For-Profits Suffer a Blow in Court

A ruling by the U.S. District Court for the District of Columbia recently dealt the for-profit education industry a setback.

Before getting to the ruling, I want to put a disclaimer out there that I'm no fan of for-profit education, and I think the government's recently released "gainful employment" rule is a sham.

Specifically, there were three different provisions the court ruled on.

Provision

What It Calls for

Decision

1 Schools can no longer pay recruiters certain incentives or offer commissions based on the number of students they sign up. Upheld
2 Recruiters are no longer allowed to offer prospective students information that some considered too deceptive. Upheld
3 Before a state's resident can accept federal funding to enroll in a post-secondary online school, that state must authorize the school's validity. Reversed

Source: Reuters.

Still bearish
But we Fools are long-term investors. That means we have a three- to five-year time horizon when making investment decisions. I won't concede defeat until 2014, and last week's court ruling isn't helping these schools much.

While I'm glad that the court made the ruling it did on the first two provisions, I'm alarmed that the for-profit industry even found the need to challenge them.

That being said, I'm willing to admit that so far I've been dead wrong.

A for-profit rally
Shares of some big for-profit players such as Strayer (Nasdaq: STRA  ) , DeVry (NYSE: DV  ) , Education Management (Nasdaq: EDMC  ) , and the University of Phoenix's Apollo (Nasdaq: APOL  ) are all up between 15% and 25% since June 1.

Smaller players in the field have benefitted as well, with Corinthian Colleges (Nasdaq: COCO  ) posting an 18% increase, and Bridgepoint (NYSE: BPI  ) up almost 25%. What makes this all the more impressive is that the S&P 500 is actually down over the same period.

Foolish takeaway
If you'd like to stay up to date on for-profit schools -- whether to buy them or short them -- I encourage you to add them to your watchlist. The next year or two should be interesting ones within the industry.

Fool contributor Brian Stoffel does not own shares of any of the companies mentioned, nor does he have short positions in any of the companies mentioned. The Motley Fool owns shares of Bridgepoint Education. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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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 July 24, 2011, at 4:14 PM, xetn wrote:

    I see the courts like to eliminate any competition for the "publik school" system. They might end up like the post office.

    But we all like socializing the cost of failure.

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