For-Profit Colleges, Less Profitable

For-profit colleges may be facing further troubles. According to a piece by John Hechinger in Bloomberg News, Americans are starting to discover that students who attend proprietary schools are much more likely to default on student loans than people who attend real colleges. And what’s more, stock prices are declining. According to the article:

Shares of University of Phoenix parent Apollo Group Inc., the largest for-profit college chain by enrollment, rose as high as $97.93 in June 2004, as President George W. Bush’s administration eased regulations that resulted in more federal financial aid flowing into the industry. Apollo shares traded at $89.22 in January 2009 and have since declined by more than 50 percent as the Obama administration proposes more regulation and investors question the business model of the industry.

An index of 13 publicly traded for-profit education stocks fell 26 percent this year through today, while the Standard & Poor’s 500 index has increased about 13 percent.

Investors are giving some of the lowest valuations to companies with above-average default rates such as Corinthian Colleges Inc., according to Jarrel Price, an analyst with Height Analytics in Washington. Shares of Santa Ana, California-based Corinthian fell 6 cents, or 1.3 percent, today to $4.62 in Nasdaq Stock Market composite trading at 4 p.m. and have declined 66 percent this year.

Apparently student loans that went to pay for for-profit schools accounted for almost half of all federal student loan defaults. This is despite the fact that proprietary schools enroll less than 13 percent of all students.

Granted, the declining value of for-profit education stock has a lot to do with anticipated new federal rules on for-profit schools, and also with the high unemployment rate across the country. But fundamentally it looks like at for-profit colleges, their stock prices are declining as people become aware of the massive debt students assume.

Now that doesn’t help the students much. But at least it shows that the market is working. The companies become less attractive as an investment once Americans understand the companies are perhaps kind of shoddy.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer