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These Schools Are Getting Schooled

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Shares of many leading post-secondary school operators are flunking out this morning, after a bleak report on crummy student loan repayment rates surfaced over the weekend.

ITT Educational Services (NYSE: ESI  ) , Corinthian Colleges (Nasdaq: COCO  ) , Strayer (Nasdaq: STRA  ) , and even Kaplan parent Washington Post (NYSE: WPO  ) opened to double-digit percentage declines, after a government report indicated repayment rates of less than 35% at the for-profit educators.

You read that right. It seems that more than two-thirds of the students enrolling in courses at those institutions aren't paying back their loans. At Strayer, only 24% of its enrollees ultimately repay their debt.

The Department of Education is considering putting an end to government-backed loans at schools with inadequate repayment rates, adding insult to empty-pocketed injury. The move makes sense, since the country's already coping with the aftermath of deadbeat mortgagers. The last thing it needs is a wave of deadbeat grads.

The illuminating data deals a nasty blow to an industry that seemed to buck against the recession. Many for-profit educators got high marks during the economic downturn, as consumers made the most of the lull to brush up on their marketable skills.

Sure, there have always been accusations of aggressive marketing strategies, but at least it didn't seem as if for-profit education was a bad business model.

Some educators are holding up better than others. American Public Education (Nasdaq: APEI  ) , Grand Canyon (NYSE: LOPE  ) , and Bridgepoint (NYSE: BPI  ) -- three educators that weren't even trading publicly three years ago -- are among the stronger performers when it comes to repayment.

It's easy to see why American Public's near the top. The company targets military personnel and their families for its web-based courses; one would expect a bit more discipline and responsibility among that base of students.

In the end, this eye-opening report will create a new wrinkle for investors performing due diligence before buying into the for-profit education sector. The market for economical and convenient alternatives to costly campuses and trade schools won't go away, and any shakeout will only enhance the position of the survivors.

Once the dust settles, be ready to pounce on the right names. You don't need a post-secondary education to know that much.

Have you ever taken any post-secondary courses through any of these educators? Share your experiences in the comment box below.

Longtime Fool contributor Rick Munarriz got his MBA the old-fashioned way. The real world still had plenty left to teach him. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 16, 2010, at 10:47 PM, mjfoysr11 wrote:

    I'm a graduate of Computer Learning Center in Philly. They were closed because of actions of the DoE in 2001. I make over $70K my son graduated from Lincoln Tech. He makes over $45K.The real issue is the public colleges have funding not available to the for profits and their prices are therefore subsidized. Another issue is that the four regional accrediting agencies have pushed to discredit national accreditation. They are both Approved by the DoE and most are members of CHEA. I have attended both types of schools and have found them very similar. Attendance in the national schools is closely monitored. Excessive absenteeism 10-25% could cause failure in a course or expulsion from school. I did not find this at the regional colleges.

  • Report this Comment On August 17, 2010, at 9:20 AM, TMFOpie wrote:

    We follow American Public over in our small-cap newsletter Hidden Gems. It has been a star but recently announced that extensive Marine deployments, particularly in Afghanistan, will force the company to focus more on the civilian, "first responder," which are not as profitable. Historically APE's student default rates are very low because more than 3/4 of its students are military and the DOD subsidizes course tuition. So the issue facing other for-profits educators has not been one facing APE. But, this may change if it has to sign up more civilians who don't have the DOD benefit. And that seems the case in the near term until Marines and other military personnel return from overseas and have better, consistent online access to take APE's courses. And when it does then APE's growth rates may come right back. The question is, when does that happen. Not even management hazarded a guess.

  • Report this Comment On August 17, 2010, at 11:28 AM, davidaugustus wrote:

    it is interesting to view the DOE list of post secondary schools and the loan repayment rates. the for-profit schools are being punished by the share price BUT there are a few non-profits and publicly run schools that have equally low loan repayment rates. So how will the DOE handle this.will they too lose access to public funding? In addition, will schools with low repayment rates that provide general degree programs which may lead to difficulty in finding jobs as opposed to schools that have speciality programs where jobs are easier to find be denied access to federal student loans? Are philosophy, english or art programs less important than science and engineering? I would not make big bets for or against for-profits because there is too much unknown about the governments need to participate in the current system of education and what direction it will follow?

  • Report this Comment On December 04, 2013, at 6:00 AM, Cauressi wrote:

    We have seen many schools go through quite a few changes in our town. One of the schools got a failing grade overall, and in response to this, they set the school hours one more hour. So , when our son was going to school from 8-230pm, he is now going from 8-330pm. Longer school day, but it is now helping this school.


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