Are you ever too old to disrupt? What Penn Foster has been up to


Jan 28, 2015

You might be surprised to hear that more than 20,000 students graduated in 2014 with high school diplomas from a 125-year-old school based in Scranton, Pa. Penn Foster is a private company that operates a private online high school, career academy, and institution of higher education. Currently, the company is rapidly increasing its footprint in the high school space with a range of partnerships, a unique business model, and an eye toward serving large swaths of adults interested in going back to earn a high school diploma.

Penn Foster has a long history of nontraditional approaches to education. Newspaper editor Thomas J. Foster founded Penn Foster, originally called International Correspondence Courses, to provide coal miners with distance education opportunities to advance their careers and increase worker safety. In the early 1970s it began offering a high school curriculum as part of its career academy. Its high school enrollments saw only modest growth until the company put the product entirely online in 2006. Since then, like many online-learning companies, Penn Foster’s high school has seen significant growth. In 2014 alone, enrollments in the company’s fully online high school grew by 26 percent and enrollment in its campus-based, blended-delivery model (described below) grew by 650 percent.

Today, the high school’s customers, instructional approach, and business model all have the marks of a disruptive player.

Penn Foster is actively recruiting nonconsumers of high school—primarily adults who never completed high school—through a variety of channels. Not only does the company offer a fully online, self-paced curriculum for individuals, but it’s also finding success with blended-delivery models—that include a brick-and-mortar location where students can earn online credits—through partnerships with third-party players. The company has sold its curriculum to JobCorps and YouthBuild USA, which are nonprofits that aim to prepare young people who are not in school or working and that offer online courses at brick-and-mortar facilities around the country. Penn Foster has also started partnering with a number of for-profit colleges, which often field applications from students who don’t yet hold a high school diploma. To retain these potential customers, higher education institutions are actually paying for students to enroll in Penn Foster, often at an on-campus lab, in hopes that students will then enroll in the higher education institution once they’ve completed high school. (About 50 percent of students taking advantage of this subsidy actually end up enrolling in the private universities that paid for their diploma. Gainful employment rates for these particular students will be interesting to watch).

As we often point out, these nonconsumers tend to be prime customers for disruptive instructional models, particularly models that afford them the flexibility to learn at their own pace as many are working or have other obligations. Like many online-learning companies, Penn Foster offers a mastery-based online curriculum as well as a range of supports and interventions based on student performance along the way. (I will say, however, that at least one potentially problematic part of the model is that after a few retakes, students have to pay for reassessments, which constrains a truly competency-based approach.) These disruptive models often include new paradigms in student motivation as well. Unsurprisingly, the company is finding that student motivation is a key to keeping students enrolled in the program; as such, success rates are much higher in the blended environments offering the curriculum, like JobCorps and higher education partnerships, where students can access a teacher or other facilitator, as well as peers also enrolled in the program.

Besides its customers and instructional model, Penn Foster’s business model marks a sharp departure from our traditional education funding streams. It’s worth noting that unlike higher education in which “nonconsumer” adults can tap into a variety of public grant and loan programs, adult high school dropouts must rely on their own resources (unless they are part of an employer or institution of higher education’s subsidy program). To remain enrolled, students pay a monthly zero interest fee, with payments totaling a maximum of $1500 over three years (costs vary depending on how many credits students enter with). With a monthly payment model, as opposed to charging tuition upfront, Penn Foster may be more motivated to provide ongoing customer services and focus deeply on retention, as students who are succeeding in the curriculum are more likely to remain enrolled, paying customers. On the other hand, the company may be attracting some customers that it knows will not succeed but can still extract value from upfront. This likely depends on the varying costs of retaining different students, which is rarely made transparent in the private sector.

We sometimes make the mistake of thinking only startups can be disruptors. Penn Foster had been on a century-long sustaining innovation trajectory over the years with its higher education distance-learning opportunities. But its new ventures in the online high school space for adults mark an important new market that make it a company to watch.

Julia is the director of education research at the Clayton Christensen Institute. She leads a team that educates policymakers and community leaders on the power of disruptive innovation in the K-12 and higher education spheres.