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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 2007
Commission File No. 0-21039

Strayer Education, Inc.
(Exact name of registrant as specified in this charter)

Maryland


52-1975978(State or other jurisdiction of
incorporation or organization)


(I.R.S. Employer
Identification No.)1100 Wilson Blvd., Suite 2500
Arlington, VA


22209(Address of principal executive offices)


(Zip Code)Registrant’s telephone number, including area code:


(703)247-2500


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes[X]No[ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer’’ and ‘‘large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filer[X]Accelerated filer[ ]Non-accelerated filer[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[ ]No[X]

As of October 15, 2007, there were outstanding 14,498,955 shares of Common Stock, par value $.01 per share, of the Registrant.

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STRAYER EDUCATION, INC.
INDEX
FORM 10-Q

PART I — FINANCIAL INFORMATIONItem 1.


Financial StatementsUnaudited Condensed Consolidated Balance Sheets at December 31, 2006 and September 30, 2007




3Unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2007




4Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2006 and 2007




5Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2006 and 2007




6Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2007




7Notes to Unaudited Condensed Consolidated Financial Statements




8Item 2.


Management’s Discussion and Analysis of Financial Condition and Results of Operations




15Item 3.


Quantitative and Qualitative Disclosures About Market Risk




18Item 4.


Controls and Procedures




18PART II — OTHER INFORMATIONItem 1.


Legal Proceedings




19Item 1A.


Risk Factors




19Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds




19Item 6.


Exhibits




20SIGNATURES




21CERTIFICATIONS


2

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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

December 31,
2006


September 30,
2007ASSETSCurrent assets:Cash and cash equivalents



$
52,663




$
86,462Marketable securities available for sale, at fair value




75,763





75,958Tuition receivable, net allowances for doubtful accounts of $3,029 and $2,916 at December 31, 2006 and September 30, 2007, respectively




80,753





97,820Income taxes receivable




—





2,355Other current assets




4,653





8,449Total current assets




213,832





271,044Property and equipment, net




52,748





55,266Deferred income taxes




3,400





7,832Restricted cash




500





500Other assets




364





418Total assets



$
270,844




$
335,060LIABILITIES & STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable



$
10,923




$
12,348Accrued expenses




1,830





2,834Income taxes payable




4,979





—Unearned tuition




73,896





93,122Other current liabilities




—





281Total current liabilities




91,628





108,585Long-term liabilities




7,689





10,867Total liabilities




99,317





119,452Commitments and contingenciesStockholders’ equity:Common stock, par value $.01; 20,000,000 shares authorized; 14,293,584 and 14,498,955 shares issued and outstanding at December 31, 2006 and September 30, 2007, respectively




141





145Additional paid-in capital




87,487





99,621Retained earnings




84,043





115,867Accumulated other comprehensive loss




(144
)




(25
)Total stockholders’ equity




171,527





215,608Total liabilities and stockholders’ equity



$
270,844




$
335,060


The accompanying notes are an integral part of these condensed consolidated financial statements.

3

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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

For the three months
ended September 30,


For the nine months
ended September 30,2006


2007


2006


2007Revenues



$
56,693




$
69,813




$
189,341




$
228,881Costs and expenses:Instruction and educational support




21,613





26,242





66,370





79,215Selling and promotion




16,164





18,074





38,011





44,125General and administration




9,918





12,439





29,503





37,185Total costs and expenses




47,695





56,755





133,884





160,525Income from operations




8,998





13,058





55,457





68,356Investment and other income




1,160





1,763





3,277





4,783Income before income taxes




10,158





14,821





58,734





73,139Provision for income taxes




3,822





5,546





22,423





27,698Net income



$
6,336




$
9,275




$
36,311




$
45,441Net income per share:Basic



$
0.45




$
0.65




$
2.56




$
3.19Diluted



$
0.44




$
0.64




$
2.50




$
3.13Weighted average shares outstanding:Basic




14,157





14,280





14,204





14,250Diluted




14,462





14,557





14,506





14,510


The accompanying notes are an integral part of these condensed consolidated financial statements.

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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(in thousands)

For the three months
ended September 30,


For the nine months
ended September 30,2006


2007


2006


2007Net income



$
6,336




$
9,275




$
36,311




$
45,441Other comprehensive income:Unrealized gains on investment, net of taxes




207





177





102





119Comprehensive income



$
6,543




$
9,452




$
36,413




$
45,560


The accompanying notes are an integral part of these condensed consolidated financial statements.

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STRAYER EDUCATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)

Common Stock


Additional
Paid-in
Capital


Retained
Earnings


Accumulated
Other
Comprehensive
(Loss) Income


TotalShares


AmountBalance at December 31, 2005




14,292,249




$
143




$
104,923




$
47,020




$
(246
)



$
151,840Exercise of stock options




147,334





2





6,502





—





—





6,504Tax benefit from exercise of stock options




—





—





3,540





—





—





3,540Repurchase of common stock




(276,766
)




(3
)




(27,036
)




—





—





(27,039
)Restricted stock grants




201,067





—





—





—





—





—Stock-based compensation




—





—





5,072





—





—





5,072Common stock dividends




—





—





—





(10,795
)




—





(10,795
)Change in net unrealized gains on marketable securities, net of income tax




—





—





—





—





102





102Net income




—





—





—





36,311





—





36,311Balance at September 30, 2006




14,363,884




$
142




$
93,001




$
72,536




$
(144
)



$
165,535


Common Stock


Additional
Paid-in
Capital


Retained
Earnings


Accumulated
Other
Comprehensive
(Loss) Income


TotalShares


AmountBalance at December 31, 2006




14,293,584




$
141




$
87,487




$
84,043




$
(144
)



$
171,527Exercise of stock options




341,667





3





13,687





—





—





13,690Tax benefit from exercise of stock options




—





—





11,104





—





—





11,104Repurchase of common stock




(157,914
)




(2
)




(19,994
)




—





—





(19,996
)Restricted stock grants




21,618





3





(3
)




—





—





—Stock-based compensation




—





—





7,340





—





—





7,340Common stock dividends




—





—





—





(13,617
)




—





(13,617
)Change in net unrealized gains on marketable securities, net of income tax




—





—





—





—





119





119Net income




—





—





—





45,441





—





45,441Balance at September 30, 2007




14,498,955




$
145




$
99,621




$
115,867




$
(25
)



$
215,608


The accompanying notes are an integral part of these condensed consolidated financial statements.

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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

For the nine months
ended September 30,2006


2007Cash flows from operating activities:Net income



$
36,311




$
45,441Adjustments to reconcile net income to net cash provided by operating
activities:Amortization of deferred rent




136





(28
)Amortization of gain on sale of assets




—





(29
)Depreciation and amortization




5,165





6,235Provision for student loan losses




(95
)




—Deferred income taxes




(2,641
)




(4,523
)Stock-based compensation




5,072





7,340Changes in assets and liabilities:Tuition receivable, net




(19,949
)




(17,067
)Other current assets




(1,911
)




(3,781
)Other assets




(474
)




(54
)Accounts payable




4,081





1,583Accrued expenses




471





1,004Income taxes payable




(4,790
)




3,770Excess tax benefits from stock-based payment arrangements




(3,540
)




(11,104
)Unearned tuition




21,509





19,226Deferred lease incentives




—





756Student loans originated




(3
)




—Collections on student loans receivable and held for sale




23





—Net cash provided by operating activities




39,365





48,769Cash flows from investing activities:Purchases of property and equipment




(8,933
)




(11,905
)Proceeds from sale of property and equipment




—





5,754Purchases of marketable securities




(30,000
)




—Net cash used in investing activities




(38,933
)




(6,151
)Cash flows from financing activities:Common dividends paid




(10,795
)




(13,617
)Proceeds from exercise of stock options




6,504





13,690Excess tax benefits from stock-based payment arrangements




3,540





11,104Repurchase of common stock




(27,039
)




(19,996
)Net cash used in financing activities




(27,790
)




(8,819
)Net (decrease) increase in cash and cash equivalents




(27,358
)




33,799Cash and cash equivalents – beginning of period




74,212





52,663Cash and cash equivalents – end of period



$
46,854




$
86,462Non-cash transactions:Purchases of property and equipment included in accounts payable



$
516




$
343


The accompanying notes are an integral part of these condensed consolidated financial statements.

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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Information as of September 30, 2006 and 2007 is unaudited.

1.    Basis of Presentation

The financial statements are presented on a consolidated basis. The accompanying financial statements include the accounts of Strayer Education, Inc., Strayer University, Inc. (the ‘‘University’’) and Education Loan Processing, Inc. (‘‘ELP’’), collectively referred to herein as the ‘‘Company’’.

The results of operations for the three months and nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for the full fiscal year. All information as of September 30, 2006, December 31, 2006 and September 30, 2007 and for the three and nine months ended September 30, 2006 and 2007 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations and cash flows of the Company. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The Company’s educational programs are offered on a quarterly basis. Approximately 97% of the Company’s revenues during the nine months ended September 30, 2007 consisted of tuition revenue. Tuition revenue is recognized in the quarter of instruction. Tuition revenue is shown net of any refunds, withdrawals, corporate discounts, scholarships and employee tuition discounts. At the time of registration, a liability (unearned tuition) is recorded for academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid upfront in cash. Revenues also include application fees, commencement fees, placement test fees, withdrawal fees, loan service and origination fees, textbook-related income and other income, which are recognized when incurred.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

2.    Nature of Operations

Strayer Education, Inc., a Maryland corporation, conducts its operations through its subsidiaries. The University is an accredited institution of higher education that provides undergraduate and graduate degrees in various fields of study through its 51 campuses in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C. and worldwide via the Internet. ELP originates and administers student loans for the University’s students. These loans are held for sale.

3.   Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options and restricted stock. The dilutive effect of stock options was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options, the amount of compensation cost for future service not yet recognized by the Company, and the amount of tax benefits that would be recorded in additional paid-in capital when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options are not included in the computation of diluted earnings per share when the stock option exercise price of an individual grant exceeds the average market price for the period. At September 30, 2007, the Company had no issued and outstanding stock options that were excluded from the calculation.

8

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Set forth below is a reconciliation of shares used to compute net income per share (in thousands):

For the three months
ended September 30,


For the nine months
ended September 30,2006


2007


2006


2007Weighted average shares outstanding used to compute basic net income per share




14,157





14,280





14,204





14,250Incremental shares issuable upon the assumed exercise of stock options




272





158





289





169Unvested restricted stock




33





119





13





91Shares used to compute diluted net income per share




14,462





14,557





14,506





14,510


4.     Credit Facilities

The Company maintains two credit facilities from two banks in the amount of $10.0 million each. Interest on any borrowings under the facilities will accrue at an annual rate of no more than 0.75% above the London Interbank Offered Rate. There was no outstanding balance and there were no fees payable on either facility as of September 30, 2007. An unsecured letter of credit in the amount of $1.2 million, which expires in July 2008, was issued by the University in favor of the U.S. Department of Education as required under applicable regulations to secure any unpaid loan refunds due to lenders.

5.     Stockholders’ Equity

Common Stock

A total of 20,000,000 shares of common stock, par value $0.01, have been authorized. As of December 31, 2006 and September 30, 2007, the Company had 14,293,584 and 14,498,955 shares of common stock issued and outstanding, respectively. Commencing in the fourth quarter of 2007, the Company will increase the annual common stock cash dividend from $1.25 to $1.50 per share or $0.375 per share quarterly. In October 2007, the Board of Directors of the Company also declared a special common stock cash dividend of $2.00 per share payable on January 16, 2008 to shareholders of record as of January 2, 2008.

Stock-based compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R),Share-based Payment, (‘‘SFAS 123(R)’’) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to the Company’s Employee Stock Purchase Plan (‘‘employee stock purchases’’), based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees(‘‘APB 25’’) for periods beginning January 1, 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (‘‘SAB 107’’) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method provided under the rule, which requires the application of the accounting standard as of January 1, 2006. The Company’s consolidated financial statements as of and for the three and nine months ended September 30, 2006 and 2007 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method provided under the rule, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The Company has elected to estimate fair value using the Black-Scholes option pricing valuation model. The value of the portion of the award that is ultimately

9

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expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of Income. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 pursuant to Statement of Financial Accounting Standards No. 123,Accounting for Stock-based Compensation(‘‘SFAS 123’’). Under the intrinsic value method, no stock-based compensation expense was recognized in the Company’s Consolidated Statements of Income because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

Stock-based compensation expense recognized in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2007 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Stock-based compensation expense recognized in the Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2007 is based on awards ultimately expected to vest and, therefore, has been adjusted for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

Stock-based compensation plans

In July 1996, the Company’s stockholders approved 1,500,000 shares of common stock for grants under the Company’s 1996 Stock Option Plan. This plan was amended by the stockholders at the May 2001 Annual Stockholders’ Meeting and at the May 2005 Annual Stockholders’ Meeting to increase the number of shares authorized for issuance thereunder by 1,000,000 and 500,000, respectively (as amended, the ‘‘Plan’’). A total of 3,000,000 shares have therefore been approved for grants under the Plan. The Plan was again amended at the May 2006 Annual Stockholders’ Meeting to authorize a one-time exchange of stock options for restricted stock by employees (excluding the five highest compensated executive officers) and to permit restricted stock and cash awards to qualify for favorable tax treatment under Section 162(m) of the Internal Revenue Code. The Plan provides for the grant of options intended to qualify as incentive stock options, and also provides for the grant of non-qualifying options and restricted stock to employees, officers and directors of the Company. Options and restricted stock may be granted to eligible employees, officers or directors of the Company at the discretion of the Board of Directors. Vesting provisions are also at the discretion of the Board of Directors. Options may be granted at option prices based at or above the fair market value of the shares at the date of grant. The maximum term of the options granted under the Plan is ten years.

In May 1998, the Company adopted the Strayer Education, Inc. Employee Stock Purchase Plan (‘‘ESPP’’). Under the ESPP, eligible employees may purchase shares of the Company’s common stock, subject to certain limitations, at 90% of its market value at the date of purchase. Purchases are limited to 10% of an employee’s eligible compensation. The aggregate number of shares of common stock that may be made available for purchase by participating employees under the ESPP is 2,500,000 shares.

In February 2006, the Company’s Board of Directors approved cash payments to the holders of vested stock options in an amount equivalent to the Company’s common stock dividends. These cash payments are remitted on the same dates as the Company’s dividends and amounted to approximately $0.2 million and $0.1 million for the three months ended September 30, 2006 and 2007, respectively, and approximately $0.5 million and $0.3 million for the nine months ended September 30, 2006 and 2007, respectively.

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In February 2007, the Company’s Board of Directors approved a grant of 20,016 shares of restricted stock to certain employees. These shares vest 100% on February 13, 2010. The Company’s stock price closed at $113.72 on the date of the restricted stock grant.

In May 2007, the Company awarded 3,742 shares of restricted stock to various non-employee members of the Company’s Board of Directors as part of its annual director compensation program. These shares vest over three years, with one-third of the stock vesting each year. The Company’s stock price closed at $128.67 on the date of this restricted stock grant.

In July 2007, the Company’s Board of Directors approved a grant of 1,120 shares of restricted stock to certain employees. These shares vest 100% on July 23, 2010. The Company’s stock price closed at $138.49 on the date of the restricted stock grant.

The table below sets forth the stock option activity for the nine months ended September 30, 2007 and other stock option information at September 30, 2007:

Number of
shares


Weighted-
average
exercise price


Weighted-
average
remaining
contractual
life (yrs.)


Aggregate
intrinsic value(1)(in thousands)Balance, December 31, 2006




762,334




$
56.42





2.6




$
37,338Grants




—





—Exercises




(341,667
)




40.07Forfeitures




—





—Balance, September 30, 2007




420,667




$
69.70





2.7




$
41,618Vested, September 30, 2007




260,250




$
46.05





1.0




$
31,901Exercisable, September 30, 2007




260,250




$
46.05





1.0




$
31,901


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|(1) | The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2007. The amount of aggregate intrinsic value will change based on the fair market value of our stock.
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The following table summarizes information regarding stock option exercises for the nine months ended September 30, 2006 and 2007 (in thousands):

For the nine months ended
September 30,2006


2007Proceeds from stock options exercised



$
6,504




$
13,690Tax benefits related to stock options exercised



$
3,540




$
11,104Intrinsic value of stock options exercised(1)



$
9,098




$
29,126


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|(1) | Intrinsic value of stock options exercised is estimated by taking the difference between the Company’s closing stock price on the date of exercise and the exercise price, multiplied by the number of options exercised for each option holder and then aggregated.
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The following table summarizes information about the stock options to purchase the Company’s common stock at September 30, 2007:

Options Outstanding


Options ExercisableRange of
exercise prices


Number
outstanding
at 9/30/07


Weighted-
average
remaining
contractual life (yrs.)


Weighted-
average
exercise price


Number
exercisable
at 9/30/07


Weighted-
average
exercise price$33.69-$67.84




260,250





1.0




$
46.05





260,250




$
46.05$107.28-$107.28




150,417





5.4




$
107.28





—





—$119.72-$119.72




10,000





4.6




$
119.72





—





—420,667





2.7




$
69.70





260,250




$
46.05


11

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The table below sets forth the restricted stock activity for the nine months ended September 30, 2007:

Number of
shares


Weighted-
average
grant priceBalance, December 31, 2006




205,567




$
102.37Grants




24,878




$
117.09Vested shares




(1,543
)



$
103.60Forfeitures




(3,260
)



$
103.39Balance, September 30, 2007




225,642




$
103.97


At September 30, 2007, total stock-based compensation cost which has not yet been recognized was $13.6 million, representing $11.5 million for unvested restricted stock and $2.1 million for unvested stock options. This cost is expected to be recognized over the next 34 months on a weighted-average basis.

Valuation and Expense Information Under SFAS 123(R)

The following table summarizes the stock-based compensation expense recorded for the three and nine months ended September 30, 2006 and 2007 by expense line item (in thousands):

For the three months
ended September 30,


For the nine months
ended September 30,2006


2007


2006


2007Instruction and educational support



$
149




$
167




$
488




$
510Selling and promotion




136





164





409





470General and administration




1,899





2,248





4,634





6,639Stock-based compensation expense included in operating expense




2,184





2,579





5,531





7,619Tax benefit




822





980





2,111





2,895Stock-based compensation expense, net of tax



$
1,362




$
1,599




$
3,420




$
4,724


Stock-based compensation expense recognized in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2007 is based on awards ultimately expected to vest and, therefore, has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

6.    Investments in Marketable Securities

Most of the Company’s excess cash is invested in tax-exempt money market funds and a diversified, short-term, investment grade, tax-exempt bond fund to minimize the Company’s principal risk and to benefit from the tax efficiency of the fund’s underlying securities. As of September 30, 2007, the Company had a total of $76.0 million invested in the short-term tax-exempt bond fund. The investments are considered ‘‘available-for-sale’’ as they are not held for trading and will not be held to maturity, in accordance with Statement of Financial Accounting Standards No. 115,Accounting for Certain Investments in Debt and Equity Securities.The Company records the net unrealized gains and losses for changes in fair value as a component of accumulated other comprehensive income in stockholders’ equity. Realized gains and losses from the sale of marketable securities are based on the specific identification method.

7.    Long-Term Liabilities

Lease Incentives

In conjunction with the opening of new campuses and the renovation of existing ones, the Company, in some instances, was reimbursed by the lessors for improvements made to the leased properties. In accordance with Financial Accounting Standards Board (‘‘FASB’’) Technical Bulletin No. 88-1, these

12

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improvements were capitalized as leasehold improvements and a long-term liability was established for the reimbursements. The leasehold improvements and the long-term liability will be amortized on a straight-line basis over the corresponding lease terms, which range from five to ten years. As of December 31, 2006 and September 30, 2007, the Company had deferred lease incentives of $3.9 million and $3.9 million, respectively.

Lease Obligations

In accordance with the FASB Technical Bulletin No. 85-3,Accounting for Operating Leases with Schedule Rent Increases, the Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as a long-term liability. As of December 31, 2006 and September 30, 2007, the Company had deferred lease obligations of $3.8 million and $4.5 million, respectively.

Deferred Gain

In conjunction with the sale and lease back of its Loudoun, Virginia campus building in June 2007, the Company realized a gain of $2.8 million before tax, which is deferred and recognized over the 10-year lease term. The non-current portion of this gain, which was $2.5 million at September 30, 2007, is recorded as a long-term liability.

8.    Income Taxes

The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes (‘‘FIN 48’’), an interpretation of FASB Statement No. 109 (‘‘SFAS 109’’) on January 1, 2007. As a result of the implementation of FIN 48, no material adjustment in the liability for unrecognized income tax benefits was recognized. The amount of unrecognized tax benefits at the adoption date of January 1, 2007 and at September 30, 2007 are immaterial. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2007, the amount of accrued interest related to uncertain tax positions was immaterial. The tax years 2003-2006 remain open to examination by the major taxing jurisdictions to which the Company is subject.

9.    Sale of Campus Building

In June 2007, the Company sold its Loudoun, Virginia campus building for $5.8 million. The Company is leasing back most of the campus building over a 10-year period. The transaction resulted in a gain of $2.8 million before tax, which is to be recognized over the 10-year lease term.

10.    Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157 (‘‘SFAS 157’’),Fair Value Measurements, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided that the company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company is currently evaluating the impact of SFAS 157, but does not expect the adoption of SFAS 157 to have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158. ‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans’’ (‘‘SFAS 158’’), an amendment to FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit pension and other postretirement benefit plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other nonowner changes in equity. The standard also requires

13

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disclosure in the notes to the financial statements of additional information about certain effects on net periodic benefit costs of the next fiscal year that arise from delayed recognition of gains or losses, prior services costs and transition asset or obligation. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The Company does not expect the adoption of SFAS 158 will have a material effect on the Company’s financial position or results of operations since it has no defined benefit pension or other postretirement plan.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, ‘‘The Fair Value Option for Financial Assets and Financial Liabilities’’ (‘‘SFAS 159’’). This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the first fiscal year beginning after November 15, 2007. The Company is evaluating the statement but does not expect the adoption of SFAS 159 will have a material effect on the Company’s financial position or results of operations.

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ITEM 2:    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Cautionary Notice Regarding Forward Looking Statements

Certain of the statements included in this ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ as well as elsewhere in this report on Form 10-Q are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 (‘‘Reform Act’’). These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. In accordance with the safe harbor provisions of the Reform Act, the Company has identified important factors that could cause the actual results to differ materially from those expressed in or implied by such statements. The assumptions, uncertainties and risks include the pace of growth of student enrollment, our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as regional accreditation standards and state and regional regulatory requirements, competitive factors, risks associated with the opening of new campuses, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing educational institutions, risks relating to the timing of regulatory approvals, our ability to continue to implement our growth strategy, and general economic and market conditions. Further information about these and other relevant risks and uncertainties may be found in the Company’s annual report on Form 10-K and its other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward looking statements.

Additional Information

We maintain a website athttp://www.strayereducation.com. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q and our web address is included as an inactive textual reference only. We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Results of Operations

In the third quarter of 2007, the Company generated $69.8 million in revenue, an increase of 23% compared to the same period in 2006, as a result of average enrollment growth of 19% and a 5% tuition increase at the beginning of 2007. Income from operations was $13.1 million for the third quarter of 2007, an increase of 45% compared to the same period in 2006. Net income was $9.3 million, an increase of 46% in the third quarter of 2007 compared to the same period in 2006. Diluted earnings per share was $0.64 in the third quarter of 2007 compared to $0.44 in the same period in 2006.

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

Enrollment.Enrollment at Strayer University for the 2007 summer term, which began June 25, 2007 and ended September 10, 2007, increased 19% to 28,461 students compared to 23,932 for the same term in 2006. Across the Strayer University campus and online system, new student enrollments increased 15% and continuing student enrollments increased 20%. Out of area online enrollments increased 19%. Students taking 100% of their classes online (including campus based students) increased 21%. The total number of students taking at least one course online in the 2007 summer term increased 22% to 20,704.

Revenues.Revenues increased 23% from $56.7 million in the third quarter of 2006 to $69.8 million in the third quarter of 2007 principally due to a 19% increase in the average enrollment and a 5% tuition increase in 2007.

Instruction and educational support expenses.Instruction and educational support expenses increased $4.6 million, or 21%, from $21.6 million in the third quarter of 2006 to $26.2 million in the third quarter of 2007. This increase was principally due to direct costs necessary to support the increase in student enrollments, including faculty compensation, related academic staff salaries, and campus facility costs, which increased $1.1 million, $1.2 million, and $1.2 million, respectively. Instruction and educational support expenses as a percentage of revenues decreased to 37.6% in the third quarter of 2007 from 38.1% in the third quarter of 2006.

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Selling and promotion expenses.Selling and promotion expenses increased $1.9 million, or 12%, from $16.2 million in the third quarter of 2006 to $18.1 million in the third quarter of 2007. This increase was principally due to the direct costs required to build the Strayer University brand and to attract prospective students, and the addition of admissions personnel, particularly at new campuses. Selling and promotion expenses as a percentage of revenues decreased from 28.5% in the third quarter of 2006 to 25.9% in the third quarter of 2007.

General and administration expenses.General and administration expenses increased $2.5 million, or 25%, from $9.9 million in the third quarter of 2006 to $12.4 million in the third quarter of 2007. This increase was principally due to increased employee compensation and related expenses, higher stock-based compensation, and higher bad debt expense, which increased $0.9 million, $0.4 million and $0.7 million, respectively. General and administration expenses as a percentage of revenues increased to 17.8% in the third quarter of 2007 from 17.5% in the third quarter of 2006 primarily due to the above factors.

Income from operations.Income from operations increased $4.1 million, or 45%, from $9.0 million in the third quarter of 2006 to $13.1 million in the third quarter of 2007 due to the aforementioned factors.

Investment and other income.Investment and other income increased $0.6 million, or 52%, from $1.2 million in the third quarter of 2006 to $1.8 million in the third quarter of 2007. The increase was mostly attributable to an increase in investment yields and a higher average cash balance.

Provision for income taxes.Income tax expense increased $1.7 million, or 45%, from $3.8 million in the third quarter of 2006 to $5.5 million in the third quarter of 2007, primarily due to the increase in income before taxes attributable to the factors discussed above. The Company’s effective tax rate was 37.4% for the third quarter of 2007, a decrease compared to 37.6% for the third quarter of 2006, resulting primarily from higher income from investments in tax-exempt securities.

Net income.Net income increased $3.0 million, or 46%, from $6.3 million in the third quarter of 2006 to $9.3 million in the third quarter of 2007 because of the factors discussed above.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

Enrollment.Average enrollment increased 17% to 30,756 students for the nine months ended September 30, 2007 compared to 26,280 students for the same period in 2006.

Revenues.Revenues increased 21% from $189.3 million in the nine months ended September 30, 2006 to $228.9 million in the nine months ended September 30, 2007, principally due to a 17% average increase in student enrollments and a 5% tuition increase effective for 2007.

Instruction and educational support expenses.Instruction and educational support expenses increased $12.8 million, or 19%, from $66.4 million in the nine months ended September 30, 2006 to $79.2 million in the nine months ended September 30, 2007. This increase was principally due to direct costs necessary to support the increase in student enrollments, including faculty compensation, related academic staff salaries, and campus facility costs, which increased $4.3 million, $3.4 million, and $2.6 million, respectively. These expenses as a percentage of revenues decreased from 35.1% in the nine months ended September 30, 2006 to 34.6% in the nine months ended September 30, 2007.

Selling and promotion expenses.Selling and promotion expenses increased $6.1 million, or 16%, from $38.0 million in the nine months ended September 30, 2006 to $44.1 million in the nine months ended September 30, 2007. This increase was principally due to the direct costs required to build the Strayer University brand and to attract prospective students, and the addition of admissions personnel, particularly at new campuses. These expenses as a percentage of revenues decreased from 20.1% in the nine months ended September 30, 2006 to 19.3% in the nine months ended September 30, 2007.

General and administration expenses.General and administration expenses increased $7.7 million, or 26%, from $29.5 million in the nine months ended September 30, 2006 to $37.2 million in the nine months ended September 30, 2007. This increase was principally due to increased employee compensation and related expenses, higher stock-based compensation, and higher bad debt expense, which increased $2.5 million, $2.0 million, and $2.1 million, respectively. General and administration expenses as a

16

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percentage of revenues increased from 15.6% in the nine months ended September 30, 2006 to 16.2% in the nine months ended September 30, 2007 primarily due to the above factors.

Income from operations.Income from operations increased $12.9 million, or 23%, from $55.5 million in the nine months ended September 30, 2006 to $68.4 million in the nine months ended September 30, 2007 due to the aforementioned factors.

Investment and other income.Investment and other income increased $1.5 million, or 46%, from $3.3 million in the nine months ended September 30, 2006 to $4.8 million in the nine months ended September 30, 2007. The increase was primarily attributable to an increase in investment yields and a higher average cash balance.

Provision for income taxes.Income tax expense increased $5.3 million, or 24%, from $22.4 million in the nine months ended September 30, 2006 to $27.7 million in the nine months ended September 30, 2007, primarily due to the increase in income before taxes discussed above. The Company’s effective tax rate was 37.9% for the nine months ended September 30, 2007 compared to 38.2% for the nine months ended September 30, 2006. The decrease in the Company’s effective tax rate is primarily attributable to higher income from investments in tax-exempt securities.

Net income.Net income increased $9.1 million, or 25%, from $36.3 million in the nine months ended September 30, 2006 to $45.4 million in the nine months ended September 30, 2007 because of the factors discussed above.

Liquidity and Capital Resources

At September 30, 2007, the Company had cash, cash equivalents and marketable securities of $162.4 million compared to $128.4 million at December 31, 2006 and $122.6 million at September 30, 2006. Most of the Company’s excess cash is invested in tax-exempt money market funds and a diversified, short-term, investment grade, tax-exempt bond fund to minimize the Company’s principal risk and to benefit from the tax efficiency of the funds’ underlying securities. As of September 30, 2007, the Company had a total of $76.0 million invested in the short-term tax-exempt bond fund. At September 30, 2007, the 450 issues in this fund had an average credit rating of AA+, an average maturity and an average duration of 1.2 years, as well as an average yield to maturity of 3.7%. The Company had no debt as of December 31, 2006 or September 30, 2007.

For the nine months ended September 30, 2007, the Company generated $48.8 million net cash from operating activities compared to $39.4 million for the same period in 2006. Capital expenditures were $11.9 million for the nine months ended September 30, 2007 compared to $8.9 million for the same period in 2006. The Company generated $5.8 million in net proceeds from the sale of its Loudoun, Virginia campus building in June 2007. For the nine months ended September 30, 2007, the Company paid $13.6 million in cash dividends to its common stockholders and received $13.7 million upon the exercise of stock options. Commencing in the fourth quarter of 2007, the Company will increase the annual common stock cash dividend from $1.25 to $1.50 per share, or from $0.3125 to $0.375 per share quarterly. The Company will also pay a special common stock cash dividend of $2.00 per share on January 16, 2008 to shareholders of record as of January 2, 2008.

During the three months ended September 30, 2007, the Company spent $4.0 million for the repurchase of 25,150 shares of common stock at an average price of $158.93 per share as part of a previously announced common stock repurchase authorization. The Company’s remaining authorization for common stock repurchases was $12.0 million at September 30, 2007, having spent $20.0 million for repurchases in the nine months ended September 30, 2007. On October 30, 2007, the Company’s Board of Directors amended the share repurchase program to authorize the repurchase of an additional $88 million in value of the Company’s common stock over the next 14 months. As a result, the total remaining amount authorized for share repurchases under the program was $100 million as of October 30, 2007.

In the third quarter of 2007, bad debt expense as a percentage of revenue was 3.5% compared to 3.2% for the same period in 2006. Days sales outstanding, adjusted to exclude tuition receivable related to future quarters, was 12 days at the end of the third quarter of 2007, compared to 10 days in the same period in 2006.

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Currently, the Company invests its cash in bank overnight deposits, money market funds and a short-term tax-exempt bond fund. In addition, the Company has available two $10.0 million credit facilities from two banks. There have been no borrowings by the Company under these credit facilities. The Company believes that existing cash, cash equivalents, and marketable securities, cash generated from operating activities, and if necessary, cash borrowed under the credit facilities, will be sufficient to meet the Company’s requirements for at least the next 12 months.

The table below sets forth our contractual commitments associated with operating leases as of September 30, 2007.

Payments due by period (in thousands)Total


Within 1 Year


2-3 Years


4-5 Years


After 5 YearsOperating leases



$
127,689




$
16,821




$
37,086




$
31,604




$
42,178


New Campuses

The Company is planning to open nine new campuses in 2008. Subject to the completion of regulatory approvals, the first two campuses, in Charlotte and Raleigh, North Carolina, are currently slated for a winter term 2008 start of classes.These new campuses will be the third in each of these markets.

ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

The Company is subject to the impact of interest rate changes and may be subject to changes in the market values of its future investments. The Company invests its excess cash in bank overnight deposits, money market funds and a short-term tax-exempt bond fund. The Company has not used derivative financial instruments in its investment portfolio.

Earnings from investments in bank overnight deposits, money market mutual funds, and short-term tax-exempt bond funds may be adversely affected in the future should interest rates change. The Company’s future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. As of September 30, 2007, a 10% increase or decrease in interest rates would not have a material impact on the Company’s future earnings, fair values, or cash flows related to investments in cash equivalents or interest earning marketable securities.

ITEM 4:    CONTROLS AND PROCEDURES

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) | Disclosure Controls and Procedures.The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2007. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that the Company has in place, as of September 30, 2007, effective controls and procedures designed to ensure that information required to be disclosed by the Company (including consolidated subsidiaries) in the reports it files or submits under the Securities Exchange Act of 1934, as amended, and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

|   |                                                                                                                                                                                                                                                                                                                        
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|b) | Internal Control Over Financial Reporting.There have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

The Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any of these legal matters will have a material adverse effect on our results of operations or financial condition.

|         |             
|-------- | ------------
|Item 1A. | Risk Factors

There have been no material changes to the risk factors previously described in Part I, Item 1A included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended September 30, 2007, the Company used $4.0 million to repurchase shares of common stock under its repurchase program(1). The Company’s remaining authorization for common stock repurchases was $12.0 million at September 30, 2007. On October 30, 2007, the Company’s Board of Directors amended the share repurchase program to authorize the repurchase of an additional $88 million in value of the Company’s common stock over the next 14 months. As a result, the total remaining amount authorized for share repurchases under the program was $100 million as of October 30, 2007. A summary of the Company’s share repurchases during the quarter is set forth below:

Total number
of shares
purchased


Average
price paid
per share


Total number of
shares purchased
as part of
publicly
announced plans
or programs


Approximate
dollar value of
shares that may
yet be purchased
under the plans
or programs
($mil)Beginning Balance (at 6/30/07)





















$
16.0July




—





—





—





16.0August




12,900




$
154.97





12,900





14.0September




12,250





163.10





12,250





12.0Total




25,150




$
158.93





25,150




$
12.0


|
|
|
|

|(1) | The Company’s repurchase program was announced on November 3, 2003 for repurchases up to an aggregate amount of $15 million in value of common stock through December 31, 2004. The Board of Directors amended the program on various dates increasing the amount authorized and extending the expiration date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|        |                                 
|------- | --------------------------------
|Item 3. | Defaults Upon Senior Securities.

None

|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matter to a Vote of Security Holders.

None

|        |                   
|------- | ------------------
|Item 5. | Other Information.

None

|        |          
|------- | ---------
|Item 6. | Exhibits.

|     |                                                                                           
|---- | ------------------------------------------------------------------------------------------
|31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Act.

|     |                                                                                           
|---- | ------------------------------------------------------------------------------------------
|31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Act.

|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

STRAYER EDUCATION, INC.

By:/s/ Mark C. Brown

Mark C. Brown
Senior Vice President and Chief Financial Officer

Date: November 2, 2007

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Exhibit Index

Exhibit


Description31.1


Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Act.31.2


Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Act.32.1


Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2


Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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