What to Know: For-Profit Education Companies Back in Play

Stephen L Kanaval  |

A large majority of for-profit education companies are pumping their fists today. The election of Donald Trump means for-profit colleges should be mostly ecstatic with the election results. The Obama Administration was out for blood on the group doling out some hefty fines and denying accreditation to some of these schools. The administration contended that these institutions took advantage of students with aggressive selling tactics, while sticking them with high-interest loans and low-quality degrees.

For-profit colleges prior to the Obama Administration’s shutdowns and assaults were a multi-billion dollar industry. The Administration has regulated these colleges in many ways, most recently was the “gainful employment rule,” stating that colleges must track their graduates performance in the workforce. If graduates fall short in the field, colleges and programs will lose funding. When the rule was enacted in 2015, a total of 1,400 programs were forced to close. Commissions headed by Senator Elizabeth Warren and investigations by state attorneys closed many colleges including ITT Technical Institute and Corinthian Colleges.

“The continued upheaval in the wake of Corinthian’s collapse is a long-overdue reckoning for an industry that profits off students while sticking them with a worthless degree and insurmountable debt,” Durbin said. The Illinois Democrat called Corinthian’s break down “the canary in the coal mine for the for-profit college industry.”

In contrast, this industry bloomed under George W. Bush because of looser restrictions and the “safe harbors” that allowed recruiters to escape congressional measures from the 1990s. Recruiters were able to base their salaries on the number of secured enrollments, which put many students who were not fully committed into seats, according to the Obama Administration.

Since Trump has operated a for-profit education company (the infamous Trump University - which according to affidavits looked to sell Trump’s real estate knowledge for a hefty price – the state of New York fought the company on calling itself a “university” since its inception), one could reasonably assume these regulations will be eased. The market clearly sees this and many for-profit education companies are doing very well today, here are some highlights below:

Strayer University (STRA) is up 11.35% at the time of writing.

K12, Inc. (LRN) is up 9.25% at the time of writing

Capella Education Co. (CPLA) is up 5.59% at the time of writing

Grand Canyon Education, Inc. (LOPE) is up 9.54% at the time of writing

Apollo Education Group, Inc. (APOL) is up 4.58% at the time of writing.

One note: an outlier here is LRN, which bills itself as a technology-based education company; however, it is a for-profit education company that sets up charter schools across the country. We covered them here in August and they have been under investigation by the Attorney General of California because they allegedly benefited from a tax-exemption status.

The possible easing of regulations and reduced government regulations could mean a spike in future attendance for many of these universities.

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