Attack on the For-Profit Education Industry

When the economy is struggling and jobs are being lost, it is not surprising to see people enroll in school to increase their chances of finding employment. This is exactly what happened during the recession. Consequently, for-profit education was one of the best performing sectors in the stock market. The stock prices of companies such as Apollo Group (APOL), American Public Education (APEI), Corinthian Colleges (COCO), Strayer Education (STRA), and ITT Educational Services (ESI) performed very well during this time.

The stocks of these companies did well until April 2010, when an attack was launched against all of the for-profit education companies. Steven Eisman, portfolio manager of FrontPoint Partners, delivered an eye-opening presentation titled "Subprime goes to College," at the Ira Sohn Conference in May 2010

In addition, Tom Harkin, a senator from Iowa, began conducting a series of one-sided senate hearings reviewing for-profit education companies. The following is a list of the hearings:

  • Emerging Risk? An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education – June 24, 2010
  • For-Profit Schools: The Student Recruitment Experience – August 4, 2010
  • The Return on the Federal Investment in For-Profit Education: Debt Without Diploma – September 30, 2010
  • Bridgepoint Education Inc: A Case Study in For-Profit Education and Oversight – March 10, 2011
  • Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges – June 7, 2011

By reading Eisman’s presentation and listening Harkin’s hearings, you are likely to come to the following conclusion:

For-profit education companies are run by profit-hungry executives, provide poor quality education, charge exorbitant amounts of money for tuition, and recruit low-income individuals in order to saddle them with excessive debt. They even have the audacity to recruit students from homeless shelters.

This is exactly what these critics want you to believe. However, if you don’t take their arguments at face value, you might start asking questions. Do the critics really believe that this industry became successful by accident? Do they really think that students are just so stupid that they would enroll in poor quality educational institutions that charge them a lot of money for nothing? Do they really believe that these companies would be able to grow so quickly if they provided poor customer service?

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SEEKING ALPHA

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