For-profit education has a bad reputation in this country, primarily because it is seen as being more about the "for-profit" part than the "education" part. I tend to agree with this sentiment, but I also don't think the industry can be painted with such a broad brush. As with most industries, it is important to understand both the good and the bad before investing in a company -- and there are some good things about for-profit education that make it worth a look.
A unique perspective?
I must disclose that I recently graduated from a private for-profit school, Post University, and have also completed some courses at American Public Education's (NAS: APEI) American Military University. However, I also graduated from a traditional, non-profit public university, so I have a bit of experience from both sides of the profit argument, at least in regard to post-secondary education.
I also believe that everyone should be able to take part in some sort of post-secondary education, but it is ultimately up to consumers to choose the best fit for themselves. Education truly is an arena that should come with the disclaimer of caveat emptor.
A diploma for every wall
There is also something to be said about the availability of non-profit schools' online curricula offerings. While many leaders in traditional brick-and-mortar education have expanded their online options, they have not lessened their often lofty requirements to be accepted. For-profit education providers offer an opportunity that may not be available to everyone: the ability to go to college. Traditional college is not for everyone, and individual circumstances may prevent someone from spending four to five years on campus right after high school.
This is borne out in the enrollment numbers of the University of Phoenix, owned by Apollo Group (NAS: APOL) . According to the latest available enrollment numbers from the Department of Education, the University of Phoenix has an enrollment of 380,232, which represents a staggering 1.86% of total college enrollments. In fact, enrollment there exceeds the combined enrollment of the next four schools on the list. Washington Post's (NYS: WPO) Kaplan University, No. 2 on the list, more than doubled its enrollment from 2008 to 2009, going from 32,734 to 71,011.
University of Phoenix, Online Campus
Arizona State University
Miami Dade College
Ohio State University
Source: Department of Education. Full-time enrollment equivalents.
Regulation should keep them in check
A recent lawsuit against the Department of Education by the Association of Private Sector Colleges and Universities (APSCU), which includes for-profit schools such as DeVry (NYS: DV) , Education Management (NAS: EDMC) , and ITT Educational Services (NYS: ESI) , tends to paint these companies in a negative light. The lawsuit was a result of a recent court decision regarding the metrics on which for-profit schools will be evaluated to retain Title IV funding from the federal government.
One metric involves paying recruiters based on how many students they enroll. This practice often leads to deceptive recruitment techniques and the enrollment of students who will struggle in college regardless. This led the Department of Justice sue Education Management, placing the industry on notice that regulations need to be followed.
With college enrollments expected to grow to nearly 2.8 million by 2018, for-profit education enrollments should increase, as students at those institutions represent 9% of all higher-education enrollees. This could be a boon for the industry, as long as it's able to follow the new regulations. If it doesn't, future profitability may be limited by the lack of Title IV funding to generate revenue.
Worth keeping an eye on?
Fools come down on both sides of the argument. Former teacher and Fool contributor Brian Stoffel is not a fan of for-profit education, and I can't argue with his reasoning. On the other hand, the Fool's own Million Dollar Portfolio recommended purchasing shares of Bridgepoint Education as recently as April of this year.
As Fools, we are long-term investors, so the short-term price fluctuations of stocks are not great cause for concern. However, the new regulations may change how we view the stocks as long-term holdings. If you currently own any of the stocks, they're probably on your watchlist already, but if they aren't, I encourage you to add them so you can keep an eye on the changes in the industry:
Add Apollo Group to your watchlist.
Add DeVry to your watchlist.
Add Education Management to your watchlist.
Add ITT Educational Services to your watchlist.
Add American Public Education to your watchlist.
Add The Washington Post to your watchlist.
At the time thisarticle was published Fool contributorRobert Eberhardowns no shares in any of the companies mentioned here. Follow him on Twitter, where he goes by@GuruEbby. The Motley Fool owns shares of American Public Education and Bridgepoint Education.Motley Fool newsletter serviceshave recommended writing puts in Bridgepoint Education. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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