Almost 18 months ago, I told investors that they should stay away from for-profit education. Enrollment was dropping at the schools, they got too much money from the government, and students were defaulting on their loans at alarming rates.
And none of this actually included the question: Is a degree from an online, for-profit school worth it anyway? Judging by the numbers, you would've been well served by taking my advice. Here's how five of the industry's biggest players have fared since I wrote that article. Keep in mind that over this time frame, the S&P 500 has returned 3.5% -- including dividends -- since then.
As you can see, Apollo
There are three heavy forces that have combined to push shares of all of these companies down, and I don't see them abating any time soon.
Perhaps it makes sense to some, but don't count me among them: When the economy goes south, enrollment in higher education programs skyrockets. Though it has been a painfully slow recovery thus far, our unemployment rate has been steadily improving for over two years now. As you can see, the movement of a stock like Apollo has a strong correlation to the unemployment rate.
Even a slight uptick in unemployment would send shares up, while a steady improvement in employment could mean students leaving the virtual classroom in search of a job. With the unemployment picture improving ever so slightly, this means fewer students interested in getting their degrees.
Though I'd like to believe the government has actually gone pretty soft on the sector, the Obama administration has started to clamp down on for-profit institutions.
It all started over two years ago, when undercover federal employees filmed recruiters aggressively recruiting students with questionable tactics. Since then, there have been congressional hearings on the matter. There are now rules in place to control how much money a school can get from the government, what the default rate can be for a school's students, and how to measure whether or not schooling leads to gainful employment. Overall, I have no doubt that the industry would be rooting for a Romney win this November, as Republicans seem to have a more hands-off approach to the industry.
Where's the quality?
But possibly the biggest problem with for-profit schools is that many of them simply aren't up to snuff. As potential students get more and more educated about the costs and (lack of) benefits from a degree at some for-profit schools, numbers have sagged.
Shares of DeVry
Rival Education Management
Rounding out the bad-news companies is Bridgepoint Education
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