This page has been archived and commenting is disabled.
Here’s the Next Hedge Fund Target
Hedge funds have been circling for new carrion to devour in the next economic slowdown and have found a big fat target in the for-profit educational sector.
The industry is ripe for the taking. For two decades, for-profit schools have lured gullible students with inflated promises of impressive sounding degrees which they pay exorbitant tuition to obtain. In education’s version of the subprime crisis, creative financial aid departments obtain government loans to finance the entire program.
There are now over 2 million attending these institutions, accounting for 10% of all higher education in the US, and the profits that have poured in have been absolutely massive. Early investors rode the IPO train all the way to the bank. The problem arises when few students ever achieve these laudable goals.
According to government statistics, 55% of US college students obtain a degree within six years. At the University of Phoenix (click here for their website at http://www.phoenix.edu/ ), with 400,000 students, the largest for-profit university, only 36% meet this deadline, only 6% at some campuses, and a mere 4% of online students. Dropouts end up defaulting on loans that can amount to as much as $100,000 for incomplete bachelor’s degrees and up to $200,000 for advanced degrees.
It now looks like the gravy train is about to end. Secretary of Education Arne Duncan has promised a crack down on the industry, bringing in more regulation and prosecutions of deceptive marketing practices, where degree programs are sold like time shares. The leading accreditation organizations are also having second thoughts about the for-profits, where 95% of the instructors are part time and tenure is unknown. Complaints are rife about shoddy teaching standards and missing doctorates.
The government has funded $750 billion in student loans, and while 10% of public university loans go unpaid, the default rate at for profit schools is thought to be as high as 50%. Starve these schools of subsidized government funding, and their shares are history. And just try and get a job with one of these Mickey Mouse degrees.
Take a look at the top listed for-profit universities of Apollo (APOL), Capella Education (CPLA), and DeVry (DV).
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
- advertisements -
MHFT, you rock man. This subject is one few would touch, and you hit it out of the ballpark. For my take.........
I think personally, that college can bea great oppurtunity for learning; self introspection through social peer groups and more importantly studies. However, what do grades and a degree have to do with any of it? Someone else's opinion on someone else's opinion, and from my experience Profs and Grad students can be equally ignorant as the students they groom. Now you have pointed out the fake schools such as Phoenix; good job! They are not acredited, and are definately a sham. Good work friend!
rumor had it a lot of the Tiger funds were short these names throughout 09
rumor had it a lot of the Tiger funds were short these names throughout 09
I'm an MBA alumni from Capella, and there are also a good bit of traders on the Street that went/go there as well. It's not all shoddy as some say. My professors were all Ph.D's, many worked previously in gov't at the Federal Reserve or at some of the top banks. The problem is that there are a few bad apples (UoPhoenix, Strayer) who are ruining for the other folks looking to get educated, especially on a graduate degree level or higher.
"My professors were all Ph.D's, many worked previously in gov't at the Federal Reserve or at some of the top banks"
They continue to perpetuate a myth. And they charge you for this priceless information.
http://www.philstockworld.com/2009/09/09/priceless-how-the-federal-reserve-bought-the-economics-profession/
http://www.marketoracle.co.uk/Article13509.html
The Fed has stocked academia with its disciples for more than a generation
"Hey! Wait! I got a real complaint! Forever in debt to your priceless advice"
Thanks for this piece Mad Man. It is about time this filthy scam of an industry saw some regulation.
Many people are crushed under student loans with insane late fees and interest rates and have no way out. Even in a "good" job market. Then they look into bankruptcy and find out that they still have no way out.
The American take on "Free" market systems with bad regulation just continues to impress all of us from them socialist countries...way to show us how it's done! Really. Nice job!
One country under Mamon!
[s] Who was that smart finance guy that helped Harvard make all those great bets on the market? Hire him. :-) [/s]
(Note: the guy lost Harvard ~30%)
PS: Harvard University lost more than twice as much endowment money during the Great Recession than did every other Massachusetts school combined.
"The leading accreditation organizations are also having second thoughts about the for-profits, where 95% of the instructors are part time and tenure is unknown."
OK, someone tell me how the accreditation organizations are not part of the problem then? Inflation of tuitions, thanks to a government driven college credit bubble, could be deflated back again if "tenure" could be abolished almost entirely. Maybe in some sensitive, squishy fields like history awarding "tenure" makes sense to protect the pursuit of truth, but not in mathematics, natural sciences, engineering, accounting, computer programming and so forth.
These folks also got congress to take away bankruptcy protection if a student defaults on their loans. The lenders don't even have to prove in court the student owes the money. They can go after assets/wages for the rest of the student's life. Talk about debt-slavery. Talk about predatory lending. The salesmen/recruiters at these schools and everyone else on up to the boards of directors will rot in hell for what they do to these kids.
It's one thing for someone to come out of a traditional 4-year university having voluntarily taken on $100K, $200K debt. That's just stupidity. But it's quite another level of evil to recruit lower class kids into thinking they're going to make a living as computer techs, "accountants", etc when the kid struggled to get out of high school and now has $40,000 in school debt and is only qualified to make $10 an hour at some fast food place.
These folks may be using the bankruptcy laws to their advantage, but I believe what got Congress to exclude student loans from dischargability was the fact that physicians woud complete their studies and then file chapter 7 to eliminate their student loans and then start their jobs.
As a result of that abuse, student loans receive the same priority as federal income taxes in bankruptcy.
You die owing it.
So how hard is it to make the law: "physicians and lawyers can not include student loans in a proceeding, all others can"????
The IRS has special rules for 1099's for legal fees after all. You 1099 lawyers no matter what legal configuration the operate under.
Answer: The banks WANT IT ALL!!! EVERY FUCKING PENNY OF IT!!!!
Great observation and comment.
$40,000 in debt is the low end when you graduate from some of these "schools".
Similar to the way easy mortgage money artificially inflated housing prices, easy student loan money pushed tuitions higher and higher.
In both cases the numbers make no sense whatsoever in relation to incomes.
I hired one ITT grad a couple of years ago as an engineering tech. He worked out great (actually still with the company while I was laid off), but he's a smart guy and I suspect we could have trained him in 1/4 the time, and saved him 25k. He never would have got a look without the AA degree, though. The fees these outfits charge are outrageous (but you get to keep the laptop when you graduate!)
This idea is not Mad Hedge Fund Trader's. It is Steve Eisman's from Frontpoint Partners, and it is plagiarized here.
The report by Eisman on these colleges was in a Zero Hedge article about a week ago. This "Mad Hedge Fund Trader' does not acknwledge somebody's else original work. I guess he likes his name in print.
Do you have a link, please? I missed the report and would like to read it. Thanks in advance...
Here you go: http://www.marketfolly.com/2010/05/steve-eisman-frontpoint-partners-ira.html
No Bull
"listen to me on Hedge Fund Radio" ..... NOT
These outfits have a good measure of "protection" in the Senate.
Lobbying by For-Profit College Groups, 2009-10
Apollo Group Inc. $560,000
Corinthian Colleges Inc. $460,000
DeVry Inc. $460,000
Career Education Corp. $360,000
Bridgepoint Education $270,000
Education Management Corp. $270,000
Career College Association $250,000
American Public University System $240,000
Kaplan Inc. $200,000
Capella University $60,000
ITT Educational Services Inc. $30,000
Concorde Career Colleges Inc. $20,000
Total $3,180,000
The gravy train will probably continue.
Some prestigious names in this list
This is from end of April about loan officers searching out homeless in shelters to take on school loans:
Homeless Dropouts From High School Lured by For-Profit Collegeshttp://www.bloomberg.com/apps/news?pid=20601110&sid=aA2_FlVDs2Sk
Hooked on 'Ponics works for me!
Hooked on Phonics rescued (and continues to rescue) children who would otherwise be crippled for life by whole-word reading methods!
These universities - and most universities - are scams.
Expect some brand-name failures among top 20 universities. These guys need to go bankrupt to fire their tenured profs.
The PAOMNNEHAL PWEOR OF THE HMUAN MNID. Aoccdrnig to a rscheearch at Cmabridge Uinervstisy, it deson't mttaer in waht oredr the ltteers in a wrod are, the oly iprmoatnt tihng is taht the frist and lsat ltteer be in the rghit pclae. The rset can be a taotl mses and you can sitll raed it wouthit porbelm. Tish is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe.