THE NEW “NORMAL:” DISTANCE LEARNING AND NEW EDUCATION

OPTIONS – WHAT IT MEANS TO HIGHER EDUCATION AND

STUDENT CHOICE

Frank F. Britt, CEO, Penn Foster

February 2013

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Todays Objective and Scope? • The objective of the webcast is to provide you with an

overview of the landscape of distance learning and it’s growing importance in higher education We will cover how it is changing and the implications for

existing ground based schools, and more importantly why it is an option for a growing subset of alternative students.

• More than 6.7 million students — roughly a third of all students enrolled in postsecondary education—took an online course for credit in fall 2012, an upturn of nine percent. Increasingly, distance learning is being embedded into traditional learning programs and as a stand-alone option for a subset of students.

• Today in the world there are many options for learning designed for a broad range of students that offer significant value. Understanding the potential paths will help better tailor advice for each student and their family.

A thought to frame the day…

“The primary aim of education is not to only enable students to do well in school, but to help them do well in the lives they lead following school.”*

* Raymond McNulty, Chief Learning Officer, Penn Foster and formally withBill & Melinda Gates Foundation, International Center for Leadership in Education

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Today’s Agenda:

• How and Why Higher Education Changing?

• Online and Hybrid Education: Is it real?

• How Should Students Options be Framed in the New Education Economy?

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HOW AND WHY IS HIGHER EDUCATION CHANGING?

A marketplace poised for substantial disruption

6

The “consumerization” of higher education has begun..

• Higher education is increasingly recognized as a consumer purchase based on value translated into quality, price and expected returns

• For lower income and at-risk students, in most instances the decision is driven by employment needs and the ability to secure a job

• Greater expectations for value, viable multi-channel delivery models, and need for sustained employability

• Providers of education (colleges, universities, career schools, distance learning, etc) are being required to justify rising prices and provide a higher level of quality and service commitment and a certain ROE (return on education). This is the is the essence of the new consumer education relationship

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Note: Salary data is for ages 25 and older; Earnings are for full-time wage and salary workersSource: Bureau of Labor Statistics

Average Annual Salaryby Level of Education, 2011

Unemployment Rate by Level of Education, 2011

Historically, there has been a direct link between learning and earning. The new knowledge economy will affirm that correlation and increase returns on higher education

However, important demographic trends and K-12 dynamics will alter post secondary education

• Minority populations are growing Hispanics: Significantly high participation of Hispanics entering

workforce as the fastest growing population with both consumer and employment implications, e.g., multilingual solutions, etc.

Nearly half of minority undergraduates attend community college

• High School Model Still Needs Improvement: Nearly 1 million kids that start high school every year don't make it to graduation 4 million children will start kindergarten this fall and only 63k will

make it to post secondary schooling Over a lifetime, a high school dropout will earn $200,000 less

than a high school graduate; $1 million less than a college graduate.

A 4 year degree in STEM based upon current trends Common core standards for high school will raise the bar for

college and career readiness and impact student assessment and teacher evaluation

In the meantime, higher education has steadily increased tuition levels well in excess of inflation to cover higher operating cost; changes are required to reset the value equation

0%

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6%

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Public

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4-year

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7.6%

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nonprofit-

2-year

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6.2%

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nonprofit-

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5.3%

Private

for-profit-

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4.4%

Private

for-profit-

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3.9%

Inflation

rate

Growth in Published Tuition Fees by

Institution Type, CAGR, 2000-01 to 2010-11Public Privat

e Nonpr

ofit

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For-Profit

Source: IPEDS; Community College Times; U.S. News & World Report; Chronicle of Higher Education; InflationData.comInflation rate is 2010-2011 based on CPI

Consumers are acting; there is accelerated growth in those attending college to not complete a four year degree

Only about half of the credentials awarded by undergraduate institutions are traditional

bachelor’s degrees. The rest are either associate’s degrees or

certificates, the vast majority of which are in applied fields.

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In fact, certificates awards have risen 22% in post secondary education over the past few years*. • Certificates are the fastest growing form of postsecondary

credentials in the nation, surpassing associate and master's degrees as the second most common award in higher education after the B.A.• Postsecondary certificates made up 22 percent of awarded

credentials in 2010, compared with just 6 percent in 1980. Over that time, the number of certificates awarded annually has increased from 100,000 to one million.

• The appeal is growing because they are affordable, take less than a year to complete, and often lead to higher earnings, compared with receiving an associate and sometimes even a bachelor's degree*.• The most common occupations of certificate holders are

business/office work, transportation, health care, and metal working, the report says.

* 2012, Georgetown University Center on Education and the Workforce.

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In response, many institutions are acknowledging the tectonic shifts in learner’s needs and making changes….(1of 2)

1.Courses: Self-paced learning and greater education “modularity to support learner emerging employability requirements – adult students matter more than ever

2.Course Selection: Students will be empowered to “test drive” programs, faculty and majors before making significant commitments

3.Educators: Abundance of ‘free’ resources and relationships made easily accessible via the Internet will change the roles of educators

4.Student Projects: The world of school is increasingly collaborative, driving changes in the way student-partner projects are structured.

Examples:

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In response, many institutions are acknowledging the tectonic shifts in learner’s needs and making changes….(2 of 2)

5. Measures: New educational productivity metrics on student ROI and emergence of alternative authoring, publishing, and researching models

6. Digital: Digital literacy rises in importance as a key skill across almost every discipline and profession and reshapes student and faculty experience

7. Content & Curriculum: Education requirements increasingly driven by employers, more than educators, with emphasis on effective and practical employment skills. Content is designed with mobile-first principles for a multi-screen learner with interactivity

8. Experience: Adaptive courseware powered by data analysis and pattern recognition software will tailor content/exercises

Examples:

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ONLINE AND HYBRID EDUCATION: IS IT REAL?

The Role of For-Profit Education and Society as Accelerants of Online Learning Demand

In the period before For-Profits and On-line, education was traditional

• Schools beholden to faculty and tenure/research took precedence over student engagement

• Education adhered to traditional delivery models Highly bureaucratic, slow enrollment process Ivy tower mentality – you chase us! Lack of innovation in the classroom Tenured professors had little incentive to push

the envelope on any front• Post-secondary was aimed primarily at high school

graduates – very little adult education, very little program choices

• Few if any schools offered career & trade training

The For-Profit’s changed the model and became the original catalyst for promoting online education• Two different initial targets, each has evolved traditional

ground based, or correspondence modalities to online or hybrid formats Higher Education aimed at the working adult

• Example: University of Phoenix (Established in 1976) Trade / Career Readiness programs

• Example: Penn Foster • Filled niches and created new demand that were created by

traditional higher education’s focus on the high school student transitioning to college With the advent of the online offerings, these schools/businesses

saw the potential of efficient expansion and scale

How has it worked out for For-Profit education players?1. Market Value:

• Enterprise value of top 13 public schools exceeds $10B (recently declined)

2. Demand:• Represent 12% of all post secondary students (2.4 million)

– University of Phoenix has more than 325,000 students currently enrolled—22 times the number at the University of Chicago

3. Regulations:• Substantial disclosures and performance requirements

such as gainful employment and performance measures (loan repayments, etc.)

4. Iconic Influence:• 2015 Super Bowl being played at University of Phoenix

stadium5. Built Cultures of innovation and market focus

• In many cases to the point of excess and abuse that are being curtailed

In the meantime, innovative Non-Profits have also decided to enter the marketplace for Online College • Several non-profits decided to place an emphasis

on building fully online programs Liberty University Online is one of the best

examples

• Spin-off units from ground-based schools Penn State World Campus, Drexel University

Online, Southern New Hampshire University University of Maryland University College was

created by the state• But for traditional schools it requires re-evaluating

the faculty relationships and charting a new path for curriculum design and delivery

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At the same time…society and education are changing

The rate of change in society is changing life across all demographics…and will reshape education• Access: YouTube’s EDU portal has been viewed 22

billion times • Data: More data has been created in the last three

years than the previous 40,000. • Mobilization of Consumers and Workers: there

will be five billion Internet devices by 2013. Most people in the world will experience the Internet in their hand, not their desktop or their lap.

• Socialization of Everything Online: There are 960 million social network users; eight years of video uploaded every day to YouTube.

• Gamification: Use of game-like thinking exploding with use of game mechanics and dynamics like badges, leaderboards, etc. These dynamics will lead to the reimagination of education

And at the same time, kids today are very different

GenY sensibilities: • Multi-screen & social is becoming the

defacto way for life • Learn anywhere, anytime, with and from

anyone including peers• Always on, always connected, expecting

collaboration• Need to be engaged and involved• Demand personalized learning

experiences• They are tech dependent – not tech savy

Disruption never looks inevitable until it suddenly is

Disruption never looks inevitable until it suddenly is

Disruption never looks inevitable until it suddenly is

Online/Hybrid Learning

• Who is out there and what do they offer?

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Alternative education delivery options focus on a range of consumer targets, content types, price points, and accreditation

standards

OnlineOnly

Hyflex/localized Learning

Traditional /Ground Based

Community Colleges

Traditional UniversitiesOne-to-many Self-ServeOne-to-many Instructor-Led

Traditional Online Universities

Incubator / Shared SpacePeer Learning

Self-serve OnlineUniversity Courses

Online-EnabledPeer Learning

Online-Enabled CorporateTraining

Accredited Self-Learning

Education is being re-imagined. Providers are introducing online learning, hybrid learning and collaborative models that broadly target wide audiences with different needs.

The new education economy will include various delivery models at a class specific and course level

1. Pure Brick & Mortar (100%)

2A. Blended(80%-20%)

2B. Hybrid(20%-80%)

3. Pure Online (100%)

Mix

ed

Deliv

ery

Supplement classroom lectures and activities with online content

Online lectures with a local facilitator providing support on the ground

Class Level

Course Level – Split Model

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ON-LINE & HYBRID DELIVERY CASE STUDY: WHO IS PENN FOSTER?

We believe we can create a better world through knowledge and skill with a focus middle skilled students

ELEVATEMOTIVATEPREPARE

We stand for possibilities through knowledge . . .

Learners with relevant knowledge and skills.

Learners to take on the challenges that come.

Learners to the goals you’re reaching for.

. . . With the belief that a good education should not be a privilege

A history of helping working men and women

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In 1890, a newspaperman named Thomas J. Foster recognized that working adults needed a more convenient way to learn advanced skills. He developed the distance-learning method to help anthracite coal miners become mine superintendents and foremen.

The school became a stunning success. By 1945, 5,000,000 students had enrolled in Penn Foster training programs. Today, that number has grown to more than 13,000,000. In fact, Penn Foster is now one of the oldest and largest learning institutions in the world.

We service the nontraditional student within a typically underserved demographic

• Ethnically diverse (often 1st generation)• At-risk of being “Left behind” by traditional educational models

•“Burdened” by familial obligations and “restrained” by financial realities (e.g., underbanked)

•Value/require support on career, academic, and financial issues

•Younger have GenY sensibilities - multi-screen & social

75% enroll with Penn Foster to get a better job/find a new job

High School College Adult

We have created a range of on ramps for learners on their path to training, re-skilling and personal achievement

Largest high school in the U.S.

Degree programs in high growth technical careers. Best value associates degree options

200+ certification and diploma programs. #1 market share in career-focused distance learning

43,000Students

28,000Students

63,000Students

Licensed by the Pennsylvania State Board of Private Licensed Schools

Health• Medical Coding and

Billing• Pharmacy tech

• Medial Assistant• Physical Therapy Aide

Business• Marketing• Paralegal

• Bookkeeping• Criminal Justice

Trade• Auto mechanic

• HVAC technician• Motorcycle repair

• Plumbing

Avocation• Gunsmith• Gourmet cooking• Travel Agent

Industrial • Welding• Diesel engine repair• Utilities • Facilities Management

Other Relevant Courses• Small Business Management

• Health and Safety Courses

• Customer Service

Penn FosterCourse

Families

Courses designed to train individuals for today’s workforce

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HOW SHOULD STUDENTS OPTIONS BE FRAMED IN THE NEW EDUCATION ECONOMY?

A Path to Helping Traditional and Non-Traditional Students

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The framework for college matching is well established

1. Major/degree type2. Geographic/

Distance3. Cost (net price,

with financial aid)4. Reputation5. Cultural Fit

6. Size of school7. Other activities

(abroad programs, sports)

8. Standardized test requirements

9. Type of school – private, public, community

10.Accreditation

Traditional Factors

Traditional post secondary options assume four year college and

ground-based delivery approach

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Traditional College Path

Online

Alternative Path*

High Medium Low

Risk Factors

However, a broad set of valid alternatives extend well beyond traditional post secondary paths

* community colleges, vocational, apprentice and certificates

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For example, a career focused on the Manufacturing sector is undervalued, yet has amazing options

• After decades of outsourcing, the United States is enjoying a manufacturing revival – re-shoring has arrived US and foreign firms (Samsung, Toyota)

building in the US Moving production to US for cost

advantages (energy, etc.) By 2017, total cost of producing many

products with 10-15% of China even on US east coast

• Wages are rising and skills gap growing Examples: South Dakota School of Mines

and Technology 2012 graduate earns 16% higher than Yale University

• Middle skill and industrial labor shortage getting worse, even as youth unemployment reaches record levels Industrial and middle skilled employment

and education opportunities are significant

The merits of sub-baccalaureate programs for a subset of high school grads is real and growing

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What? Apprentices• Formal, on-the-job

training

Certificate Pathways

• Range from 900 to 3,600 contact

hours

Community Colleges

• Associate degree

• Certificates

How Many Enrolled?

• ~465k • ~1-2 million • ~10 million

Goal?• Marketable craft,

trade and vocation

• Employment• Stepping stone

to degree education

• Employment• Stepping stone

to degree education

How? (delivery)

• Worksite, campus or online (hybrid)

(often paid a wage)

• Campus, online (hybrid)

• Campus, online (capacity constraints)

Credential?• State-level/

federally recognized

• “organized program of study” certification

• Associates degree

• Certificates

Even for college bound students, many could be better served with an interim step before major financial commitmentsOf students who enter a four college, 83% believe they will finish in four years• 35% of students will drop out during the first year• 38% of students complete college in four years;

56% within six years

• Only 32% of all students leave high school ready for college level material

• An even smaller proportion among Hispanics and blacks

• 1/3 of all first year college students are required to take remedial courses - states vary significantly in how to handle remedial development programs "Pathways to Prosperity" study by the Harvard Graduate School of Education, 2011 &

Getting to Graduation: The Completion Agenda in Higher Education

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Online schooling can play a role across traditional and new pathways

High School

Apprentice

Certificate

Associate Degrees

4-Year College

GradSchoolEmployment

Vocational, Community College, Online School

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Which students should be considered for distance or hybrid learning pathways?

Which students should be advised to at least consider making a different choice?Candidates:

• Remote locations• Special populations (not ethnicity)

• 1st generations, disability, etc• Complex life factors/circumstances

• Time scarcity (inter-day and elapsed) due to job, family, etc

• Affordability pressures• Learning models

• Peer preference, hands-on orientation, extreme individuality

• Desire to start a career without debtFor candidate where life demands constrain ability to

attend traditional school retaining control of learning pace and delivery is essential and for others

it could be the best option

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How do you evaluate distance learning? What to look for?

Accreditation: What type of accreditation does it carry?

What is the portability of the credits?

Community: Who are the students? Are they engaged?

What do they think?

Leadership: What are the credentials

Career-focused: What do employers think? Are there

strong employer relationships and feedback?

Track record: Is it proven?

Support system: How does it work?

Summary• Education changing

• Students are freed from traditional “one path only” education

• Return on Education Investment becoming core issues

• Career progression mindset becoming even more essential even to affluent students

• Online schools and hybrid delivery are valid options not limited to the adult learner – can be a great compliment traditional school

• Change is happening in higher education and online learning is a major disruptor to traditional pathways

QUESTIONS?

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Appendix – School Profiles

Originally Correspondence – Career Training has Gone Online

Note: Cost assumes no credit given for past academic workSource: Company websites and interviews

School Name Penn Foster Ashworth U.S. Career Institute Career Step

Description

• Online institution offering career diplomas, certificates, associates, bachelors, and maters degrees

• Online institution offering career diplomas, certificates, associates, bachelors, and maters degrees

• Online provider of certificates for various fields

• Provides online courses to be completed in as few as two months

Diploma/Course Types

• 180+ course offerings in business, health care, marketing, technology, trades, and education

• Large variety of areas of studies including business, health care, marketing, technology, trades, and education

• Wide range of career training programs

• Offers six different programs in medical and administration fields

Accreditation

• Regionally accredited by Middle States and Nationally accredited by the Distance Education and Training Council

• Nationally accredited by the Distance Education and Training Council

• Nationally accredited by the Distance Education and Training Council

• None

Title IV Funding • No • No • No • No

Delivery Method • Online only • Online only • Online only • Online only

Price Range • ~$500-$1,500 • ~$500-$1,500 • $500-$2,000 • $1,500-$2,000

Payment Options

• Monthly payment plans available

• Monthly payment plans available

• $5 down payment • Monthly payment plan up to 12 months

Discount Strategy

• Significant discounts for up-front payment and auto-pay over time

• Significant discounts for up-front payment and auto-pay over time

• Significant discounts for up-front payment and auto-pay over time

• Very low initial fees

• Limited time $400 discount for up-front payment

Career-focused Online Schools

Note: Cost assumes no credit given for past academic workSource: Company websites and interviews

School Name ITT Technical Institute Lincoln College Online Western Governors Allied American

Description

• Career-focused private college systems with 6 different schools: IT, Business, Electronics, Criminal Justice, Drafting and Design, Health

• Online campus of Lincoln Technical Institute

• Not-for-profit online university in education, business, IT, and healthcare

• For-profit institution offering Bachelor’s and Associate’s degrees, and certificate programs

Diploma/Course Types

• Offers Associate’s, Bachelor’s and Master’s degrees

• Associate’s and Bachelor’s degrees offered

• Bachelor’s and Master’s degrees

• Certificates offered in criminal justice, business, computer information systems and health care

Number of Students

• ~70,000 • N/A • ~18,000 • N/A

Accreditation

• Nationally accredited by the Accrediting Council for Independent Colleges and Schools

• Regionally accredited by the New England Association of Schools and Colleges

• Regionally accredited by the Northwest Commission on Colleges and Universities

• Nationally accredited by the Distance Education Training Council

Title IV Funding• Yes • Yes • Yes • For degree-seeking

students only

Delivery Method• 140 U.S. Campuses• Online Option

• Online only • Online only • Online only

Price Range • ~$40K for two year

associates degree• ~$2,890-$4,250 per

semester• $5,040-$16,800

Payment Options

• Payment plans devised with financial aid

• Payment plan for the length of the course

Discount Strategy

• No discounts • No discounts

Straighterline

New Charter University

(UniversityNow)

Rio Salado College

Southern New

Hampshire University

Coursera Udacity MITx

Description

• $99/month for college courses ($999 for entire freshman year)

• Fully transferrable to partner colleges

• Accredited AS, BS, BA, and Master’s

• Fixed tuition ($796/4 mos. for undergrad) for unlimited courses

• Community college offering online Certificate and Associate’s degrees

• Online accredited undergraduate and graduate degrees

• Free university classes from partners like Stanford, Princeton, U. of Penn., U. of Michigan

• Free university-level classes online

• Backed by Charles River Ventures

• Free online MIT courses

• Also provides online tools for current on-campus MIT students

Online Enrollments

• Over 4,000 students served through 2011

• Degrees in business and public policy

• Enrollments of 20K in 20 program areas

• Over 80 liberal arts and business majors

• 30 classes through early 2013

• 130K enrolled in first 2 courses as of March 2012

• 120K students in its first course in March 2012

Online Experience

• Self-directed online courses with readings, presentations, review activities, and homework

• Online, self-paced with exams via webcam

• Personal advisor, direct faculty access

• Uses RioLearn, a customized online LMS, for commun-ication assignments, and tracking

• Experience run through Blackboard

• Access to resources like an online library

• Video lectures (10-15 min.)

• In-video quizzes with auto-correct

• Q&A community for students

• 7-week classes

• Video lectures with quizzes, homework due regularly

• Online forums

• Interactive instruction, online labs, and communication among students and professor

Reviews / Press

• Named one of the "10 Most Innovative Companies in Education" for 2011 by Fast Company

• Subsidiary of UniversityNow, (affordable high-quality postsec. ed. advocate)

• Profiled by Forbes

• The largest online public community college in the nation

• Only university on 2012 Fast Company list of the World's 50 Most Innovative Companies, ranked #12

• Raised $16M in venture capital in April 2012

• Twice profiled by the New York Times

• Highlighted in TechCrunch, the Wall Street Journal, etc.

• Reviewed by the New York Times and Boston Globe, among others

New Delivery Models and Funding Models Emerge from Schools and Education Delivery Channels

There are many different paths to the student specific end game of 21st century career readiness

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Leaner Capabilities*

Support Systems*

* Learner capabilities: four proven skills needed to sustain “employability” (arches of the rainbow).* Support systems: four areas including standards, curriculums, professional development, etc  (pools at the bottom)

Goal: a blend specific core academic skills, technical and employability skills and

expertise

Online and Ground-based programs can be evaluated based on accreditation

Department of Education

Regional Accreditation

Paths to Accreditation

Specialized Accreditation

• DETC is recognized by the US DOE under the same criteria as the regionals

• DETC is recognized by CHEA, as are the regionals• NACIQI has recommended that DETC’s accreditation be renewed

without condition

Recognition

• DETC standards for degree programs track with and meet or exceed the standards of regional bodies

• In addition to meeting these standards, DETC schools meet specialized standards for distance learning

Accrediting Standards

• DETC requires the same amount of credit hours and general education credits for degree programs as the regional accreditors

• DETC reviews all programs before being offered; the regional accreditors do not

Program Offerings

• DETC standards for faculty are the same as each of the regional bodiesFaculty

• DETC requires schools to employ frequent proctored exams to better measure comprehension

• DETC schools utilize frequent online interactive activities with instructors, which provide further measures of assessment

Assessments

• DETC institutions undergo rigorous review every five years for renewal

• Regional accreditors use 7 or 10 year review cyclesInstitution Review

How Does the DETC stack up against Regional Accreditors