Banks Urge Investors To Buy For-Profit College Stocks Now That The GOP Is Taking Back Congress

Career College Central Summary:

  • The Republican resurgence on Capitol Hill makes for-profit education company stock a hot commodity, according to industry analysts who expect a GOP-controlled Congress to loosen oversight of both student lending firms and for-profit colleges.
  • Investment advisers from both Credit Suisse and BMO Capital Markets issued research notes this week connecting the Republican victories on Tuesday to an improved outlook for education companies. The analyses were based primarily on future legislative predictions. The Higher Education Act needs to be renewed, and BMO’s Jeffrey Silber argued that a Republican Senate will produce a bill that is much friendlier to the companies that run for-profit schools, according to Buzzfeed. Credit Suisse wrote in Barron’s that the “diminished regulatory risk characteristics of a Republican-controlled electorate” makes student lending company stocks likely to rise in value because “Republicans have historically fought detrimental legislation originating from Congressional Democrats.”
  • Stock in Strayer Education Inc., one of the largest for-profit college companies, was up almost 10 percent from Tuesday morning to Thursday morning. DeVry’s stock is up nearly 3 percent and Apollo Education Group’s is up over 2.5 percent.
  • Education policy observers seem to agree with the financial analysts’ prognosticating about how Congress might legislate in the future. Steps that the Obama administration has already taken through regulation — such as the recently-unveiled “gainful employment” rules that are designed to cut off federal education dollars to schools whose graduates can’t get jobs — may be safe from retroactive interference. Congress could attempt to cut off funding to enforce such rules, as Forbes’ James Marshall Crotty argued Tuesday, though legislation to do that could potentially face a veto threat. But more ambitious administration efforts to establish a broader ratings system for higher education institutions that would be tied to their access to the federal student lending system are much harder after Tuesday, according to Inside Higher Education.
  • “I honestly don’t think that Wall Street really cares about gainful employment anymore,” said Wells Fargo Securities senior analyst Trace Urdan at a Center for American Progress (CAP) event on Wednesday. Urdan, who has followed the for-profit education sector as an investment adviser for a long time, suggested that companies are calm about the new regulations but spooked by the White House’s announcement of a new “interagency task force” to monitor for-profit colleges. “The task force from the announcement last week was far more disturbing to investors, because the task force sounds like a permanent cabal of federal agencies who are going to come together on whatever regular basis and find ways to go after the sector. And that makes it less investable, maybe uninvestable for some,” he said. “A rule’s a rule, a rule is fine, it’s this idea that we’re all gonna get together and look for ways we can beat up on you guys going forward, that’s the thing that makes investors really nervous.”

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