Michael Milken, one of America’s shrewdest and most controversial investors, has dubbed education the hot new market for Wall Street. He’s bought into the nation’s leading for-profit schooling firm, and observers say he believes electronic textbooks and internet-delivered courseware are key to turning a profit in school operations.

Technology is instrumental in marketing proprietary education as well. Using an array of high-tech classroom equipment as a primary inducement for parents to enroll their children, Nobel Education Dynamics Inc. has become the nation’s fastest growing for-profit schooling company. Now, Nobel has sharply increased its high-tech connection. It is drawing on the financial and technological know-how of two of America’s shrewdest investors–erstwhile junk-bond king Michael Milken and Oracle CEO Lawrence Ellison. Oracle is the world’s second largest software company, after Microsoft.

Expanding Knowledge Universe

Milken, along with his brother Lowell, and Ellison are owners of Knowledge Universe, a $1 billion technology consulting and high-tech training company that has been rapidly expanding its education segment. Knowledge Universe bought a substantial share of Nobel last January. It also bought Children’s Discovery Centers of America, another for-profit school and child-care company.

Generating profits in school operations depends at least in part on lowering costs. Recent moves by Milken and his colleagues suggest that one way he believes cost eventually can be cut is by displacing textbooks and other printed material with electronic content distributed via the internet.

An eye on education

Milken has had his eye on education for most of this decade. Well known in financial circles in the late ’80s, Milken came to national attention when he was convicted and spent two years in prison in the early ’90s for securities violations. Since then, he has engaged in philanthropic and education initiatives that have restored his reputation in many circles. His activities include publishing a book on his experience battling cancer and establishing the Milken Family Foundation, which reportedly has given $30 million in unrestricted awards to educators.

The highly regarded newspaper Education Week recently accepted a major grant from the Milken Family Foundation for a special report on school technology. And last year, the National Association of State Boards of Education (NASBE) gave Milken an award designating him a “friend of education.”

A $47 million fine

In February, Milken agreed to pay $47 million to settle U.S. Securities and Exchange Commission (SEC) charges that he violated a lifetime ban on engaging in the securities business. The SEC ban prohibits him from earning money by acting as a broker or investment adviser. But Milken, whose personal fortune was estimated at about $700 million by Forbes magazine in September, isn’t prevented from making deals and advising managers through companies in which he owns a stake.

Consequently, his expertise now is available to Nobel’s for-profit education enterprises. Knowledge Universe paid about $8 million for a 16 percent share of Nobel. The Pennsylvania-based company runs private schools, mostly up to grade six.

Nobel runs about five schools in Nevada, one of many states, according to Nobel Chairman Jack Clegg, that look “very hard” at the profile of company insiders “before they give you a license to operate a school.”

However, Clegg said, “I understand that Milken’s problems in the past wouldn’t affect Nobel. He’s an investor, not an operator.”

Skeptics suspect Milken’s interest in education may be part of a campaign to restore his public image. Others say Milken is motivated mainly by the bottom line. “[Education] is better than investing in tobacco or financing Nike to produce sneakers in Korea at exploited wages,” said one analyst. “But it also sounds like a good investment.”

Hot school market

Education is becoming a growth industry in its own right, a fact underscored by recent consolidations and mergers among school technology companies. Of the $700 billion spent on schooling and child care each year, $80 billion goes for private, for-profit education, according to Bear Stearns & Co. analyst David Nadel. With the worsening conditions of overcrowded schools, that number will only increase, analysts say.

“It sounds as if [Milken] thinks there is going to be big money in this field if you can get in at the right time,” said William B. Griffith, chair of the department of philosophy at George Washington University. “He could be right . . . he’s a smart guy,” Griffith added.

“Fifteen years ago, he was right about [the importance of] the entertainment business,” Thomas Kalinske, president of Knowledge Universe, said of Milken’s ability to target emerging markets. “Now his view is that the educational sector is rapidly growing to be a more important part of the economy.”

Operating economies

Just as he created a huge investment market for junk bonds in the ’80s, Milken now could attract investors to proprietary school operations, Griffith said.

Not everyone sees that as an unalloyed blessing. For-profit education hasn’t worked in the past, its critics say, because the business model tends to ignore what’s best for children in favor of cost efficiencies. For-profit education turns schooling into a “caveat emptor” situation, says Griffith, where no one is accountable and profit margins are more important than education conditions.

One of the new economies in school operations will be obtaining instructional materials via the internet. And this is precisely where Knowledge Universe is targeting its expansion capital. Milken has shown a high level of interest in online publishing and distance learning. Just last month, Milken made an unsuccessful bid to acquire the education unit of Viacom’s Simon & Schuster publishing house. Milken was quoted as saying he hopes to be a “pioneer” in distance education.

Milken is not so much interested in publishing, according to a recent article in the Wall Street Journal . Rather, he is intrigued by the idea of converting textbooks into electronic form to be broadcast digitally via television and the internet. “He has this vision that he can create school courses that can be transmitted around the world,” the Journal article said.

Milken outbid

Simon & Schuster’s electronic databases would have been a good place to start. But Milken was out-bid in the purchase by London-based Pearson PLC, which owns Addison Wesley Longman (AWL), one of the world’s leading educational publishers. With the acquisition, AWL became the nation’s largest electronic instructional materials publisher, with annual sales reported to be more than $100 million.


Nobel Education Dynamics

Simon & Schuster

U.S. Securities & Exchange Commission

Forbes Magazine

Bear Stearns & Co.

George Washington University

National Association of Independent Schools

Pearson PLC