdparty advertising and marketing vendors that assist in the enrollment process. However, we the
final regulations allowed for such pay-per-click relationships, but disallowed pay-per-start
relationships including direct recruitment of students or financial aid assistance. Other
enrollment management areas, such as setting appointments for prospective students and hot
transfers (forwarding leads to enrollment advisors) may still be a grey area, according to some
we have spoken with on this matter.
Outsourcing of
course instruction
Growth of
student-services
providers
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Another recent trend is the outsourcing of actual course instruction and other related services. In
these arrangements colleges partner with educational services providers that can provide online
instruction or tutoring and grading services. For most colleges, such relationships have emerged
out of financial necessity, as they can often charge higher tuition for online courses and make
larger profits. For example, in the 2011-2012 school year, both Florida Atlantic University and
Missouri State University (MSU) began to offer online journalism courses taught by the
nonprofit Poynter Institute, a journalism training group. In MSUs case, while the class costs the
university $6,500 (above the standard $2,400 it would pay to a per-course instructor), it charges
$275 per credit hour as opposed to $194 for the course. While these partnerships have not come
without pushback from faculty groups citing lack of quality control, we believe the difficult
funding environment may push the tide in favor of more outsourcing in the near term.
Another growing market for institutional services includes outsourcing student services. These
third-party providers offer a myriad of services such as financial counseling, career advising,
student progress and time management, student orientation and other services that essentially
enable schools to leverage resources when budget constraints or lack of knowledge prohibit
them from offering such services themselves. We believe these may represent opportunities for
for-profit postsecondary providers with online experience to help their not-for-profit
counterparts.
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While the industry originally emerged in the 1990s as colleges experimented with outsourcing
certain functions, similar to using business process outsourcing (BPO), schools have generally
been wary of giving up too much anonymity and essentially watering down their own academic
mission. Nevertheless, considering the current state of dwindling college budgets, we suspect
traditional schools may be giving the industry a second look. Additionally, as regulatory
scrutiny intensifies on for-profit providers, we believe demand for services that improve student
retention and provide financial counseling and career placement will likely increase. One such
firm, EducationDynamics, launched its EarlyIQ program in 2012 as a way to track student
progress and results and to function as an early warning system for students that may be falling
behind. We expect that the use of similar products will continue to grow, provided they help
schools improve outcomes.
While there is little data available on the size of this market we were able to obtain some data
about InsideTrack, which has served more than 500,000 students over its history, now averaging
about 20,000 students per month and costing roughly $1,000 per student.
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Corporate Training: Moving to Software

Driven Model
In recent years, corporate training has evolved from a standalone business function into a
much more integrated part of a companys overall talent management process. While the key
facets of the learning function (i.e., the transfer of knowledge and skills to employees, customers, and partners to retain employees and to improve speed and proficiency) remain, modern technologies continue to alter the way training is delivered and processed by organizations
as online, asynchronous, and mobile delivery methodologies gain more traction.
We believe emerging companies in this space in recent years have been less focused on training content, and more on delivery and assessment features driven by new technologies and
talent management capabilities. In our view, such training management features provide a
greater degree of measurable ROI, as they provide Chief Learning Officers (CLOs) with hard
data that can be evaluated against performance benchmarks. Nevertheless, while technologyenabled and blended learning continue to gain traction, instructor-led learning remains the
dominant delivery model.
There are few pure-play investment opportunities in corporate learning as most training is
provided in house, by smaller companies or by larger companies that provide training as a
smaller part of the core business. Some publicly held companies that focus on corporate training services include Franklin Covey (FC), GP Strategies (GPX), Learning Tree (LTRE), and
SmartPros (SPRO). Additionally, while several IT-services and software firms provide learning management tools and solutions, some pure-play investment opportunities include Cornerstone OnDemand (CSOD), and Saba (SABA).
While we would expect this industry to outperform in times of robust hiring and economic
growth, we believe it has benefitted in recent years from secular tailwinds driving corporate
spending on technology-based learning products, and, to some extent, health care and financial regulatory changes.
Market Overview
For many companies, employee development and training is a core strategic investment.
While informal learning, or on-the-job training, is likely the largest source of learning for
most employees, many organizations have designated CLOs responsible for developing structured employee education programs.
While the size of the corporate training market depends on the terms one uses to define it,
most measures show the industry has been relatively volatile in recent years.
US training
market may be as
large as $156
billion
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According to the American Society for Training and Developments (ASTD) 2012 State
of the Industry Report, US firms spent $156 billion on employee learning and development in 2011 (latest data available). This spending was split between internal spending
(56%, or $87 billion), tuition reimbursement (14%, or $22 billion), and external services
(30%, or $47 billion). Total spending was down about 10% from $172 billion in 2010.
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Outsourced
training spending
down in 2012,
though we expect
future growth
Research by Training magazine, which excludes governmental spending, estimates that

US corporations spent roughly $55.8 billion on training in 2012, down 6.5% from $59.7
billion in 2011.
Spending on corporate training appears to follow cyclical patterns, but has been relatively volatile in recent years. Excluding internal training expenditures, outsourced corporate training
services were roughly $7.5 billion in 2012, down from $9.1 billion in 2011 though up slightly
from $6.9 billion in 2010. We estimate the sector returned to growth in 2013 and forecast revenues to increase at a 3.8% CAGR, reaching $9.4 billion in 2018 (see Exhibit 423).
Total Training Expenditures
$20
Spent on Outside Products and Services
65
15
55
10
45
35
Spent on Outside Products and

Services ($ in bil.)
$75
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
18
E
Total Training Expenditures ($ in

bil.)
Exhibit 423. Total US Corporate Training Expenditures (19992018E)
Note: Shaded area represents recessionary period. Source: Training Magazine and BMO Capital Markets
estimates.
Human resource
departments tend
to control
corporate training
spending
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Corporate training programs (sometimes called learning and development or L&D) often reside within a firms HR department, which is responsible for many employee-management
functions. As shown in Exhibit 424, HR budgets must be spread across the entire HR lifecycle, with learning and development just one piece of the cycle. As such, we believe this
adds a degree of funding risk to this segment as L&D programs may at times be viewed as a
less essential element of the HR cycle.
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Exhibit 424. Human Resources Management Life Cycle
Learning and
development
services
Recruiting
services
Performance
and
succession
mgmt.
Staffing and
contingent
labor
Human Resources
Management Life Cycle
Wealth benefit
services
Employee
records mgmt.
Health benefit
services
Payroll
services
Source: IDC and BMO Capital Markets.
Sector recovering
from impact of
Great Recession
As shown in Exhibit 425, total training budgets appear to have been increasing in recent years
with fewer firms decreasing budgets and more firms increasing them. We believe the sector is
recovering from the impact of the Great Recession.
Exhibit 425. Change in US Corporate Training Budgets (20092012)

50%
2009
2010
2011
2012
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Increased
Decreased
Constant
Source: Training Magazine and BMO Capital Markets estimates.
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Use of external
While we lack current data on spending on training outsourcing, data through 2009 shows this
is influenced to some degree by economic cycles (see Exhibit 426). We believe use of outsourcing has likely increased since 2009 but it may still remain below prior peak levels.
providers drops
during economic
downturns
Exhibit 426. Use of External Providers to Support Training

Functions (2005-2009)
68%
70%
62%
58%
% using external provider
60%
55%
50%
45%
40%
30%
20%
10%
0%
2005
2005
2007
2008
2009
Note: Shaded area represents recessionary period. Source: IDC and CLO Magazine Training Service Provider Survey.
Average spending
per employee; hit
all-time high as %
of payroll
Exhibit 427 shows average training expenditure per employee. While this came under some
pressure during the Great Recession, it has generally trended up since. In the last two years,
expenditures as a percentage of payroll have also been trending up, reaching 3.2% in 2011
an all-time survey high. Training expenditures per employee by industry ranged from a high
of $1,400 in technology/telecom to a low of $650 in manufacturing.
Exhibit 427. US Corporate Training Expenditures per Employee

(2001-2011)
Training expenditure per employee
Percentage of payroll
4%
1,200
3%
1,000
800
2%
600
400
% of Payroll
Training Exp. per Empl.
$1,400
1%
200
0
0%
2001
2002
2003
2004
2006
2007
2008
2009
2010
2011
Note: Shaded area represents US recession. 2005 data not available. Source: BMO Capital Markets and
American Society for Training and Development (ASTD).
Large companies
spend the least
per employee
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According to Training magazine, average training expenditures per learner increased to

$1,059 in 2012 after falling to $749 in 2011 and is reaching levels seen in prior years (see Exhibit 428). As shown, there was much variability across company size, with small companies
spending the most, while large companies spent the least, likely owing to scale advantages at
larger companies.
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Exhibit 428. US Corporate Training Expenditures per Employee

(2007 - 2012)
2007
$1,600
2008
2009
2010
2011
2012
1,400
1,200
1,000
800
600
400
200
0
All Companies
Small (100-999
employees)
Midsize (1,000-9,999
employees)
Large (10,000+
employees)
Source: BMO Capital Markets, Training Magazine and Bersin and Associates.
Content Delivery Channel

Corporate learning is delivered to the end user through three primary methods: 1) traditional
instructor-led (i.e., classroom), 2) online and internet (e.g., CD-ROM, distance learning or social media), and 3) a blended format of traditional and online learning. While the largest single method of corporate training remains classroom-based instructor-led training (ILT), online
and blended methods have made substantial inroads in recent years.
According to Training magazine, ILT represented 45% of the corporate training market in
2012 - up slightly from its 42% share in 2011 - while the remainder consisted of blended and
other online/distance methods (see Exhibit 429). Both blended learning and online/computerbased learning increased slightly in 2012 over 2011, while social and mobile learning share
was roughly flat at 1%. While we expect ILT to continue to dominate, we expect technologyenabled offerings to continue to take share.
Traditional
instructor-led
learning is still the
most popular
Exhibit 429. Corporate Training Methods as % of Total Training Hours (2001-2012)

Instructor Led (Classroom)
By Computer (No Instructor)
Instructor Led (Distance Learning)

Other
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
Social Networking/Mobile
Virtual Classrooms
Online/Computer-based
Blended Learning
Instructor Led (Classroom)
0%
0%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009*
2010
2011
2012
Source: Training magazine. (*) Indicates new measurement methodology.
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Corporate Training
Delivery
modalities offer
different benefits
BMO Capital Markets
The costs and benefits of delivery methods vary. While ILT allows licensing content more
cheaply, it requires greater real estate and staffing costs (e.g., instructors/travel/office space)
versus technology-based providers. However, ILT tends toward better retention of training
material. Online models, on the other hand, may require higher investments in fixed costs up
front, but are more scalable in the long run and easier to update and refresh. Additionally, we
believe online models are becoming more effective training tool as technology improves. For
providers of content, ILT is generally a much lower-margin enterprise owing to lack of scaling abilities.
According to various surveys, certain skills are more easily learned in online formats while
others do better in a classroom environment. Research by Training magazine found that corporations were more likely to use online content for hard skills, such as compliance or IT
systems, as opposed to soft skills such as sales training, and executive development (see
Exhibit 430).
Exhibit 430. Online Training Modality as % of Total (2009 - 2012)

2009
2010
2011
2012
Sales
Exec. Development
Customer Service
Interpersonal Skills
Management/Supervisory
Soft Skills
Industry-Specific
Desktop App.Training
Hard Skills
IT/Systems Training
Compliance
0%
10%
20%
30%
40%
50%
60%
70%
80%
Online Training Percentage
Source: Training magazine.
HR management
software drives
use of online
content
Tech-based
learning viewed
We believe the growing use of SaaS-based HR-management software from providers such as
Cornerstone on Demand (CSOD) and Workday (WDAY) may also be helping to drive digital
learning. This software makes it much easier for firms to integrate learning content into their
existing ERPs, and enables better data capture and performance tracking.
As can be seen in Exhibit 431, the results of a 2010 Novations Group survey (latest available),
many of the reasons firms chose digital learning methods over traditional classroom-based
learning stem from cost and time considerations.
as cost saver
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Exhibit 431. Top Drivers of Shift to Tech-Based Learning (2010)

General budget constraints
66%
Time constraints
66%
Effort to reduce travel costs
64%
46%
Reduce cost-per-employee
Ease of use
43%
Other
10%
Comparable ROI
10%
Preference among users
8%
0%
10%
20%
30%
40%
50%
60%
70%
Source: Novations Group.
Mobile learning
gaining use
CLOs want to
match content to
best learning style
Other computer-based learning modalities, such as mobile technologies, video, and text are
also growing in popularity. According to IDCs April 2013 Delivery Modality survey, the
share of businesses that used other forms of learning (which includes mobile learning) grew
to 21.4% in 2013 from 11.4% in 2010.
In recent years, CLOs have cited a lack of available online content as preventing greater use
of digital learning. However, as content forms have evolved, we believe modality decisions
are increasingly based on the content being learned and not necessarily the available modality of that content. As shown above, some skills training more easily lends itself to online
asynchronous methods, while other skills remain better suited to the classroom environment.
As this industry evolves, we believe matching the content to the appropriate learning style
will be the key determinant of modality.
Technology and e-Learning Overview

Modern elearning
providers have
stronger value
proposition
e-Learning
market: projected
6% CAGR through
2018
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While early investments in e-learning resulted in rather poor ROI and led to a pullback in the
sector, we believe modern e-learning services have a much stronger value proposition than
did their predecessors. Todays e-learning providers utilize SaaS-based technologies to lower
the cost of implementation, improve scaling abilities, and provide services that are constantly
updated and accessible anytime anywhere. These technologies also enable access to much
more content and allow users to customize learning modules or develop proprietary learning
tools for specific business purposes. Additionally, modern e-learning has become easier to integrate within existing talent management platforms, allowing easier performance tracking
and data capture throughout the employee lifecycle.
According to IDC, the US corporate e-learning market is expected to generate roughly $14.1
billion in 2013 revenues, growing at a 12.4% CAGR from $3.5 billion in 2001. Based on IDC
estimates, we forecast growth of roughly 6% through 2018, with revenues growing to $18.9
billion (see Exhibit 432).
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Exhibit 432. Corporate e-Learning Revenues (2001-2018E)

Corporate e-Learning
30%
Spending ($ bln.)
y/y % change
25%
15
20%
15%
10
10%
5
y/y % change
$20
5%
0%
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
18
E
Note: Shaded area represents recessionary period. Source: BMO Capital Markets and IDC.
Long-term trend
of more
technology-based
learning hours
According to ASTDs 2011 State of the Industry Report, technology-based learning has
gained share in recent years, reaching 37% of learning hours in 2011, up from 11% in 2001
(see Exhibit 433). While this shift has been volatile in recent years, we believe it will continue
over time.
Exhibit 433. Average % of Learning Hours by Delivery Channel

(1999-2011)
Instructor-led classroom
80%
Technology-based
% of learning hours
70%
60%
50%
40%
30%
20%
10%
0%
2001
2002
2003
2004
2006
2007
2008
2009
2010
2011
Note: Survey data not available for 2005. Source: ASTDs 2009 State of the Industry Report and BMO
Capital Markets.
In its 2012 annual report, Training magazine surveyed firms as to which learning technologies they
used (see Exhibit 434). We note the widespread use of learning management systems (LMS) as
these are typically the technological platforms through which eLearning is administered.
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Exhibit 434. Learning Technologies Used (2012)

Use
Learning Management System
Do Not Use
Not Sure
Learning Content Management System (LCMS)
11%
67%
22%
Virtual Classroom/Webcasting/Video Broadcasting
28%
70%
Application Simulation Tool
38%
56%
Rapid E-Learning Tool (PowerPoint)
0%
9%
74%
17%
Podcasting
20%
40%
6%
14%
63%
23%
2%
5%
52%
43%
Online Performance Support/Knowledge Management System
3%
24%
73%
60%
80%
100%
Source: Trainingmag.com and BMO Capital Markets.
Some emerging areas of online learning include:
Virtual Instructor-Led Training (VILT). VILT consists of live or synchronous training in
which instructors deliver courses through web, video, and/or teleconferencing to remote
attendees. Some examples include Ciscos (CSCO) WebEx and Microsoft (MSFT) Live
Meeting. VILT courses are commonly blended with self-study e-learning, instructor-led
training or other print materials. Advantages include scale and cost-savings owing to decreased travel needs.
Mobility. While most used for informal content, we believe mobile learning is especially
popular to organizations whose employees are frequently on the road, or in less developed countries with a lower level of telecommunications infrastructure.
Social networking. While corporations have made efforts to create proprietary social net-
works, wikis, and blogs, we believe future social-learning activities will more likely take
place over existing social networks such as Facebook (FB) and LinkedIn (LNKD) as organizations learn to leverage these freely available tools.
Gaming. Gaming can be used to model complex organizational and market systems in a
way that imparts strategic knowledge to employees. According to CLO magazine, simulation-based learning experiences (think air-traffic controllers) can help trainees master
new subjects up to 40%-70% faster and can reduce the time needed for new employees to
reach a level of competent performance by 80%.
MOOCs. Massively Online Open Courses have been expanding at a tremendous rate in
recent years as more colleges, universities, and other educators develop easy-to-use free
online courses that cover just about any subject.
Self-published content. According to Bersin, about 70% of all corporate learning takes
place through on-the-job experiences. While blogs (self-published webpages) and wikis
(self-published webpages that allow anyone to edit them) first gained acceptance outside
the corporate environment, they have become more mainstream in many corporations,
with some e-learning services companies offering products to help companies author
their own learning content.
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Tin Can API. Tin Can is a new specification for learning technology that makes it possible
to collect data about the wide range of experiences and learning users have (offline and
online) in a format that is sharable, quantifiable, and trackable.
According to IDC, the e-learning market can be segmented into three categories: content, infrastructure, and services. While we note there is much overlap across these service lines, we have
outlined them below.
e-Learning Content
Corporate e-learning content companies create, package, and deliver their own content libraries to clients. Typically, the content is delivered in the form of a course that covers a variety
of subjects, ranging from information technology to business skills to project management.
This content can be off the shelf or customized for/by the end user. The e-learning content
segment is the largest of the three e-learning segments.
Content market
has become
commoditized
e-Learning
content market
could grow at an
8.3% CAGR to
$12.6 billion in
2018
When the downturn in corporate spending began in the early 2000s, custom projects were
viewed as more costly owing to their specialized content, paving the way for growth in offthe-shelf content. As efforts to integrate these products with existing networks also proved
costly, vendors changed their product offerings to require little or no customization, essentially commoditizing content and driving significant price competition and corporate discounts. While we believe content markets remain highly commoditized, content authoring
tools have come a long way, allowing companies to create customized content at much lower
cost compared with 10 years ago.
From 2001 through 2013 (estimated), the e-learning content market increased at a 12.4%
CAGR to $8.5 billion from $2.1 billion, with much of that growth coming from 2004 through
2007, where annual growth rates were in the 20+% range. Using IDC data, we forecast that
growth will slow a bit from recent levels, but nevertheless be robust, with the corporate elearning content market increasing at roughly an 8.3% CAGR to $12.6 billion in 2018 (see
Exhibit 435).
Exhibit 435. Corporate e-Learning Content Revenue (2001-2018E)

$15
IT skills
Non-IT (business) skills
30%
y/y % change
20%
10
15%
10%
5
y/y % change
25%
5%
0%
-5%
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
18
E
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Corporate Training
e-Learning more
common modality
for IT skills
BMO Capital Markets
We have seen several examples of organizations preferring e-learning modalities for hard
skills, which are easily adapted to computer-based environments and can generally be learned
asynchronously. We believe IT-related training is a prime example of where digital learning
thrives. Some factors that determine the quality of e-learning providers include:
A large content library. Large content libraries that are configurable to specific business
purposes and to various stages of the employee life cycle.
Assessment capabilities. Easy performance tracking and analytical capabilities.
Easy to use interface. An intuitive interface that can be personalized and configured to
various employee levels and business processes.
Low-ticket items. Can help cash flow (e.g., when SkillSoft was public, its average an-
nual contract was in the low-$100,000 range). By contrast, we believe some of the customized content companies, whose offerings were at one time priced in the seven figures,
have seen sales deferred more often.
SaaS delivery. Cloud-based models are generally lower cost and easier to implement,
update and configure, while allowing for more scaling opportunities and self-paced learning courses accessible anytime anywhere.
Strong third-party resellers. In tough times, resellers may provide a solid supplemental
revenue stream and may be particularly helpful in overseas expansion (where products
are typically localized to the target countrys language), where it may not be practical to
maintain a direct sales force. However, in certain cases, we have seen some weakness in
third-party sales as companies concentrate on selling their own products before reselling
those of other providers.
Conformance to standards. Although there is still more than one standard to conform
to (e.g., SCORM), we believe most companies do not wish to be locked into using products that lack the capacity to be interoperable with others. Recently, the Tin Can API
standard has been gaining acceptance among LMS creators.
The e-learning content segment is very fragmented, and includes a wide variety of companies,
ranging from consulting firms to pure-play publishers. Exhibit 436 lists Trainingindustry.coms top 20 training content development companies.
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Exhibit 436. Top Training Content Companies (2013)

Company
Accenture
Allen Communication Learning Services
Allen Interactions
Aptara
Cegos
Cognizant Technology Solutions
DuPont Sustainable Solutions
Forum
GP Strategies
IBM
Infopro
Intrepid Learning
Kineo
NIIT
Pearson Learning Solutions
Raytheon Professional Services
Skillsoft
Tata Interactive Systems
Vangent
Xerox
Ticker
ACN
Private
Private
Private
Private
CTSH
Private
Private
GPX
IBM
Private
Private
Private
NIITLTD
PSO
RTN
Private
Private
Private
XRX
Headquarters
New York, NY
Salt Lake City, UT
Mendota Heights, MN
Falls Church, VA
France
Teaneck, NJ
Virginia Beach, VA
Boston, MA
Elkridge, MD
Armonk, NY
Plainsboro, NJ
Seattle, WA
Chicago, IL
Gurgaon, IN
Boston, MA
Garland, TX
Nashua, NH
India
Chicago, IL
Irving, TX
Note: Listed in alphabetical order. Source: TrainingIndustry.com.
e-Learning Services
This segment refers to the services that assist companies in developing, designing, integrating, and
supporting their training goals and managing the outcomes. This is the second-largest component
in e-learning after content. The e-learning service providers range from global consulting and technology firms such as Accenture (ACN) and IBM (IBM), to specialized learning development
software companies such as Cornerstone OnDemand (CSOD), Saba (SABA) and smaller firms
such as Bersin & Associates (acquired by Deloitte in January 2013).
The solutions within this segment tend to fall in two categories: business services and technical services.
Business services help firms determine their education needs, how best to accomplish
them and how to develop content suitable to specific learning goals.
Technical services helps firms determine what kind of software to purchase to meet
learning goals, how to integrate content from multiple providers, how to ensure functionality and whether to outsource these.
e-Learning
services sector:
projected to be
relatively flat
through 2018
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According to IDC estimates, the corporate e-learning services segment grew at a 17.4% CAGR
before peaking at $4.2 billion in 2010 from $985 million in 2001. However, much of this growth
came in 2003 through 2007 when this market was still in its infancy. Revenues have shrunk
slightly since that time to just under $4 billion in 2013 - owing to a decline in technical services. IDC projects that the rate of decline should get less worse in coming years. Based on
IDC forecasts, we project e-learning services revenues will grow at an 0.4% CAGR to just over
$4 billion in 2018 (see Exhibit 437).
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Exhibit 437. Corporate e-Learning Services Revenue (2001-2018E)

e-Learning Services
35%
y/y % change
30%
4
25%
20%
15%
2
10%
5%
y/y % change
Revenues($in bil.)
$5
0%
20
12
20
13
E
20
14
E
20
15
E
20
16
E
20
17
E
20
18
E
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
-5%
20
02
20
01
e-Learning Infrastructure Solutions

Building an e-learning system from scratch typically requires infrastructure and service that
turns information into lesson plans and learning modules, delivers it to the user, reports on
user performance, and evaluates the success of the course. We have defined e-learning infrastructure to exclude hardware, routers, and other network infrastructure equipment involved in
delivering the modules to the user. This is the smallest of the three components within elearning, following content and services.
War for content
now a war for
services
e-Learning
infrastructure:
projected 5.7%
CAGR through
While e-learning content remains highly commoditized, we believe the infrastructure market
has evolved considerably as SaaS-based or cloud delivery models take hold. This technology
allows simple low-cost installation, real-time updates, easy access to existing online content,
mobility and enhanced analytical capabilities. We believe the war for content has given way
to the war for services as companies compete to offer the best learning delivery platforms that
contain multiple features and are easy to integrate with existing platforms.
According to IDC, the e-learning infrastructure solutions market grew at roughly a 12.4%
CAGR to an estimated $1.7 billion in 2013 from $910 million in 2006. Based on IDC's forecasts, which show growth slowing a bit, we estimate spending in this category should increase
roughly 5.7% annually (CAGR), reaching to $2.3 billion by 2018 (see Exhibit 438).
2018
Exhibit 438. e-Learning Infrastructure Solutions Revenue (20062018E)

Management systems
Communication systems
y/y % change
50%
Authoring systems
Other
2.0
40%
1.5
30%
1.0
20%
0.5
10%
0.0
y/y % change
$2.5
0%
2006
2007
2008
2009
2010
2011
2012 2013E 2014E 2015E 2016E 2017E 2018E
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The e-learning infrastructure segment can be broken into four sub-segments:
Management systems
Authoring systems
Other e-learning infrastructure
LMS integrates e-
Management systems (e.g., LMS). This category includes learning management systems
learning content
(LMS), which refers to the software that integrates and assembles content from various elearning publishers, administers, tracks, and reports on lessons (online or classroom based),
and provides tracking and assessment. Additionally, LMS provide data about training activities and enables companies to correlate training outcomes with performance.
A 2009 study (latest available) by Bersin found that more than 80% of large enterprises have
some LMS in place, while only 36% of small businesses are using an LMS. While we expect
these penetration rates may currently be higher, we believe small businesses are still relatively
underpenetrated. Traditionally, LMS was a costly investment for organizations. However, we
believe the proliferation of low-cost and free SaaS-based LMS in recent years has likely
driven more LMS adoption among smaller companies.
Available pricing data shows costs for these systems are widely varied, but are generally priced for
volume and contract length. Exhibit 439 contains average price data compiled by Brandon Hall research in 2009 (latest available) for both locally installed and vendor-hosted (SaaS) LMS systems.
While these prices serve as a good framework for LMS costs, we believe the evolution of SaaS
models in recent years has likely put downward pressure on prices.
Exhibit 439. Vendor Hosted (SaaS) and Local LMS Prices (2009)
SaaS
Size/Learners
500
10,000
25,000
100,000
1-year
Avg. Price Per Learner
$31,136
$62.27
129,286
12.93
232,898
9.32
570,625
5.71
3-year w/ maintenance
Avg. Price Per Lrn/Per yr
$68,977
$45.98
314,444
10.48
568,201
7.58
1,288,053
4.29
Local
Size/Learners
500
10,000
25,000
100,000
1-year
Avg. Price Per Learner
$31,221
$62.44
155,599
15.56
286,768
11.47
738,192
7.38
3-year w/ maintenance
Avg. Price Per Lrn/Per yr
$48,230
$32.15
260,568
8.69
486,076
6.48
1,204,941
4.02
Source: Brandon Hall Research and BMO Capital Markets.
Management
systems projected
to increase at a
5.7% CAGR
IDC estimates the e-learning management systems market (the bulk being LMS) is expected to
generate $948 million in revenues in 2013, after increasing at a 10.5% CAGR from $520 million
in 2006. Based on IDC forecasts, we project management systems revenues will grow roughly
5.7% annually to roughly $1.25 billion in 2018 (see Exhibit 440).
through 2018
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Exhibit 440. Management Systems Revenue (2006-2018E)

Management systems
25%
y/y % change
1.2
20%
0.9
15%
0.6
10%
0.3
5%
0.0
y/y % change
$1.5
0%
2006
2007
2008
2009
2010
2011
2012
2013E 2014E 2015E 2016E 2017E 2018E
Most LMS
systems are
currently
underutilized
Fragmented
Industry top six
providers have
50% market share
While most companies have incorporated some form of LMS, we believe they remain largely
underutilized. According to Online Learning magazine, despite the million-dollar price tags
associated with purchasing and customizing an LMS, less than 20% of any company's employees will actually use the system. Additionally, we have read numerous articles about
LMS systems over-promising on features that end up going unused. We believe this has fueled demand for LMS that are more feature-light, require less training, and are easily adaptable to the specific needs of its user.
We believe the LMS market is extremely fragmented, and includes established industry providers, new SaaS-based upstarts, and legacy homegrown systems. Trimeritu (www.trimeritus.com)
lists almost 400 different providers. In 2009 (latest data available), Bersin estimated the top six
providers constitute roughly 50% of the market. While there is little data regarding the size of
various companies in the space, we note Blackboard was generating close to half a billion dollars in annual revenues before the company went private in 2011. Smaller players such as Saba,
(SABA) generated about $117 million in FY2011 (FY2012 financials had not been filed at the
time of this publication).
According to Trimeritus, the largest corporate LMS providers are:
SumTotal (including GeoLearning)
Saba (SABA)
Meridian
Outstart (owned by Kenexa)
Plateau (owned by Success Factors, which is owned by SAP)
Learn.com (owned by Taleo, which is owned by Oracle)
While the largest education sector LMSs are:
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Blackboard
Desire2Learn
Moodle
Instructure Canvas
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Communication
Communication systems (i.e., live or virtual classrooms including VILT). These are appli-
systems market
cations enabling group interaction over the internet using collaboration software to host online
meetings, webcasts, or other types of simulations with audio and video capabilities. These
products can be a cost-effective alternative for companies wishing to reach a broader audience
and reduce travel costs while providing a learning platform that can be integrated with an existing LMS. According to IDC estimates, the communications systems sub-segment is expected
to generate an estimated $367 million in revenues in 2013 and, based on those estimates and
IDC forecasts, we project growth of 5.7% annually to $485 million by 2018 (see Exhibit 441).
projected 5.7%
CAGR through
2018
Exhibit 441. Communication Systems Revenue (2006-2018E)

$0.5
20%
0.4
15%
0.3
10%
0.2
5%
0.1
0.0
0%
2006
2007
2008
2009
2010
2011
2012
2013E 2014E 2015E 2016E 2017E 2018E
Most collaboration products provide similar functionality, including application and file sharing, private- and public-chat features, Q&A sessions, whiteboarding, audio, and video. While
this technology has become wide-spread with increasingly less differentiation, we believe
product differentiation is more noticeable at the level of compatibility with existing platforms,
and that todays companies are focused on providing products with seamless integration.
Notable acquisitions in this space include Microsofts (MSFT) purchase of Placeware (April
2003; now renamed as Live Meeting) and its more recent purchase of Skype (May 2011),
Sabas (SABA) purchase of Centra Live (October 2005), Cisco Systems (CSCO) purchase of
WebEx (May 2007), and AT&Ts (T) purchase of Interwise (November 2007). A 2011 review in PCMag rated the top web conferencing software as follows:
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Adobe Connect ($55/month)
Cisco WebEx ($49/month)
Citrix GoToMeeting ($49/month)
Fuze Meeting Pro ($69/month)
Skype (free)
ooVoo Pro ($29/month)
iMeet ($69/month)
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y/y % change
y/y % change
Corporate Training
Authoring
systems market
projected 6%
CAGR through
2018
BMO Capital Markets
Authoring systems. Authoring systems refer to software to help create e-learning content by
allowing authors to add interactive content, videos, links, animations, response systems, and
other features to create seamless, easy-to-use online course experiences with minimal need to
write code. According to IDC estimates, the authoring systems sub-segment may be the fastest
growing within the e-learning infrastructure segment. This segment is expected to generate
roughly $275 million in revenues in 2013 and based on IDC estimates, we forecast it will grow
roughly 6% annually to $369 million by 2018. Top ranked authoring tool providers include
Courselab, ITYstudio, Allen Interactions (ZabraZapps), Articulate Storyline, and dominKnow
Claro.
"Other" e-learning infrastructure. This is a catchall of important add-on tools, such as the
following:
Learning content management (LCMS), which enables companies to create and deliver
customized and personalized learning modules. This was formerly a segment of LMS but
has since been broken out. The content development functions associated with LCMS are
more prevalent in the services segment of the business (see below).
Training analytics applications, which analyze and evaluate corporate-training per-
formance. It is a component of the overall workforce performance-management (WPM)

software space.
Competency management solutions (CMS), which can identify skill gaps in personnel
and intervene through training and simulations. This is similar to the above in that it is a
sub-segment of the workforce performance management segment.
Content Type
Managerial/
supervisory skills
are largest
content
As todays providers offer a broad range of products, this market is difficult to segment by
learning content. ASTD provides an annual update on content by learning area. As shown in
Exhibit 442, managerial and supervisory content had the largest number of content hours and
basic skills the lowest.
component
Exhibit 442. Corporate Training Hours By Content Type (2012)

14%
Avg. Percentage of Learning By Content Area
12%
10%
8%
6%
4%
2%
Other (quality, product
knowledge)
Basic skills
Customer service
Executive
development
New employee
orientation
Sales
IT and systems
Interpersonal skills
Mandatory/compliance
Processes,
procedures, business
practices
Profession/Industryspecific
Managerial/supervisory
0%
Source: BMO Capital Markets and ASTD.
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We have grouped training skills into two broad categories as follows:
Business skills training content: a wide range of general and industry-specific training
topics sector (i.e., managerial training, professional development, and other soft skills
delivered to managers and general employees).
IT skills training content: focused on subjects relating to information technology (i.e.,

more traditional rules-based training mainly delivered to technical staff).
Business Skills Training

Business skills
training
Recent surveys
indicate
continued
preference for
While we were not able to obtain current estimate for business skill training expenditures, historical IDC estimates put the industry at around $13 billion in 2007. We believe part of the difficulty in sizing this market stems from the difficulty in defining exactly what is included in
business skills training, given its broad definition. Nevertheless, we believe this market is
likely in the mid- to high-teens billions of dollars currently.
According to recent surveys, soft business leadership and administrative skills have grown
in importance in recent years, as these skills are viewed as more essential to a firms survival
during turbulent markets. In its 2012 Global Talent Management survey (latest available),
business skills topped the list of development priorities for the next year (see Exhibit 443).
business skills
training
Exhibit 443. Talent Development Priorities (2012)

Category
Leadership Development
Critical Skills for Managers
Coaching and Mentoring
Employee Learning and Development
Career Development and Planning
Team Effectiveness and Development
Onboarding/Induction
Global Cross-cultural Competency
Advancement of Women
Other
Type
Business skills
Business skills
Business skills
Business/IT skills
Business skills
Business skills
Business skills
Business skills
Business skills
Business skills
67%
48%
36%
34%
32%
29%
22%
19%
9%
5%
Source: Global Novations LLC and BMO Capital Markets.
We believe there are several drivers of basic business skills education:
Need to improve basic skill sets. We believe workforce readiness remains a critical is-
sue with employers, who often cite a lack of basic skills among employees who are new
to the workforce. In the Workforce Readiness Scorecard published as part of a 2006
study by the Conference Board (latest data available), HR executives said that a sizable
portion of new workforce entrants were deficient in many areas, including business skills
training such as communications, professionalism/work ethic, and critical thinking/problem solving.
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Developing leaders, succession planning, and talent management. As corporations

have shifted their emphasis to retaining, developing, and grooming new managers for future leadership positions, business skills training has grown in importance. As baby
boomers retire, we expect businesses to ramp up investments in grooming internal talent
to meet potential skills gaps. The Novations study found that 61% of firms rank developing the next generation of leaders among their top priorities. Additionally, the 2011 Ken
Blanchard Corporate Issues Survey (latest available) found that many corporations place
leadership development high on their training priority list (see Exhibit 444).
Exhibit 444. Top Management Issues (2003-2011)

Issue
Managing change
Creating engaged workforce
Developing potential leaders
Performance management
Aligning culture with strategy
Reducing costs
Selecting and retaining key talent
Customer loyalty
Succession planning
Communicating mission, vision, values
Increasing innovation
Employee flexibility/responsiveness
Managing a virtual workforce
Understanding generational influences
2003
N.A.
47%
74%
N.A.
N.A.
58%
55%
46%
48%
N.A.
32%
39%
N.A.
N.A.
2004
N.A.
48%
58%
N.A.
N.A.
49%
55%
45%
36%
N.A.
31%
44%
N.A.
N.A.
2005
N.A.
48%
58%
N.A.
N.A.
50%
53%
41%
34%
N.A.
32%
35%
N.A.
N.A.
2006
N.A.
53%
63%
N.A.
N.A.
45%
57%
41%
42%
N.A.
36%
39%
N.A.
N.A.
2007
N.A.
54%
64%
N.A.
N.A.
43%
62%
48%
38%
N.A.
25%
26%
N.A.
N.A.
2008
55%
58%
53%
N.A.
37%
38%
50%
38%
27%
39%
29%
22%
11%
11%
2009
59%
57%
50%
N.A.
33%
52%
39%
39%
26%
35%
31%
25%
14%
12%
2010
44%
50%
41%
48%
36%
43%
45%
37%
33%
31%
29%
27%
13%
8%
2011
53%
46%
44%
43%
41%
40%
37%
35%
35%
33%
33%
24%
17%
9%
Note: Highlighted areas are related to leadership training. Ranked by 2011 priorities. N.A. Not Available. Source:
The Ken Blanchard Companies and BMO Capital Markets.
Continuing education. This is not only necessary to obtain certain positions, but also to
remain in compliance with various regulations (i.e., finance professionals), or gain promotions (i.e., teaching). Among the publicly held providers, Healthstream (HSTM) is a
leading player with an online platform for providing training on medical products and
continuing education; DeVrys (DV) Becker Professional Review segment specializes in
training for professional licensing in accounting (CPA) and other areas.
Managing risk. Risk management will likely continue to be a strong area of continuing
education. This is most evident in the finance industry, but many other areas as well especially relating to various environmental compliance and health regulations. Examples
of companies that specialize in this area include Corpedia (purchased by NYSE Euronext
in June 2012), which provides off-the-shelf business management and compliance training via e-learning courses, as well as a number of companies that are part of Kaplan Professional, owned by The Washington Post (WPO).
Each year, Training Industry magazine publishes a list of their top 20 leadership training
companies. The 2013 list (see Exhibit 445) includes a number of not-for-profit postsecondary
providers (e.g., Cornell, Duke, Harvard) as well as corporations where training is not their
main focus.
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Exhibit 445. Top Leadership Training Companies (2013)

Company
AchieveGlobal (Informa)
American Management Association Intl.
BTS
Center for Creative Leadership
Dale Carnegie Training
Development Dimensions Intl.
Duke Corporate Education
eCornell
Forum Corporation
GP Strategies
Harvard Business Publishing
Hemsley Fraser (Demos Group)
Impact International
InsideOut Development
Interaction Associates
Ken Blanchard Companies
Linkage
Richardson
Skillsoft
Wilson Learning Corporation
Ticker
INF.L
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
ALDMO.PA
Private
Private
Private
Private
Private
Private
Private
Private
Headquarters
Tampa, FL
New York, NY
Stamford, CT
Greensboro, NC
Hauppague, NY
Bridgeville, PA
Durham, NC
Ithaca, NY
Boston, MA
Elkridge, MD
Boston, MA
London, UK
New York, NY
Salt Lake City, UT
Boston, MA
Phoenix, AZ
Burlington, MA
Philadelphia, PA
Nashua, NH
Edina, MN
Source: TrainingIndustry.com.
IT Skills Training
IT skills training:
4.7% CAGR to
over $13 billion in
2018
IT skills training is typically marketed to technical staff that develop, install, and/or use hardware, software, systems, and other internet functions. Per IDCs April 2013 forecast, the US
IT skills training market will generate roughly $10.6 billion in 2013, up roughly 4% from
2012. Using IDC forecasts, we expect this industry to grow at roughly 4.7% CAGR to $13.3
billion by 2018 (see Exhibit 446).
Exhibit 446. US IT Skills Training Spending (2000-2018E)

IT Skills Training Spending
10%
y/y % change
5%
12
0%
9
-5%
6
-10%
20
17
E
20
18
E
20
15
E
20
16
E
20
12
20
13
E
20
14
E
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
-15%
20
01
3
20
00
y/y % change
Spending ($ bln.)
$15
Note: Shaded area represents recessionary period. Source: BMO Capital Markets and IDC estimates.
IDC breaks down the IT skills training market into three segments: application development
and deployment, system infrastructure, and applications (see Exhibit 447).
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Exhibit 447. US IT Skills Training Spending by Primary Market

(2000-2018E)
Revenues ($bln)
$15
Application development and deployment
Applications
System infrastructure software
12
9
6
3
20
17
E
20
18
E
20
15
E
20
16
E
20
12
20
13
E
20
14
E
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
Note: Shaded area represents recessionary period. Source: BMO Capital Markets and IDC estimates.
Applications is
The applications development and deployment segment is the smallest at $2 billion in

training revenues in 2013, but is expected to grow the fastest at a roughly 7% CAG,
reaching $2.8 billion in 2018. This segment includes software products used for the development and deployment of applications. This segment is primarily being driven by
growth in structured data management software and data access, analysis, and delivery
tools.
The applications segment is the largest of the three at $6 billion in 2013, and is expected
to grow at a 5% CAGR to reach $7.6 billion in 2018. This segment includes training for
ERM, CRM, and collaborative applications, which continue to show strong growth.
The system infrastructure software segment generated $2.6 billion in training revenues in
2013, and is expected to be the slowest-growing segment, increasing at a 2.3% CAGR,
reaching $2.9 billion in 2018. This segment includes system software, virtualization
software, and system management software. Potential growth drivers include datacenter
management and disaster recovery solutions.
largest segment
Trends in Corporate Training

A number of trends have emerged within the corporate training sector in the past few years
trends we believe will continue for some time.
Outsourcing
Outsourcing all or parts of training functions. Outsourcing remains a significant part of
instruction,
training. In Training magazines annual Industry Report, 49% of firms said they outsourced
all or part of their instruction tasks in 2012 (see Exhibit 448). This rate has remained in the
50% range for the past several years. The survey also shows that the outsourcing of LMS hosting has been steadily rising, an indication of further use of SaaS LMS systems, we believe.
custom content
development, and
LMS hosting most
popular
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Exhibit 448. Component of Training Outsourced (2006-2012)

% of companies outsourcing function
60%
2006
2007
2008
2009
2010
2011
2012
50%
40%
30%
20%
10%
0%
Instruction
Custom content
LMS ops/
Hosting
Learner support
LMS
administration
Source: Training Magazine and BMO Capital Markets.
Additionally, the survey found that roughly 81% of firms expect to outsource the same
amount of learning related tasks in 2013, with about the same amount expecting to increase
outsourcing as decrease it.
Top reasons for
outsourcing are
for access to
A 2009 report by Chief Learning Officer magazine found the three top reasons given for outsourcing training were 1) to gain access to better training expertise, 2) to reduce costs, and 3)
provide flexible capacity in delivering training.
experts and to
reduce costs
A member of BMO
While we believe the positives outnumber the negatives of training outsourcing, we believe it
will take some time before entire learning functions are outsourced in the same manner as
other HR processes, such as payroll, and note that some firms will likely always have some
internally developed training that is proprietary and unique to that business (see Exhibit 449).
Financial Group
420
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Corporate Training
BMO Capital Markets
Exhibit 449. Pros and Cons of Outsourcing Training Function

Pros
Cons
Desire for standardization of training

practices
Internal opposition (i.e., current training

department may not wish to put itself out
of business)
Vendors benefit from attractive economies of scale not available to corporations
Current training may involve multiple

departments, making it difficult to truly
outsource
Ability to transfer fixed costs (e.g., staff, May be difficult to create performance
infrastructure) for corporations into vari- benchmarks for vendor
able costs for vendor
Training is not a core competency for
most companies
Current training may include proprietary

information that corporations may be
unwilling to outsource
Most companies lack expertise and/or

do not have access to state-of-the-art
procedures
Little industry success to date
Most companies are not as familiar with Greater risk of cost overruns
external vendors and their product offerings, leading to the need for third-party
assistance
Source: BMO Capital Markets and IDC.
A list of the top training outsourcing companies as ranked by TrainingOutsourcing.com can

be found in Exhibit 450.
Exhibit 450. Top Companies in the Training and Development

Outsourcing Industry (2013)
Company
Ticker
Headquarters
Accenture
ACS/Xerox
Aptara
CGS - Computer Generated Solutions
Cognizant
Expertus
GP Strategies
Hemsley Fraser
IBM
Infopro
Infosys
Intrepid Learning Solutions
KnowledgePool
Lionbridge
Logica
MicroTek
NIIT ltd./Element K
QA
Raytheon Professional Services
Skillsoft
Talent2
Tata Interactive
The Training Associates
ACN
XRX
Private
Private
CTSH
Private
GPX
Private
IBM
Private
INFY
Private
Private
Private
Private
Private
NIITLTD.NS
Private
RTN
Private
ASX:TWO
Private
Private
New York, NY
Irving, TX
Falls Church, VA
New York, NY
Teaneck, NJ
Santa Clara, CA
Elkridge, MD
London, UK
Armonk, NY
Plainsboro, NJ
Bangalore, India
Seattle, WA
Berkshire, UK
Waltham, MA
Reading, UK
Downers Grove, IL
Atlanta, GA & Rochester, NY
Slough, UK
Dallas, TX
Nashua, NH
Melbourne, Australia
Andheri East, Mumbai, India
Westboro, MA
Note: List is alphabetical. Source: TrainingIndustry.com and BMO Capital Markets.
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Indian e-learning
Offshore development of e-learning projects. We believe this trend coincides with the
offshoring
global off-shoring trends as firms seek greater cost savings. While little data is available,
some companies that provide offshoring assistance include SIFY Limited and Tata Interactive
Systems, both of which are India-based companies. ValueNotes research from 2009 (latest
available) placed the Indian e-learning offshoring industry at roughly $341 million in 2008,
and expected it to grow to $603 million in 2012.
industry
estimated at $600
million
Corporate tuition. According to ASTD, roughly 14.3% of corporate learning budgets were
spent on tuition reimbursements in 2011 (latest data available). This is up from 10.6% in 2006
(see Exhibit 451). A 2009 study by Bersin and Associates, found that 87% of organizations
offer employees a Tuition Assistance Program (TAP). Of organizations with more than
10,000 employees, 97% have a TAP, with 40% of these firms spending more than $10 million
annually on tuition assistance.
Exhibit 451. Tuition Reimbursement as % of Corporate Learning

Expenditures (2006-2011)
15%
14%
13%
12%
11%
10%
9%
8%
2006
2007
2008
2009
2010
2011
Source: ASTD and BMO Capital Markets.
Corporate
universities
evolving
Todays corporate
learning is very
targeted to
specific users
A member of BMO
The corporate university. While this term loosely refers to the in-house training and education arm of corporations, we believe the various forms in which todays corporate learning
takes place has made the phrase corporate university somewhat obsolete. While some of the
largest corporations, such as GE and IBM, continue to operate more traditional corporate universities, emerging corporate learning models include a mix of several learning modalities in
both formal and informal settings. GoogleEDU is one example of a company trying to find
new ways to suggest and recommend courses to employees based on performance reviews
and other data, rather than following a standard educational path. Additionally, many firms
offer tuition reimbursement for employees who take supplemental education courses relevant
to their job requirements.
In recent years, postsecondary institutions have more aggressively marketed corporate training capabilities. While this is more accepted in the diploma/certificate area (e.g., Universal
Technical Institute provides technician training programs for a number of original equipment
manufacturers, such as BMW and Toyota), it is becoming more popular for higher skilled positions as well. We believe schools pursue these relationships as a way to not only increases
funding sources (i.e., meet 90/10 requirements), but also to improves job placement services.
Financial Group
422
September 2013
Corporate Training
BMO Capital Markets
Additionally, policy makers hope such relationships can be better align training with local labor demands. In June 2011, President Obama created the Skills for Americas Future Program, which seeks to develop a nationally recognized credentialing system for manufacturing
skills designed by community colleges, industry groups, and businesses.
Some examples of hybrid postsecondary/corporate partnerships include the following:
Employees prefer
online option
Other
corporations
entering the fray
LMS provides
online portal to
content
In June 2010, American Public Educations (APEI) American Public University partnered with Walmart (WMT) to be the exclusive provider of higher education to Walmart
employees, who would receive a 15% tuition grant in conjunction with APEI-designed
courses and degree programs related directly to Walmarts various jobs. Additionally,
Walmart employees are eligible for college credit based on the work done while employed. Since then, APEI has added similar programs with other employers including
BAE Systems PLC (LSE: BA.LN), and Sun-Maid Growers of California.
Bridgepoint Education (BPI) announced two similar partnerships with Blockbuster in

April 2010 and Bright Horizons Family Solutions (BFAM) in July 2010.
A survey conducted among Walmart employees (prior to selecting an educational provider)

found that workers preferred an online educational option as opposed to having to attend
ground classes. We believe online models are more desirable among working students, offer
more scaling opportunities, and allow easier content updates.
In addition, we have seen companies not normally associated with training providing such
services for corporations, including ManpowerGroup (MAN), which uses training as a
method to recruit temporary employees. This training is provided free or at minimal cost (in
exchange for certain minimum hours worked), potentially increasing price competition.
Online content portals. We believe vendors are constantly balancing selling strategies between
focusing on one specific product versus selling a suite of products. While the single product approach may have been more successful in the past, we believe modern LMS and talent management systems have changed this paradigm somewhat, as they also function as gateways, or
online portals, that allow clients to select content from different providers. In the past, such systems were tough sells to HR workers given the level of IT know-how required to operate them.
However, todays SaaS models offer more intuitive and easy-to-use interfaces for both HR
workers and general employees. We believe this has increased course-bandwidth within firms as
they can more easily add new content or link to various content providers.
Industry defined
Large multi-service technology firms compete with smaller specialized companies. This
by large tech
industry is composed of both large global services firms such as Accenture (ACN) and IBM
(IBM), traditional pure-play publishing companies such as Pearson (PSO) and Skillsoft, and
small local or regional mom-and-pop providers. We believe this dynamic contributes to a
relatively frothy M&A environment and relatively competitive industry with many partnerships among providers. We believe smaller companies can benefit from partnerships with larger firms. For example, Saba (SABA) has an arrangement whereby its learning products are
for sale across Automatic Data Processings (ADP) client network.
firms and small

start-ups
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Some of the more notable transactions include:
May 2012: Pearson (PSO) acquired certification exam provider Certiport for $140 million.
February 2012: Oracle (ORCL) acquired talent management software provider Taleo for
$1.9 billion.
December 2011: SAP acquired employee management software provider SuccessFactors

for $3.4 billion.
July 2011: SumTotal Systems acquired workforce management software maker CyberShift and payroll services provider Accero. This followed the January 2011 acquisition of
GeoLearning, an LMS provider. These were the latest in a string of acquisitions for this
company since going private (in July 2009 for $160 million).
June 2011: SuccessFactors purchased Plateau Systems, a learning management system

(LMS) and Content-as-a-Service (CaaS) provider, for $290 million.
September 2010: Taleo (TLEO) purchased learning management solutions provider

Learn.com for $125 million.
In May 2010, a private equity group headed by Berkshire Partners LLC, Advent International Corporation and Bain Capital Partners, LLC completed the taking private transaction of SkillSoft for $1.2 billion.
In February 2010, Xerox (XRX) completed the acquisition of Affiliated Computer Services, a provider of BPO services, for $6.4 billion.
A list of recent mergers and acquisition activity in the corporate training sector can be found
in Exhibit 452.
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Exhibit 452. Corporate Training Recent Transactions (2007-2013)

($ in millions)
Annc.
Date
Aug-13
Jun-13
Jun-13
Jun-13
Jun-13
May-13
May-13
May-13
Apr-13
Apr-13
Jan-13
Jan-13
Nov-12
Nov-12
Nov-12
Sep-12
Sep-12
Sep-12
Aug-12
Jul-12
May-12
May-12
Jan-12
Nov-11
Oct-11
Oct-11
Jun-11
Jun-11
May-11
Apr-11
Apr-11
Mar-11
Mar-11
Nov-10
Sep-10
Aug-10
Jul-10
Jul-10
Jul-10
Jul-10
May-10
Apr-10
Apr-10
Mar-10
Mar-10
Feb-10
Feb-10
Jan-10
Jan-10
Dec-09
Dec-09
Nov-09
Nov-09
Nov-09
Oct-09
Sep-09
Sep-09
Jun-09
Jun-09
Jun-09
May-09
May-09
May-09
May-09
Apr-09
Apr-09
Apr-09
Apr-09
Mar-09
Dec-08
Dec-08
Dec-08
Dec-08
Dec-08
Nov-08
Nov-08
Nov-08
Oct-08
Aug-08
Aug-08
Jul-08
Nov-07
Aug-07
Jul-07
Jun-07
May-07
May-07
Jan-07
Target
Benchmark Learning
Lorien Engineering Solutions
KP2 GmbH, Kreuzer & Partners
Prospero Learning Solutions
LearnSomething, Inc.
WeSkill, LLC
Care2Learn
E-Learning Mind
Macromedia GmbH (80% stake)
Supply Chain Certification Services
7city
Spartan College of Aeronautics and Technology
Miller Heiman
Digital University
Efficient Learning Systems
ThirdForce Group (MindLeaders)
CompuTaught
QuickStart Intelligence Corp
Centum Learning
Impact Learning Systems
I DRIVE SAFELY
Certiport
Teaching Strategies, Inc
Global Knowledge
TQ Holdings
Structuralia
Jobpartners
ATC International
BARBRI
Education Services Group Holdings
RWD Technologies
Education Development International
CSI Global Education Inc
Learn.com
TekFocus
Tenguy World International
WSI International
Centre for High Performance Development
Everonn Education (26%)
Tactical Air Support
SEOTrainingWorkshops.com
Marton House
MeasureUp
AVIVA
SkillSoft
S&S Training Services
Sugar International
JHP Group
PerformTech
GeneEd
The Institute For Life Coach Training
Veterans Training Corporation (49%)
Helicentre Liverpool
Shipley Associates
POMI Consulting Services
GKI
Nexient Learning
Info2People
Aston Education
Americas Best Real Estate Education Corporation
Americas Best Distance Education
National Dental Network
Techniques.org
Listen Up Group
BPP Holdings
Virtual Heroes
SumTotal Systems
Corporate Dynamics
Enb Consulting
Fronter
JSL Communications
Alteon Training
Chamber Corporation
Connected Learning
Zenos
Care Resources
Wealth Advisor Institute
Edu-Performance
Interverbum Group
Credu (2%)
LaserGrade
Shared Insights
Thomson Prometric
Lominger
Mindleaders
Finsia Education
Advantage Performance & Real Learning
Acquiror
ITT Educational Services Inc.
GP Strategies
Miller Heiman
GP Strategies Corporation
Xerox Corporation
Sales Performance International, LLC
Relias Learning
Capas, Inc.
Galileo Global Education SARL
SAI Global Limited
Fitch Training
Sterling Partners
OnCourse
John Wiley & Sons
Skillsoft
OnCourse Learning (backed by The Riverside Co)
Corinthian Colleges
Everonn Education Limited
Miller Heiman
Compass Investment Partners
Pearson
Chicago Growth Partners
Brockway Moran and Partners
MidOcean Partners
Pearson
Kaplan
Taleo
DeVry
Leeds Equity
Benford Capital Partners
GP Strategies
Pearson
Moody's Analytics
Taleo
New Horizons Computer Learning Centers
Eyis
Pearson
Kenexa
SKIL Infrastructure
Tactical Air Defense Services
Allied Internet Solutions
General Physics
Certiport
ThreePro Group
Berkshire Partners, Advent International & Bain Capital
Woodspeen Training
Talent2 International
LDC
GP Strategies
Pharmaceutical Institute
LifeOptions Group
Private Investor
Private Investor
Private Investor
Posco Research Institute
Fast Lane Institute for Knowledge Transfer
Global Knowledge
Twice IT Training
SQLI
360Training
360Training
360Training
Regis Learning Solutions
SAI Global
Apollo Group
Applied Research Associates
Vista Equity
Retail Business Development
Moody's Analytics
Pearson
American Safety & Health Institute
Sichuan HAITE High-tech
New Mountain Partners
PEQ Consulting
Melorio
Res-Care
Advisors Forum
Parta Growth Capital
AAC Global, Sanoma
Korea Investment Trust Management
Psychological Services
Mzinga
Korn Ferry
ThirdForce
Kaplan
BTS Group
Note:
Transaction
Value
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
$24.0
NA
NA
NA
NA
NA
NA
$140.0
NA
NA
NA
NA
NA
$38.0
NA
NA
NA
$28.0
$166.2
$151.4
$125.0
NA
NA
$92.0
$4.2
$44.9
NA
NA
NA
NA
NA
$1,206.2
$1.2
$13.6
$90.5
$19.6
NA
NA
NA
NA
NA
NA
NA
NA
NA
$2.5
NA
NA
NA
NA
NA
$540.0
NA
$108.4
NA
NA
$23.8
NA
$17.6
NA
$1.6
$50.5
NA
NA
$1.3
NA
NA
NA
NA
$435.0
$24.0
$18.0
$29.7
$24.0
Mean
Median

Revenue
EBITDA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
3.4 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
0.4 x
3.5 x
NA
NA
NA
NA
1.5 x
NA
2.6 x
NA
NA
NA
NA
NA
3.8 x
1.5 x
1.0 x
1.3 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
2.0 x
NA
0.9 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
1.4 x
NA
1.0 x
NA
NA
1.9 x
1.5 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
10.2 x
NA
NA
NA
NA
NA
NA
8.0 x
NA
NA
NA
NA
NA
9.8 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
10.9 x
NA
36.7 x
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
8.2 x
NA
NA
14.0 x
10.0 x
NA Not Available. Source: BMO Capital Markets and company reports.
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Financial Group
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September 2013
Corporate Training
BMO Capital Markets
In addition, in March 2011, CornerstoneOnDemand (CSOD) completed a successful initial

public offering, selling $136.5 million in stock. This was the first IPO in the corporate training space in some time (though we note the transaction was not specifically marketed as
such).
We have provided some operating and valuation metrics for the publicly-held corporate training companies in Exhibit 453.
Exhibit 453. Trailing 12-Month Operating and Valuation Metrics: Selected Publicly Held
Corporate Training Companies
Corporate (traditional)
Rating
Price Target
Operating Performance
FY End
LTM Qtr. End
Revenue ($MM)
Gross Profit ($MM)
EBITDA ($MM)
EBIT ($MM)
Pretax Income ($MM)
Net Income ($MM)
Free Cash Flow ($MM)
Gross Margins (in %)
EBITDA (in %)
EBIT (in %)
Pretax Income (in %)
Net Income (in %)
Free Cash Flow Yield (in %)
ROIC: LTM
Valuation Metrics
FY End
LTM Qtr. End
Price (08/30/13)
Shares Outstanding (MM)
Market Cap ($MM)
Net Debt/(Cash) ($MM)
Enterprise Value ($MM)
CY EPS:
2012E
2013E
2014E
Two-Year CAGR
P/E:
2012E
2013E
2014E
EV/Rev. (LTM)
EV/EBITDA (LTM)
EV/EBIT (LTM)
EV/Free Cash Flow (LTM)
e-Learning
Franklin
GP Learning
Covey Strategies
Tree GROUP
GPX
LTRE MEDIAN
FC
Not
Not
Rated Not Rated
Rated
N.A.
N.A.
N.A.
8
06/13
$180.4
115.5
24.7
19.0
16.6
10.0
13.9
64.1%
13.7%
10.5%
9.2%
5.5%
5.4%
7.7%
12
06/13
$411.9
71.9
43.0
34.9
34.6
22.5
24.5
17.5%
10.4%
8.5%
8.4%
5.5%
5.1%
12.9%
9
06/13
$121.3
56.9
(2.4)
(5.8)
(10.3)
(11.4)
(13.7)
46.9%
-2.0%
-4.7%
-8.5%
-9.4%
-27.6%
-34.2%
8
06/13
$15.71
16.4
$256.9
20.7
$277.6
12
06/13
$25.24
19.1
$482.3
1.6
$483.8
$0.49
0.69
0.85
32.4%
32.4x
22.9
18.5
1.5
11.2
14.6
19.9
Healthstream Smartpros
HSTM
GROUP
PRO MEDIAN
Not Rated Not Rated

N.A.
N.A.
12
06/13
$115.8
61.1
20.7
13.7
14.5
8.2
19.5
52.8%
17.9%
11.8%
12.5%
7.0%
2.2%
5.9%
12
06/13
$131.8
92.1
8.7
5.3
5.3
5.1
15.7
69.9%
6.6%
4.0%
4.0%
3.9%
188.6%
5.5%
9
06/13
$3.76
13.2
$49.7
(27.1)
$22.6
12
06/13
$33.15
26.8
$889.0
(101.4)
$787.6
12
06/13
$1.78
4.7
$8.3
(88.2)
($79.9)
$1.18
1.19
1.50
12.9%
($1.13)
(0.28)
N/A
N.A.
22.6%
$0.28
0.34
0.46
28.7%
($0.40)
N/A
N/A
N.A.
28.7%
21.4x
21.2
16.8
1.2
11.3
13.9
19.7
N.M.
N.M.
N.A.
0.2x
N.M.
N.M.
N.M.
26.9x
22.1
17.7
1.2
11.2
14.2
19.8
119.3x
99.0
72.1
6.8
38.1
57.5
40.3
N.M.
N.A.
N.A.
N.M.
N.M.
N.M.
N.M.
119.3x
99.0
72.1
6.8
38.1
57.5
40.3
46.9%
10.4%
8.5%
8.4%
5.5%
5.1%
7.7%
61.3%
12.2%
7.9%
8.3%
5.5%
95.4%
5.7%
N.A. Not Available. N.M. Not Meaningful.

Note: Estimates for non-rated companies are from FactSet. Source: BMO Capital Markets and FactSet Research.
A member of BMO
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Other companies mentioned (priced as of the close on August 30, 2013):

Abril Educacao (ABRE11, $33.00: Not Rated)
Accenture (ACN , $72.25: Market Perform)
Adecco (ADI1, CHF49.4: Not Rated)
Advtech Limited (ADH, $6.52: Not Rated)
Amazon (AMZN, $280.98: Market Perform)
Ambow Education (AMBO, $0.95: Not Rated)
American Public Education (APEI, $40.02: Outperform)
Anhanguera Educacional Participacoes SA (AEDU11, BR 37.35: Not Rated)
Apollo Global Management (APO, $25.39: Outperform)
Apollo Group (APOL, $18.57: Outperform)
Apple (AAPL, $487.22: Outperform)
Aptech (APTECHT-IN, IR 56.9: Not Rated)
AT&T (T , $33.83: Market Perform)
ATA Inc (ATAI, $4.53: Not Rated)
Automatic Data Processing (ADP, $71.16: Outperform)
BAE Systems (BAESY, $27: Not Rated)
Bank of America (BAC, $14.12: Not Rated)
BMO (BMO, $62.83: Market Perform)
BMW (BAMXY-5, $31.33: Not Rated)
Bridgepoint Education (BPI, $16.52: Market Perform)
Bright Horizons Family Solutions (BFAM, $36.41: Restricted)
Cambium Learning (ABCD, $1.69: Not Rated)
Capella Education (CPLA, $54.35: Market Perform)
Career Education (CECO, $2.62: Market Perform)
China Distance Education Holdings (DL, $9.59: Not Rated)
China Education Alliance (CEU, $17.26: Not Rated)
ChinaCast Education Corp (CAST, $0.10: Not Rated)
ChinaEDU Corp (CEDU, $6.71: Not Rated)
Chungdham Learning (096240, $14200.00: Not Rated)
CIBT Education Group (MBA, $0.23: Not Rated)
Cisco Systems (CSCO, $23.31: Market Perform)
Citigroup (C, $48.33: Not Rated)
Cognizant (CTSH, $73.30: Outperform)
Core Education and Technologies (COREEDUTEC-IN, IN13.5: Not Rated)
Corinthian Colleges (COCO, $2.21: Market Perform)
CornerstoneOnDemand (CSOD, $51.51: Not Rated)
Dell (DELL, $13.77: Market Perform)
Demos Group (ALDMO, $1.36: Not Rated)
DeVry (DV, $30.01: Market Perform)
eBay (EBAY, $49.99: Outperform)
Education Management (EDMC, $8.12: Market Perform)
Educomp Solutions (EDUCOMP-IN, IN17.8: Not Rated)
Estacio Participacoes SA (ESTC3-BR, BR 17.56: Not Rated)
Everonn Education (EVERONN-IN, IN23.9: Not Rated)
Facebook (FB, $41.29: Outperform)
FranklinCovey (FC, $15.71: Not Rated)
Gartner (IT, $57.97: Market Perform)
General Electric (GE, $23.14: Not Rated)
General Physics (GPX, $25.24: Not Rated)
Google (GOOG, $846.90: Market Perform)
GP Strategies (GPX, $25.24: Not Rated)
Grand Canyon Education (LOPE, $34.51: Outperform)
Healthstream (HSTM, $33.15: Not Rated)
Hewlett Packard (HPQ, $22.34: Market Perform)
IBM (IBM, $182.27: Market Perform)
Informa (INF-LN, $508.50: Not Rated)
Infosys (INFY, $46.37: Market Perform)
A member of BMO
Financial Group
427
Intel (INTC, $21.98: Market Perform)

ITT Educational Services (ESI, $28.81: Not Rated)
John Wiley & Sons (JW.A, $43.80: Not Rated)
JP Morgan Chase (JPM, $50.53: Not Rated)
K12 (LRN, $36.31: Outperform)
KKR Financial (KFN, $10.17: Not Rated)
Kroton Educional SA (KROT11-BR, BR 40: Not Rated)
Learning Tree (LTRE, $3.76: Not Rated)
LinkedIn (LNKD, $240.04: Market Perform)
LZYE Group (LZYE, $5.25: Not Rated)
Manpower (MAN, $64.85: Outperform)
Masterskill Education Group Berhad (MEGB, $0.42: Not Rated)
McGraw Hill (MHFI, $58.37: Not Rated)
MegaStudy (072870, $72900.00: Not Rated)
Microsoft (MSFT, $33.40: Market Perform)
MT Educare (534312, $94.55: Not Rated)
National American University (NAUH, $3.43: Not Rated)
Navitas Limited (NVT-AU, AU$ 6.21: Not Rated)
New Oriental Education (EDU, $21.23: Not Rated)
News Corp (NWSA, $15.70: Not Rated)
NIIT (NIITLTD-IN, $18.65: Not Rated)
Noah Education Holdings (NED, $1.89: Not Rated)
Oracle (ORCL, $31.86: Outperform)
Overseas Education (RQ1, $0.76: Not Rated)
Panasonic Corporation (PCRFY, $9.00: Not Rated)
Pearson (PSO, $19.64: Not Rated)
Questar Assessment (QUSA, $0.11: Not Rated)
QuinStreet (QNST, $8.71: Not Rated)
Raffles Education Corporation Limited (NR7, $0.29: Not Rated)
Raytheon Profession Serv. (RTN, $75.41: Not Rated)
Reed Elsivier (RUK, $49.02: Not Rated)
Rosetta Stone (RST, $15.44: Not Rated)
Saba (SABA, $9.95: Not Rated)
Samsung Electronics (005930, $1368000.00: Outperform)
SAP (SAP, $73.82: Market Perform)
School Specialty (SCHS, $0.00: Not Rated)
Scientific Learning (SCIL, $0.66: Not Rated)
Seigakusya Company (2179, $724.00: Not Rated)
Sify Technologies Limited (SIFY, $1.78: Not Rated)
Sistema Educacional Brasiliero (SEBB11, BR 23.27: Not Rated)
SLM Corp. (Sallie Mae) (SLM, $23.99: Not Rated)
SmartPros (SPRO, $1.78: Not Rated)
Sony Corporation (SNE, $19.96: Not Rated)
Strayer Education (STRA, $39.96: Market Perform)
Success Holdings (6065, $1728.00: Not Rated)
Tal Education Group (XRS, $11.92: Not Rated)
Talent2 (TWO-AU, AU$0.78: Not Rated)
Toyota (TM, $120.79: Not Rated)
Tree House Education & Accessories (533540, $220.15: Not Rated)
Universal Technical Institutes (UTI, $10.63: Underperform)
Visang Education (100220, $13800.00: Not Rated)
Walmart (WMT, $72.98: Market Perform)
Washington Post (WPO, $564.00: Not Rated)
Woongjin Thinkbig (095720, $6290.00: Not Rated)
Workday (WDAY, $72.53: Market Perform)
Xerox (XRX, $9.98: Outperform)
Xueda (XUE, $3.89: Not Rated)
September 2013
BMO Capital Markets
Important Disclosures
Analyst's Certification
I, Jeffrey M. Silber, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities
or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and
their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness
in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and
service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Ltd. are not registered as research analysts with FINRA.
These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the NASD Rule 2711 and
NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research
analyst account.
Company Specific Disclosures
For
Important
Disclosures
on
the
stocks
discussed
in
http://researchglobal.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx.
this
report,
please
go
to
Distribution of Ratings (June 30, 2013)

Rating
BMOCM US
BMOCM US
BMOCM US
BMOCM
BMOCM
Starmine
Category
BMO Rating
Universe*
IB Clients**
IB Clients***
Universe****
IB Clients*****
Universe
Buy
Outperform
37.9%
17.6%
52.7%
39.6%
51.0%
53.2%
Hold
Market Perform
56.8%
10.2%
45.9%
53.9%
45.5%
41.1%
Sell
Underperform
5.3%
3.2%
1.4%
6.5%
3.5%
5.6%
*
Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts.
**
Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment
Banking services as percentage within ratings category.
***
Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment
Banking services as percentage of Investment Banking clients.
**** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts.
***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking
services as percentage of Investment Banking clients.
Rating and Sector Key (as of April 5, 2013)
We use the following ratings system definitions:
OP = Outperform - Forecast to outperform the analysts coverage universe on a total return basis;
Mkt = Market Perform - Forecast to perform roughly in line with the analysts coverage universe on a total return basis;
Und = Underperform - Forecast to underperform the analysts coverage universe on a total return basis;
(S) = Speculative investment;
NR = No rating at this time; and
R = Restricted Dissemination of research is currently restricted.
BMO Capital Markets' seven Top 15 lists guide investors to our best ideas according to different objectives (CDN Large Cap, CDN Small
Cap, US Large Cap, US Small Cap, Income, CDN Quant, and US Quant have replaced the Top Pick rating).
Prior BMO Capital Markets Rating System (January 4, 2010 April 4, 2013):
http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf
Other Important Disclosures
For
Other
Important
Disclosures
on
the
stocks
discussed
in
this
report,
please
go
to
http://researchglobal.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx or write to Editorial Department, BMO Capital
Markets, 3 Times Square, New York, NY 10036 or Editorial Department, BMO Capital Markets, 1 First Canadian Place, Toronto, Ontario,
M5X 1H3.
Dissemination of Research
Our research publications are available via our web site http://www.bmocm.com/research/. Institutional clients may also receive our
research via FIRST CALL, Thomson Reuters, Bloomberg, FactSet, Capital IQ, and TheMarkets.com. All of our research is made widely
available at the same time to all BMO Capital Markets client groups entitled to our research. Additional dissemination may occur via email
or regular mail. Please contact your investment advisor or institutional salesperson for more information.
Conflict Statement
A general description of how BMO Financial Group identifies and manages conflicts of interest is contained in our public facing policy for
managing
conflicts
of
interest
in
connection
with
investment
research,
which
is
available
at
http://researchglobal.bmocapitalmarkets.com/Public/Conflict_Statement_Public.aspx.
General Disclaimer
BMO Capital Markets is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of
Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. in the U.K. and BMO Capital Markets Corp. in the U.S.
A member of BMO
Financial Group
428
September 2013
BMO Capital Markets
BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries
(BMO Financial Group) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital
Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and
are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from
sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets
makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained
herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may
be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be
used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed
to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the
solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers
mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short
position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.
The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report
in evaluating whether or not to buy or sell securities of issuers discussed herein.
Additional Matters
To Canadian Residents: BMO Nesbitt Burns Inc., affiliate of BMO Capital Markets Corp., furnishes this report to Canadian residents and
accepts responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effect transactions in any
of the securities included in this report should do so through BMO Nesbitt Burns Inc.
The following applies if this research was prepared in whole or in part by Andrew Breichmanas, Tony Robson, or Edward Sterck: This
research is not prepared subject to Canadian disclosure requirements. This research is prepared by BMO Capital Markets Limited and
subject to the regulations of the Financial Conduct Authority (FCA) in the United Kingdom. FCA regulations require that a firm providing
research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 5% or more of the equity of
the issuer. Canadian regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the
research if it and its affiliates own 1% or more of the equity of the issuer that is the subject of the research. Therefore BMO Capital
Markets Limited will only disclose its and its affiliates ownership interest in the subject issuer if such ownership exceeds 5% of the equity
of the issuer.
To U.S. Residents: BMO Capital Markets Corp. and/or BMO Nesbitt Burns Securities Ltd., affiliates of BMO NB, furnish this report to
U.S. residents and accept responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal. Any
U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Capital Markets Corp. and/or BMO
Nesbitt Burns Securities Ltd.
To U.K. Residents: In the UK this document is published by BMO Capital Markets Limited which is authorised and regulated by the
Financial Conduct Authority. The contents hereof are intended solely for the use of, and may only be issued or passed on to, (I) persons
who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or (II) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all
such persons together referred to as relevant persons). The contents hereof are not intended for the use of and may not be issued or
passed on to, retail clients.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST

BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United
States, personal and commercial banking clients are served by BMO Harris Bank N.A., Member FDIC. Investment and corporate banking services are
provided in Canada and the US through BMO Capital Markets.
BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris
Bank N.A, BMO Ireland Plc, and Bank of Montreal (China) Co. Ltd. and the institutional broker dealer businesses of BMO Capital Markets Corp.
(Member SIPC), BMO Nesbitt Burns Securities Limited (Member SIPC) and BMO Capital Markets GKST Inc. (Member SIPC) in the U.S., BMO
Nesbitt Burns Inc. (Member Canadian Investor Protection Fund) in Canada, Europe and Asia, BMO Capital Markets Limited in Europe, Asia
and Australia and BMO Advisors Private Limited in India. Nesbitt Burns is a registered trademark of BMO Nesbitt Burns Corporation Limited,
used under license. BMO Capital Markets is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license.
Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.
TM Trademark Bank of Montreal
COPYRIGHT 2013 BMO CAPITAL MARKETS CORP.
A member of BMO
A member of BMO
Financial Group
Financial Group
429
September 2013
NOTES
Equity Research
Global Head of Research
Ian de Verteuil
416-359-4478
Financials_____________________
Canadian Banks
John Reucassel, CFA
416-359-4379
US Banks
Lana Chan
Peter Winter
212-885-4109
212-885-4108
Insurance
Tom MacKinnon, FSA, FCIA
416-359-4629
Insurance/Non-Life
Charles J. Sebaski
212-885-4094
Diversified Financials
John Reucassel, CFA
Atul Shah
David J. Chiaverini, CFA
416-359-4379
416-359-4691
212-885-4115
Trading Venues/Exchanges
Jillian Miller
404-926-1581
Real Estate Investment Trusts

Paul E. Adornato, CFA
Richard C. Anderson
Mark Lutenski
Heather C. Kirk, CFA
Troy MacLean, CFA
212-885-4170
212-885-4180
212-885-4197
416-359-4030
416-359-8366
Consumer_____________________
Retail - Broadlines/Hardlines
Wayne Hood
404-926-1590
Retail - Apparel & Specialty

John D. Morris
212-885-4016
Staples/Discretionary
Peter Sklar, CPA, CA
416-359-5188
Food & Ag Products

Kenneth B. Zaslow, CFA
212-885-4017
Food & Beverage

Amit Sharma, CFA
212-885-4132
Restaurants
Phillip Juhan, CFA
404-926-1599
Household & Personal Care Products

Connie M. Maneaty
212-885-4004
Toys & Leisure
Gerrick L. Johnson
Auto Parts
Peter Sklar, CPA, CA
Services - Education
Jeffrey M. Silber
Lodging
Mark Lutenski
Special Situations
Stephen MacLeod, CFA
212-883-5192
416-359-5188
212-885-4063
212-885-4197
416-359-8069
Director of Canadian Equity Research

Paul Campbell
416-359-5424
Director of US Equity Research

Christine Farkas, CFA
Materials_____________________
Energy & Utilities_____________
Metals & Mining

Tony Robson
Edward Sterck
Meredith Bandy, CFA
+44 (0)20 7246 5433

+44 (0)20 7246 5421
303-436-1113
Precious Metals
David Haughton
416-359-4052
Andrew Breichmanas, P.Eng. +44 (0)20 7246 5430
Mining Exploration & Development
John Hayes, P. Geo.
416-359-6189
Andrew Kaip, P. Geo.
416-359-7224
Brian Quast, P. Eng., JD
416-359-6824
Commodity Strategy
Jessica Fung
416-359-8455
Paper & Forest Products

Stephen Atkinson
514-286-7309
Fertilizers
Joel Jackson, P.Eng., CFA
416-359-4250
212-885-4113
Senior Oil/Gas
Randy Ollenberger
Dan McSpirit
Gordon Tait, CFA
403-515-1502
303-436-1117
403-515-1501
Small/Mid Oil/Gas
Jim Byrne, P. Eng., CFA
Jared Dziuba, CFA
Phillip Jungwirth, CFA
403-515-1557
403-515-3672
303-436-1127
Oil & Gas: Services & Equipment

Alan Laws, CFA
303-436-1125
Mike Mazar, CPA, CA, CFA
403-515-1538
Electric Utilities & Independent Power
Michael S. Worms
212-885-4031
Ben Pham, CFA
416-359-4061
Pipelines
Carl Kirst, CFA
713-546-9756
Healthcare_ __________________
Industrials_ __________________
Transportation
Fadi Chamoun, CFA
Diversified Industrials
Charles D. Brady
Bert Powell, CFA
Chemicals
Alexandra Syrnyk, CFA
Machinery
Joel Tiss
Biotechnology
Jim Birchenough, M.D.
415-591-2129
Medical Technology
Joanne K. Wuensch
212-883-5115
617-960-2363
416-359-5301
Managed Care/Facilities
Jennifer Lynch
212-885-4059
416-359-7723
Pharmaceuticals
Alex Arfaei
212-885-4033
212-883-5112
Specialty Pharmaceuticals
David Maris
212-885-4091
416-359-6775
Services - Equipment Distribution & E&C

Bert Powell, CFA
416-359-5301
Services - Business Services
Jeffrey M. Silber
212-885-4063
Tech / media / Telecom_ ________

Enterprise Hardware & IT Services
Keith Bachman, CFA
212-885-4010
Macro_________________________
Investment Strategy
Brian G. Belski

212-885-4151
416-359-5761
Economics
Douglas Porter, CFA
Michael Gregory, CFA
Earl Sweet
416-359-4887
416-359-4747
416-359-4407
416-359-4641
416-359-6211
416-359-6187
416-359-8488
Communications Equipment
Tim Long
212-885-4101
Software/Specialty Hardware
Karl Keirstead
212-885-4192
Quantitative/Technical
Mark Steele
Ken Hartviksen, CFA
Qin Lu
Information Technology
Thanos Moschopoulos, CFA
416-359-5428
Small Caps
Willa Hoffmann, CFA
Semiconductors
Ambrish Srivastava, Ph.D
415-591-2116
Telecom/Media/Cable
Tim Casey, CFA
416-359-4860
Telecom Services
Kevin Manning

212-885-4102
Media - Digital Entertainment and Internet

eCommerce
Edward S. Williams
212-885-4054
Marketing & Advertising
Daniel Salmon
212-885-4029
1 First Canadian Place, P.O. Box 150, Toronto, ON M5X 1H3 416-359-4000 Tour McGill College, 1501 McGill College Ave., Suite 3200, Montreal, PQ H3A 3M8 900, 525 - 8th Avenue S.W., Calgary, AB. T2P 1G1
95 Queen Victoria Street, London, U.K., EC4V 4HG 3 Times Square, 7th Floor, New York, NY 10036 212-885-4000 200 Tower Place,, Suite 1430, Atlanta, GA 30326 100 High Street, 26th Floor, Boston, MA 02110
617-451-0670 600 17th Street, Suite 1704S, South Tower, Denver, CO 80202 700 Louisiana Street, Suite 2100, Houston, TX 77002 713-546-9746
One Market, Spear Tower, Suite 1515, San Francisco, CA 94105

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Education and Training

Refer to pages 428429 for Important Disclosures, including Analysts Certification.

Education and Training

BMO Capital Markets

Education and Training

BMO Capital Markets

Education and Training

BMO Capital Markets

Key Investment Considerations

Education and Training

BMO Capital Markets

Education and Training

BMO Capital Markets

Education Industry Overview

Corporate training: Corporations are beginning to spend training-related dollars often

Education and Training

BMO Capital Markets

Size of the Education Industry

Exhibit 2. Net Stock of Federally Financed Education Capital

Assets ($ tril. in 2005 $)

Source: BMO Capital Markets and Office of Management and Budget.

The education industry represents a significant amount of spending no matter how it is

Education and Training

BMO Capital Markets

Exhibit 3. US Education Industry Revenues (1993-2018E)

Education and Training

BMO Capital Markets

Exhibit 4. US For-Profit Education Industry Revenues (1999-2018E)

Investments and M&A Activity in the Education Industry

Percent of total spending

Education and Training

BMO Capital Markets

Exhibit 5. Opportunities and Challenges of Investing in the

Addressable market size

Source: GSV Advisors survey.

Exhibit 6. Recent Public Offerings of US Education Companies

Source: BMO Capital Markets and Capital IQ.

Education and Training

BMO Capital Markets

Exhibit 7. Recent Public Offerings of Non-US Education Companies (2006-2013)

Source: BMO Capital Markets and Capital IQ.

Education and Training

BMO Capital Markets

Exhibit 8. Recent Going Private Transactions of Education Companies (2006-2013)

Aug-11 Nobel Learning

Sep-06 Concorde Career Colleges

Postsecondary school operator

Bright Horizons Family Solutions

Worksite childcare provider

Early childcare and K-12 operator

PLATO Learning (Thoma Bravo LLC)

Source: BMO Capital Markets and company reports.

K-12: In December 2006, Irish educational software publisher Riverdeep acquired US

Education and Training

BMO Capital Markets

Impact of Economic Cycles

Childcare. We believe workplace childcare has proved to be a relatively inexpensive way

Education and Training

BMO Capital Markets

good education is no longer just a pathway to opportunityit is a prerequisite.

Education and Training

BMO Capital Markets

Education Industry Growth Drivers

Childcare providers are stressing the advantages of starting an education as early as