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Grand Canyon CEO Hails 'Hybrid' Model

2014: A Look Back And Ahead Soaring student loan debt and weak job prospects for graduates have made many question if a college degree is still a good deal. Online courses are cheaper and offer flexibility, but Web-only schools have struggled to build up their brand.

Grand Canyon Education (LOPE), however, saw its stock soar 86% in 2013 as it expanded its traditional ground campus to better compete with both for-profit and nonprofit universities.

CEO Brian Mueller said Grand Canyon's physical campus gives it credibility while its online offerings keep costs low. He told IBD that he sees many traditional colleges moving toward this "hybrid" model.

Mueller began his career in education as a professor at Concordia University. Before joining Grand Canyon he worked at for-profit Apollo Group (APOL), serving as the CEO of its University of Phoenix Online unit.

IBD: How was 2013 overall for for-profit universities

Mueller: If you judge by the enrollment numbers, many would say they are a bit disappointed, though there are signs that some companies are rebounding.

But we are very excited about what happened at Grand Canyon University. We want to grow enrollment about 8%-10% per year, grow revenues 10%-12% per year, to have 24%-25% margins. We've exceeded those significantly in 2013. And we have confidence that we will continue to exceed those in the short run.

We are very excited about the hybrid campus we have created. The traditional ground campus is the main driver of the brand strength of the institution. And we also have an online campus for working adult students. The combination has allowed us to make tuition very, very affordable for students and allows us to grow at a little bit more than acceptable rates and produce a good return for our investors. Everyone is winning in this scenario and we feel like they are going to continue to.

IBD: What makes Grand Canyon different from other universities

Mueller: The hybrid campus. The fact that we have a traditional ground campus that serves 18-, 19-, 20-year-old students and also have a campus (online) for adults who are 33, 34 years old who are raising families and going back to school to earn degrees while they are working.

IBD: How have traditional universities responded to for-profit schools

Mueller: In the '70s, '80s and '90s, if you were a working adult student your options were few. Supply and demand were in favor of for-profit institutions, (eventually) with a lot of online delivery. While that has been effective, it really hasn't helped build a brand for those institutions.

But in 2008, when the economy went south, traditional universities had to decide how to replace lost tax revenues or donation revenues. So they decided to get into the business of teaching working adults and delivering online. All of a sudden you had more supply than demand. Traditional universities who had better brands really took a lot of the market share from for-profit companies.

Grand Canyon positioned itself as a traditional university. The brand was based on the strength of the traditional campus. And that's been the key to our success .

IBD: Do you see other universities following suit (also having a traditional ground campus)

Mueller: There are a lot of traditional universities who are trying to create this same model. Haven't seen that from (for-profit schools).

IBD: Are you trying to attract more students to your physical campus

Mueller: When I said we want 8%-10% enrollment growth, that is 6%-8% growth online but really rapid growth on the ground. We are going to go from 8,500 students now to 25,000 in the next five years. We are going to be very involved in computer science and engineering. We are really going to be successful in Division I athletics and in theater, music and other performance-related areas. It's going to continue to build the brand, which will make it easier for us to attract high-quality working adult students in our online program.

IBD: What do you see for more traditional universities growing their online presence

Mueller: There are traditional universities private and state who are wanting to play in both markets. Competition will be stiffer. You have to be good on both sides of it to attract good students. Price is going to be a huge lever. We've frozen room, board, tuition at Grand Canyon for five years. Our average student after scholarships pays $7,800 per year for tuition vs. $25,000-$40,000 at most private universities.

The average student at state universities is going to pay over $7,000 for tuition. So as a private university with low class sizes, lots of individual attention and brand-new laboratories, classrooms, dormitories, eating facilities and athletic facilities, we've become very attractive to families.

IBD: There's been a lot of emphasis recently on universities, especially for-profit schools, leading to gainful employment.

Mueller: People have to make sure they are tailoring their academic programs to areas where students are going to get jobs. Adults typically have jobs while going to school; they are just looking to get a promotion in the industry they are currently in. It's really the traditional-age student (whom) you have to focus on, making sure that you are teaching in areas where they are going to get jobs.

IBD: How will government regulation affect for-profit universities

Mueller: Democrats want to further regulate education while Republicans want to deregulate. So there is pretty much an impasse. Our loan default rates continue to decline; our graduation rates are good; our programs are leading to jobs. If something would happen we feel that our metrics are in a very good place.