For-Profit Educators' Holy Grail

Viewers of Time Warner's (NYSE: TWX) short-lived HBO miniseries on the lives and loves of lobbyists, K Street, can be forgiven for having the impression that Washington is a twilight zone in which inscrutable people do unfathomable things with taxpayers' money. Heck, I live on the outskirts of D.C., and were it not for the insightful reporting of The Washington Post, I'd never have known there was such a thing as H.R. 4283.

But thanks to the Post, I do know now. So here's a short rundown of the bill for Foolish investors in the for-profit education arena. House of Representatives Bill No. 4283, known to its friends as the "College Access and Opportunity Act of 2004," is, in short, the holy grail for the for-profit education industry. Among many (and I mean many) other things, what H.R. 4283 does is authorize the transfer of credits from schools that are not necessarily "accredited" to schools that are.

To frame the issue in terms more relevant to investors in companies such as Career Education (Nasdaq: CECO), Corinthian Colleges (Nasdaq: COCO), Apollo Group (Nasdaq: APOL), Strayer Education (Nasdaq: STRA), and DeVry (NYSE: DV), H.R. 4283 would require public and private not-for-profit (NFP) universities to accept the transfer of credits from these for-profit educators -- just as if they had been earned at the NFP school.

From the NFPs' perspective, this is a terrible requirement. It means that a student doesn't necessarily have to pay the full cost of four (more commonly, five or six) years of tuition to bag a sheepskin from a prestigious NFP. Of course, the student would argue that she has anted up -- she just gave part of the loot to a for-profit company of her choice and the rest to the NFP. That's an argument that the for-profits support and one implicitly endorsed in the language of H.R. 4283.

The implications for the for-profit schools are obvious. If H.R. 4283 passes more or less in its current form, students will be more willing to spend their education dollars wherever they think best. This will remove a huge disincentive to pay for coursework at a for-profit school by removing the risk that the student will have to repay to take the same course again at an NFP. It opens up the possibility that the for-profits' past huge growth in revenues and earnings may continue in the future.

Considering an investment in the for-profit education sector? Before you do, educate yourself on the industry's legal woes by reading these Foolish articles:

• Corinthian Cools Off
• Is ITT in Trouble?
• ITT Just Does It
• ITT: Risky, but Cheap

Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.