This page has been archived and commenting is disabled.
For Profit Education Jumps From the Frying Pan to the Fire.
This is turning into a major home run for those who took my advice the sell the sector on June 2 (See “Hedge Funds Target for Profit Education” by clicking here at http://www.madhedgefundtrader.com/june_2__2010.html , and my follow up here at http://www.madhedgefundtrader.com/august-5-2010.html ).
I knew I was on to a great trade here because of the torrent of emails I received from these schools threatening me major leagal action, adverse publicity, or worse. That’s always a good sign for a new short play.
For those who haven’t been following this drama, for-profit schools have made a killing from naïve, aspiring students taking out $5 billion in Pell grants and $20 billion in federal subsidized loans. On graduation they end up with a diploma useless in this job market and a staggering load of debt.
A few weeks after my initial report, the General Accounting Office reported the results of an undercover investigation showing widespread fraud and abuse in the sector, with some financial aid officers advising students to lie on their applications.
The chickens have come home to roost. Since my call, lead stock Apollo Group (APOL) of University of Phoenix fame has fallen 27%, DeVry (DV) 33%, and Capella Education (CPLA) 35%. Those who cast a wider net caught Corinthian Colleges (COCO) down a spectacular 62% and Strayer Education down 30%.
The management of Strayer said they were shocked, shocked that repayment rates were so low, as Claude Raines might have said in the classic film, Casablanca.
I’ve has some friends get their eyes ripped out by these guys through running up $50,000 in debt to obtain useless degrees, so this couldn’t be happening to a nicer bunch of people. Although these stocks have already gone down a lot, there may be more to go. It is safe to say that the Obama administration hates these predatory schools, and that criminal prosecutions are certain to follow.
On the other hand, if you prefer to sleep at night, you might want to book some profits now.
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 “This Week on Hedge Fund Radio” in the upper right corner of my home page.
- advertisements -
Over the years I have worked as an instructor both for community colleges and for a few private schools. The private, for-profit schools were easily the worst - they would take underqualified teachers (and in one case I can say I was underqualified to teach the subject matter at hand, but it was a job), would charge over the top for tuition while of course counselling their students to lie about their finances in order to qualify for student loans, and at the end of the day, the students usually ended up with squat.
One place in particular epitomized the shadiness of the industry - I came to work one day only to discover that the doors were locked, a group of angry students were milling outside, and the administration had, en masse, booked a one way ticket to Mexico. They were out their loans, I was out a month's pay.
A lot of these places popped up to take advantage of funding for job retraining or similar government programs. During the latter Clinton years, when the 2000 recession was beginning to make itself felt even though it hadn't yet caught up with the stock market, a lot of the retraining was into areas like tech, which was about to go into the toilet. So, yes, the educators made money, the students, not so much.
amazing scam! I have suspected something like this but, not to such a degree. old folks love shoving youngsters into scams like this. even when the jig is up, the old folks stick to their guns even until death. very insidious.
school and psychics are the best scams.
http://covert2.wordpress.com
No argument tuition has been in a bubble.
Still, it's striking to me that if you lied to get a house loan or lied to sell a crap financial product, the government may yet cover you in a bail out.
At least (for some degrees), the education is worth something in the long run. The houses and CDS, not so much.
So when the kids default, the government can seize tax refunds, garnish wages without a court order, take a portion of Social Security payments, and charge very large collection fees. That's after they hound them and ruin their credit. And it's all in the family since Mom and Dad bailed on the HELOC that funded part of the MTV / Girls Gone Wild educational 'experience'. That whole post-secondary child care industry should be shorted, just like Fannie and Freddie, all the way to pocket change. The kids' self esteem indoctrination will make their failures hurt more, unfortunately, since they have been conditioned to believe they deserve better. We've grown a crop of poorly educated, ruthless, bitter debt slaves who will take their revenge without remorse to claim whatever small powers remain. Honor thy father and mother? Don't count on it.
Probably a bad time to keep shorts on after nearly 40-50% drops in some of these names. I'm actually bottom picking some of these...
delete
Higher education badly needs its comeuppance. The smug bastards who run universities have become unbelievably out of touch. 80% of the students are not serious about learning anything, they are there for the token that supposedly gets them to the next stage in life.
Bingo. One of the more difficult parts is that after you've blown through the money for undergrad and can't find a job and don't really want to go to work anyway, what do you do? DOUBLE DOWN! Get a masters degree!
Academia is incredibly alluring... in many respects, it's welfare 2.0. "I'm not really sure what I want to do when I grow up, but beer pong is awesome and I can't handle a workplace that makes me long for the days when I could actually see a pretty girl."
The sense of entitlement that comes with a degree is insane. People are mad that their gambles didn't pay off... but they pose the frustration in a different way... that because they got a degree, they're entitled to a job... I see a close resemblance to people who purchased houses at the peak of the bubble and think they're entitled to a perpetual atm machine... "but I got the house, now I've made it"... wrong.
Higher education has been an enormous bubble for decades now. They sold the middle class on the dream, but now labor arbitrage has ended it.
Love the commercials from the awesome institutions of higher learning...I think the funniest one is a group of odyssey sea boats racing toward an oil rig, they surround it and some douche picks up something the size of an ice crest and places it in the water.
Then the caption: "joe blow, inventor- oil spill response; graduate Univ. of Phoenix
Navy, its not a job its an adventure
http://www.youtube.com/watch?v=SL-OtsN9VdM&feature=search
another one is WPO ... owner of Kaplan ...
they also have this wonderful printing business which has been
bleeding subscribers, advertisers, and good reporters for many years ....
Kaplan University's default rates are worse than COCO's amazingly. And the data release by the Dept of Ed shows embarrasing repayment rates for Kaplan, sub 30%. Not only that, Kaplan accounts for more than 60% of WPO's EBITDA.