The Future of Trade Schools
By IBISWorld Senior Analyst Kevin Culbert
As Seen in the "ABA Journal"
Trade and technical schools have experienced relatively strong growth during the five years to 2012. Unlike most industries across the United States, the recession had few negative effects on the industry. In fact, given the high national unemployment rate, many workers felt it necessary to acquire further training to improve their employment prospects. Furthermore, demand for skilled workers in many trades has increased, and the level of educational participation and post-secondary educational attainment has also grown. IBISWorld estimates that industry revenue has increased at anannualized rate of 4.1 percent to $17.3 billion in the five years to 2012. The industry’s ability to grow during a recession is one of the reasons it has a low risk level: 3 on a nine-point scale. Nevertheless, the industry’s risk level is expected to rise over the next five years due to growing scrutiny of the for-profit education sector.
Technical and trade schools provide concentrated training in a variety of fields at a fraction of the cost of a college degree. This factor makes the industry an attractive alternative to traditional higher education. Individuals who want to set themselves apart through specialized training, but do not want to go deeply into debt often enroll in trade schools. The recession has also driven industry growth forward: People who have not been able to find work are increasingly going back to school to find a profession. As a result, many large players experienced enrollment increases near 20 percent in 2009. However, revenue growth is expected to cool off in 2012 as the unemployment rate declines, rising 0.8 percent during the year.
Over the five years to 2012, the trade and technical schools industry has had a low risk level. During that time, the industry has experienced relatively fast growth, especially in light of the recession. The industry’s large number of scholastic offerings means that it can change in line with current trends in the economy. Furthermore, the continued development of online education courses has made the industry’s services available to a wider market.
Consequently, the industry’s contribution to the overall economy has increased over the past five years. In the 10 years to 2017, the industry’s contribution to GDP is expected to increase by 2.6 percent annually, in comparison to projected GDP growth of 1.9 percent during the same period.
However, the industry has recently experienced problems. Students have become increasingly wary of for-profit institutions due to poor media coverage and new student starts are beginningto decline for many industry operators. Consequently, the industry is expected to grow slower than the overall economy during the next five years, causing its potential risk to increase.
While the level of risk is expected to rise over the next five years, competition remains relatively low and steady. Technical and trade schools compete with each other on the basis of price, reputation, training quality, industry links and ability to attract and retain students. Schools also compete on their ability to effectively recruit; students consider the programs offered along with their flexibility, convenience and price. Price-based competition occurs among industry operators because schools generally set their own tuition fee schedules. The industry generates revenue through tuition, which varies considerably among institutions and depends both on the course and degree. For example, some courses may take as little as six weeks to complete, while others take up to two years. The additional time and resources associated with long-term courses can cause a significant discrepancy in tuition.
Industry competition remains low and steady, largely due to the variety of niche firms operating in this industry. For example, technical and trade schools include everything from barber colleges and beauty schools to flight instruction and firefighter training. Competition among segments, such as that between cosmetology and healthcare programs, occurs to a limited extent, but it only occurs among players that offer similar courses. Schools tend to specialize in one area oftraining, which limits competition. While schools primarily compete with others in the same segment, students often choose one segment over the other based on the amount of time required to complete the work.
The assortment of technical schools and training programs contributes to the industry’s low level of concentration. In 2012, the industry is estimated to include 40,094 operators. While small companies specialize in a practice area, large firms offer an array of classes. Despite this factor, the largest firms in the industry only comprise a small portion of industry revenue. In 2012, the four largest firms in the industry are estimated to generate less than 10 percent of total industry revenue. In addition to other trade and technical schools, operators also compete with other education providers, such as junior colleges.
Regulation to increase
IBISWorld projects that the Trade and Technical Schools industry's revenue will grow at an average of 1.5 percent annually in the five years to 2017 to reach $18.3 billion. During that time, the industry will be affected by increased regulation of for-profit institutions — the industry’s largest players are for-profits. Government policies pertaining to vocational education and higher education in general will also play a role in determining future performance. In 2010, federal and state investigators cracked down when allegations of inappropriate enrollment practices came to light. Some vocational-focused institutions, such as Career Education Corporation, were enrolling students who were not capable of completing courses; some other schools started operations for the sole purpose of collecting grant funds. These issues have hurt the industry's reputation as a whole and led to increased scrutiny by regulators. Therefore, it is important that institutions adhere to government regulations.
Regulation of for-profit institutions is expected to increase as the government seeks to ensure the quality of training provided to students. Over the next five years, schools will also have a higher level of accountability, as state and federal governments continue to seek value for their financial contributions. Schools that are eligible for government support will need to demonstrate that they are operating efficiently and offering high-quality training courses. Prospective students will also pay closer attention to an institution's reputation when choosing a school, indicating that quality will become a higher priority in the future. In addition to increased competition from the Junior Colleges industry, this factor will likely increase industry risk in the years to come.
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