The Commonwealth of Virginia has a tradition of revolutionary ideas: independence from England for America, independence from America for Virginia, and now, (partial) independence from Virginia for three of the state's leading public colleges.
Like most states, Virginia overspent and overpromised during the boom years of the late '90s, and was caught with its budgetary trousers down when the economy went south (pun intended) in 2000. The state's public colleges have been among those hurt by budget cuts.
Now, the state's top three universities -- The College of William & Mary, the University of Virginia, and Virginia Tech -- are banding together to declare financial independence from the cash-strapped state budget. Mind you, the colleges do not necessarily want to give up all state funding just yet. But they are floating the idea of giving up future funding increases in exchange for freedom from state regulations they claim add unnecessarily to their administrative costs. Not incidentally, these state regulations also limit the tuition public universities can charge their students.
It is perhaps not surprising that the colleges are willing to forego on-again, off-again state funding in return for the right to raise tuition as they choose, when they choose, and by however much they choose. The whole country, in fact, seems to be undergoing a sea change in sentiment against cheap, uniform, publicly subsidized education, in favor of school vouchers, private schools, and for-profit colleges.
This trend bodes well for private educators like Corinthian Colleges (Nasdaq: COCO) and Apollo Group (Nasdaq: APOL) (owner of also-publicly-traded University of Phoenix Online (Nasdaq: UOPX), as well as The Washington Post Company (NYSE: WPO) subsidiary, Kaplan.
Each is currently free cash flow positive and, in some cases, five-year annual growth rates are astounding. (Corinthian, for example, boasted 53% sales growth last fiscal year over the prior year, and 37.2 % annual compounded sales growth over five years!)
Meanwhile, the public colleges are fighting a losing battle. They face students demanding "free" high-speed Internet, Atkins-friendly cafeteria food, and tuition hike-caps on one side, and well-funded private ventures on the other. On a third front, Ivy League not-for-profits hog the scions of wealthy families, while a passel of regulation-happy legislators take up the fourth.
A war on four fronts: It's enough to make a college want to declare its independence.
Rich Smith
graduated from The College of William & Mary in 1991, a year in which he dined almost exclusively on Cheese Shop bread ends and house dressing. Discuss this revolution in education on our Corinthian Colleges discussion board.
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