Why Shares of For-Profit Schools Failed

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What: Shares of for-profit educators Apollo Group (Nasdaq: APOL  ) , ITT Educational Services (NYSE: ESI  ) , Education Management Corporation (Nasdaq: EDMC  ) all dropped as much as 10% or more following President Obama's re-election last night.

So what: The Obama administration's skepticism of the for-profit education sector has been made clear in the past four years, as the Department of Education has placed increased oversight on such schools, many of which spend more on marketing and recruiting than on education and have poor graduation rates, and whose students have the highest loan default rate. The department has set rules to restrict funding if the schools cannot meet certain milestones, and as a result enrollment rates have fallen.

Now what: Obama's re-election means these policies will almost definitely continue for the next four years. Many of these stocks have fallen sharply from all-time highs years ago, and the onus will now be on them to prove they are a worthy service to students and that they can profit without taking advantage of the student loan system, which is the ultimate source of their revenue.I think the for-profit education model has been revealed as a broken one, but at the very least investors would be wise to wait until enrollments and revenues improve as a sign of a turnaround.

Don't miss out on the last news on the for-profit education sector. Add these companies to your Watchlist.


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  • Report this Comment On November 08, 2012, at 9:30 AM, HbgBob wrote:

    Wow. What a narrow minded analysis. Let's compare tuition rates, completion rates, and placement rates between for-profit and not-for-profit schools. The latter is horrible. The problem is not with these schools, it is our entire education system. Most of the for-profit schools have skills-based programs that lead students into a good job. There have been completion--placement standards in place for years. It is just that Obama is in the pockets of the not-for-profit lobbies. Also, he would prefer to run these schools as a government program (stated by the US Dept of Ed.). So yes - these schools are in danger from the Obama Administration - but not because they all "spend more on marketing and recruiting than on education and have poor graduation rates, and whose students have the highest loan default rate." This is blatantly false, For profit schools must have 60% completion in their original program of study, and 70% placement of those graduates. Default rates must be below 10%. So.... compare that to your local public college. According to the Chronicle of Higher Education, in their latest study 4.3 Million started college and 3 Million+ did not graduate. That is fact. About a 30% completion rate!!!! Close the Federal Department of Education and give the $90 Billion dollar budget to the states!! Guess what - better schools and more $$ for education and less bureaucracy.

  • Report this Comment On November 08, 2012, at 1:32 PM, itechgeek1 wrote:

    Well HbgBob your comment is the same as everyone that is complaining and crying on the FoxNews Network. All gloom and doom and Obama will destroy the United States!

    I'm an independent and would have voted for John McCain if he had not made a bad choice of Sarah Palin as VP. BAD DECISION JOHN!

    The ticket of Herman McCain and Susana Martinez would have won!

    I have worked at for-profit schools are everyone has to meet corporate standards to keep their jobs. Marketing reps have to sign up a certain number of students to keep their jobs. Instructors HAVE TO PASS a certain number of students to keep their jobs. And career services have to place a certain number of students to keep their jobs.

    As an instructor given 30 students in a class only about 7 of them are able to perform in both the academic and job settings. These rest should not be in certain programs. The for-profit schools have lowered their standards to increase their enrollments. Most of these students do not have the ability to pass the ACT and/or SAT exams.

    If you look at the compensation packages for the executives of the for-profit schools you see why the federal government is cracking down. One CEO had a compensation package of $9 million dollars in 2009.

    States that have the lottery for education are mismanaging these funds. Image what will happen with the additional billions of dollars once they get their hands on it.

    WHO ARE THE REAL TAKERS?

  • Report this Comment On November 08, 2012, at 5:18 PM, winstonsalem wrote:

    Bowman makes sense!

    Good Grief, the issue is not that a pert candidate did or did not get picked. The issue is that schools/companies such as EDMC are being sued by the Justice Department for $12,000,000,000.00.

    The schools not only are accused of trolling for the least qualified students, but also of promising them impossible outcomes. The claims are also that the schools failed to provide, not just an adequate education, but the means to obtain an adequate education. The other claims are that there are very few graduates and those who do graduate are viewed as having diploma mill degrees. Competitive schools refuse to transfer these credits, and in the end poorly qualified students lag behind further.

    Critics of the prevailing education system predate Solomon. I do believe that even a firm handed skeptic like him would agree that ridding the system of criminal and unethical elements is a good place to begin. Face it, this transcends politics. If EDMC and the like could deliver a competitive and quality education this part of the education conversation would not happen. The looming bubble would still be there but substantially less threatening.

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