Payback Time In For-Profit Education

Monday was a severe bloodletting for many players in the for-profit education sector. While the U.S. federal government had made no secret of its intentions to reform its approach to the industry, there were not a lot of details previously in play. Late on Friday, August 13, though, the government released data about loan repayment rates in the industry and the data was not pretty. 

The Government Wants Its Money Back
There has been an ongoing debate as to whether or not the surge in for-profit education over the last 20 years has benefited students and society nearly as much as the operators. Specifically, critics have pointed to programs that leave graduates ill-prepared to get better jobs and program costs that exceed the likely earnings benefit of the education. Said differently, these programs rely upon government-subsidized loans for a  large percentage of their revenue, but students are often unable to repay the loans. 


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Profits In For-Profit Education

Whether it is a late-night ad for a graphic design school, an ad in the middle of Good Eats for cooking school, or yet another ad about some IT training program that "changed a person's life", for profit-education is a fixture in the United States. The question remains, though, as to whether there is still money to be made in a sector that has had quite a long stretch of exceptional growth. 

Apollo Group (Nasdaq:APOL)
Apollo generates nearly all of its revenue through the well-known University of Phoenix program; arguably the for-profit program that comes closest to a traditional university in terms of the breadth and depth of programs it offers. The largest player by enrollment, the company has had some difficulties, as the SEC is informally investigating certain revenue recognition policies and the company has come under criticism for the quality of it academic programs.

Nevertheless, the valuation here is very appealing and even if the Department of Education tightens standards for this industry, Apollo stock should have room to move higher. 


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