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The Mass Exodus From For-Profit Education

Being a former middle school teacher and son of a university professor, I became very interested in researching for-profit education when I became a full-time Fool in the spring of 2011. After spending time investigating the industry, I was convinced that an enormous percentage of big players were reckless at best, and scam artists at worst.

I encouraged readers to stay as far away from for-profit educators as they could -- though I was willing to admit there were some quality players in the industry. Since that article first appeared, the S&P 500 has returned about 34% including dividends.

Looking at six of the biggest players in the industry -- DeVry (NYSE: DV  ) , American Public, ITT (NASDAQOTH: ESINQ  ) , Apollo (NASDAQ: APOL  ) , Corinthian (UNKNOWN: COCOQ.DL  ) , and Bridgepoint (NYSE: BPI  )  -- you can see that shareholders in these companies haven't fared nearly as well.

DV Total Return Price Chart

DV Total Return Price data by YCharts.

The average company in this cohort has lost 40% of its value, meaning that it has underperformed the market by a whopping 74 percentage points!

Over the coming days, I'll be investigating why the industry has had such a tough time. Today, I'm going to focus on one of the most important metrics investors in for-profit education should keep an eye on.

New student enrollment
While looking at the total enrollment at a school is an important data point, I would argue that new student enrollment is the most prescient. It offers investors a look into the future of the school, and whether or not it is attracting enough new students to maintain its enrollment for the coming years.

Because each school reports its earnings at a different time, and has differing ways of segmenting the year, I took the most recent statement for each company of how many new students were enrolled, and compared it to the same time period from 2010. The results show that, on average, this cohort has about a quarter fewer new students enrolling than it did three years ago.

Source: SEC filings.

I'm not surprised that American Public was the sole school to add to its enrollment, as I singled it out as far and away the best player in the industry.

DeVry, ITT, and Corinthian have shown middling losses, while Bridgepoint and Apollo have had dramatic drop-offs. Bridgepoint, most notably, was in danger of losing its certification over these three years, while Apollo -- parent company of the University of Phoenix -- has seen its students leave in droves.

A perfect storm of trouble
In my opinion, there are three critical variables that converged to drive new student enrollment down so much at these schools.

The first was the fact that a Government Accountability Office investigation revealed appalling tactics that recruiters were using to get students to sign up. These tactics included lying on financial aid sheets in order to secure government funding. As a result, the Obama administration said recruiters' salaries could no longer be derived from how many students signed up, causing a severe drop in new student enrollment.

The second variable, which is closely related to the first, is the simple fact that the industry has received a ton of bad press over the past few years. As more and more stories of crushing student debt, coupled with questionable benefits for students, come out, many students have chosen to take alternative routes to education -- most notably through community colleges.

Finally, when the economy is in the dumps, going back to school becomes a popular option. Back in 2010, the unemployment rate hovered around 10%. Though it's not at a healthy level now, the current rate of 7.6% is much lower -- meaning lots of potential students are back on the job.

As I said, over the coming days, I'll be investigating how -- if at all -- these schools have cleaned up their act over the past few years, if enrolling in a for-profit school is worth it, and whether or not an investment in this beaten-down industry makes any sense today.

As you can probably tell, I haven't been putting any of my own money behind this industry in the past two years. I have, however, picked out two companies that now occupy a whopping 15% of my real-life holdings. You can find out what those two stocks are, along with one other, in "3 Stocks That Will Help You Retire Rich." In this special free report, you'll also receive critical wealth-building strategies that every investor should know. Click here to keep reading.

Read/Post Comments (14) | Recommend This Article (10)

Comments from our Foolish Readers

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 05, 2013, at 4:37 PM, p2i wrote:

    Most of the charges from the Obama administration come via short sellers who have used the government to do their dirty deeds. Evidence was bought and paid for by shorting hedge funds and their lobbists. Some evidence comes from organizations and people associated with public schools who are in direct competition for students who want a greater portion of federal student aid. This situation is a political battleground that has little to do with the value of for-profit education. Since states can no longer fund education like the past, public education has raised their rates and have turned away many applicants since the recession. For-profits provide classes around working adults better than public education. Not all employed people want to work the rest of their lives in low wage labor. Education brings skills to obtain better paying jobs. If anything, for-profit educators are more needed now than in the past. When this administration is gone, hopefully, things will change for the better.

  • Report this Comment On August 06, 2013, at 9:07 AM, rsinj wrote:

    One name which you have excluded, is likewise excluded from most articles on the sector - NAUH. This happens mostly as a result of it being a "small" player compared to the bigger names you have here.

    While you rightly point out the importance of enrollments, and (for example) BPI just today announced another major decline in their enrollments, NAUH has continued increasing theirs, as they have a more controlled/thoughtful approach to growth.

    Unfortunately, notwithstanding how NAUH is performing, that it offers a dividend in excess of 4%, has insider purchasing of shares, stock buyback, etc., the market has simply lumped it with those larger names and pushes the share price around similarly.

  • Report this Comment On August 06, 2013, at 10:21 AM, TMFCheesehead wrote:


    Thanks for the input on NAUH. As you guessed, there are only so many schools I can focus on, and the ones I picked were for their size, and for their reporting of certain metrics. NAUH was left of primarily because of its size.

    Brian Stoffel

  • Report this Comment On August 06, 2013, at 7:35 PM, NJJoe wrote:

    Look for more headwinds with for-profit education. Lawsuits will be coming from stockholders, laid off employees and whistleblowers, and former students.

  • Report this Comment On August 06, 2013, at 7:39 PM, msl1 wrote:

    Comparing the 2013 enrollment to the peak isn't as telling as comparing the numbers YOY. What would the second chart look like if you compared it YOY?

  • Report this Comment On August 07, 2013, at 7:09 PM, thuringensis wrote:

    This article completely misses the investing point. The schools got clobbered by regulation, declining unemployment, and their misdeeds and associated brand damage. OK so far.

    Stock prices were devastated, reaching levels that assumed the companies were going out of business. For example, ITT was selling for 1 times cash flow early this year. Thus the long-term decline in value. OK, so far.

    But, last I checked, you want to buy stocks when they are low and do not accurately reflect the underlying earnings of the companies.. This would suggest many of these stocks are raging buys. In fact, many are up-- a lot-- this year. ITT is up over 60%. In my view, these are buys--though you have sort through them because of the regulatory risk.

  • Report this Comment On August 07, 2013, at 10:42 PM, TMFCheesehead wrote:


    I encourage you to keep following the series, as those points will be brought up.

    Brian Stoffel

  • Report this Comment On August 07, 2013, at 11:01 PM, snakehunter wrote:

    Just because the unemployment rate is arounf 7.4-7.6% does NOT mean "lots of potential students are back on the job". The unemployment rate also can go down as job seekers stop looking for work, and of course, have no money to pursue education. As Dennis Miller says,"If people really want to help, they should stop looking for work and the unemployment rate would drop to 0%!"

  • Report this Comment On August 08, 2013, at 1:07 AM, TMFCheesehead wrote:


    True, the unemployment rate doesn't represent the "jobless" rate, but the proportion of unemployed (looking or not) people is also down since 2010. On the second point of not having $$ to pay tuition, that's a non-issue, as almost 85% of the revenue these schools collect is in the form of Title IV gov't funds. In other words, almost none of the students have the money for tuition--they borrow for it. More on that here:

    Brian Stoffel

  • Report this Comment On August 09, 2013, at 1:22 PM, stockguru100 wrote:

    As an investor, it's wise to keep an eye on this sector. People are always looking for an easy way to grab a credential with little to no work involved and this economy is ripe for the picking. There will always be fools attending these types of schools which will keep the industry in tact.

  • Report this Comment On August 10, 2013, at 4:16 PM, oldengineer wrote:

    It is disconcerting to me to have a TMFer state that he warned us to stay away from for profit education back in the spring of 2011 when the HG recommendations at around the same time included American Public Education and Bridgepoint Education. I never saw his warning. I invested in both in February 2011 and am plus 12% and minus 16% respectively.


    Continuing to hold

  • Report this Comment On August 12, 2013, at 3:30 PM, TMFCheesehead wrote:


    Your feelings are completely understandable. It's important, though, to realize two things. First, "We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors." There is no party line.

    Secondly, I did identify APEI as the best player in the space when I did my review of the industry two years ago, which you can see here:

    Hope this helps,

    Brian Stoffel

  • Report this Comment On August 13, 2013, at 7:37 PM, oldengineer wrote:


    I know my complaint has been made and rebutted many times. The fact remains that when the TMF has diverse opinions somebody is bound to be right and the subscriber has to determine who that is. I have coped with the diversity by mostly sticking with the advice I pay for.

    As a long time Fool I realize that not all Fools hold the same position and am mildly insulted that you think it's necessary to tell me the obvious.

    OE (easily offended)

  • Report this Comment On August 22, 2013, at 2:26 PM, dwbraw11 wrote:

    As one of many educators who are struggling and who are employed by many of these for profit educational powerhouses, I will say, that your comment , " I encouraged readers to stay as far away from for-profit educators as they could -- though I was willing to admit there were some quality players in the industry.", was disturbing. I manage my courses with care and am devoted to my students. Now I can only speak for myself, but this job, for however little I do get paid, is one which I place tremendous amounts of time and effort. I work for my students, I invest in them and their success. I do agree, however, that the corporate umbrella which covers my institution, to say the least, is disturbing. I do wonder, however, if public universities (not for profit???) are evaluated in the same manner. (What are their job placement numbers, how and why do they receive funding when many of their educators are, generally speaking, less than below average educators. My goal was only to bring to your attention that people such as myself do work very hard to insure the best for these students, although I would love to finally get a position outside of this corporate shade.

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