FORBES: For-Profit Universities Take A Hit As Obama Unveils Free Community College Plan

Career College Central Summary:

  • For-profit universities just can’t get a break. They’ve been sued for predatory lending schemes, outed for the low job and salary prospects they confer to their graduates and lambasted for the high rate at which these same graduates default on their student loans. On Friday, for-profit universities were dealt another blow, this one by the leader of the free world: President Obama announced a plan that would make community colleges free for as many as 9 million qualified students and, in turn, render the for-profit names even less appealing places to send tuition dollars.
  • In a video message released Thursday night and in a televised address from Pellissippi State Community College in Tennessee Friday afternoon, President Obama outlined a proposal that would make two years free for students who attend for at least half-time and maintain a GPA of 2.5 or above. Under the proposed program (called “America’s College Promise”), students would also have to make “steady progress” toward completing their program in order to qualify for the free tuition.
  • “Community college should be free for those wiling to work for it. A quality education should not be a privilege reserved for a few,” Obama said Friday afternoon. “America’s College Promise will make two years of community college free for students who are willing to work for it. There are no free rides in America; you have to earn it,” he added, noting that in order to receive the federal funding that would help make tuition free, colleges would have to meet their own set of standards. Specifically: community colleges would have to offer programs that either offer fully-transferable credits to four-year institutions or are training programs that would lead to “in-demand” degrees, and they’d also have to develop evidence-based reforms to improve student outcomes.
  • Funding for the program — if it were to pass — would be three-quarters federal, with the states contributing the remaining one-quarter necessary to make the cost of schooling free to qualified candidates. States that already charge students less can make smaller contributions, the White House said, though all participating states will be required to put up some matching funds. Early estimates put the cost of this program at $60 billion over 10 years. 
  • The White House noted that if all states participate, roughly 9 million students could benefit and a full-time community college student could save an average of $3,800 in tuition per year. 
  • While the stocks of companies that run for-profit companies have hardly been market winners recently — shares of Corinthian Colleges are down a whopping 95% year-over-year — Obama’s proposal sent many of these for-profit names tumbling into negative territory, with Corinthian, Grand Canyon Education, the DeVry Education Group, the Education Management Corporation and University of Phoenix operator Apollo Education Group all closing in the red Friday afternoon. Corinthian — which, it should be noted, is a penny stock and therefore easy to move — closed down 6.21%, or 0.0045 cents; also a penny stock, the Education Management Corporation was the second biggest loser of the group, closing down 5.53%, or 2 cents for the day. Grand Canyon Education, meanwhile, closed down 1.69% (that’s 76 cents per share), while Apollo closed to a 2.25% (62 cent) decline and DeVry ended down 3.67% ($1.62).
  • “This would be another shot at a group that has been coming under a lot of fire already,” John Canally, chief economic strategist for LPL Financial, said in a phone conversation Friday. The idea of free community colleges, Canally said, tilts the education of the American workforce “back to the publicly-funded education process rather than the private for-profit process.”

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FORBES

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