Chances are most of you have seen advertisements for online degrees and some of you might have obtained one. For-profit education is a multi-billion dollar a year business and there are many publicly traded companies in this industry; The University of Phoenix (symbol: APOL), Devry symbol: DV), ITT Techinical Institute (symbol: ITT), etc. They offer degrees in a wide range of programs and certificates, from associate’s degrees to MBAs. Lately, the for-profit educators have seen their stocks slide through 52 week lows.
For-profit educators have been the subject of many high-profile hearings in the Senate, and there was a report by the Government Accountability Office that chronicled allegedly misleading and in some cases, fraudulent recruiting tactics. As a result, the Department of Education has been focusing on this industry promising greater oversight and tougher rules.
On Monday the industry took another hit when government data was released showing that many of their students aren’t repaying school loans. This is a significant issue for these educators because the bulk of their revenue comes from the federal financial aid the students receive. If the government isn’t getting paid back by the students who receive these degrees, why should they keep lending?
The federal government lends money to students because people with higher education get better jobs which leads to economic expansion. What their data is showing is that many of these schools are graduating unqualified students. Why else wouldn’t they be able to gain employment?
One could argue that the job market in this country is awful right now and it’s not easy for anyone to find work. Though this is true, the government is proposing very lenient requirements in order for these schools to receive federal aid; schools must have at least 65% of their graduates paying the principal on their federal student loans and those students can’t be spending more than 12 percent of their income to pay down student debt.
Some of these for-profit educators have better repayment percentages than others but have been swept downward with the entire industry. I hope the government weeds out the bad eggs in the group and those universities that graduate students with a solid education remain and thrive. Keep a close eye on how this story plays out as we will be seeing continued volatility and opportunities in this sector.