DeVry Inc. (DV), American Public Education, Inc. (APEI): The Student-Debt Debacle in For-Profit Education

Page 1 of 2

I’m taking time this week to dive deeper into the for-profit education industry. Back in February 2011, I told readers why I was staying as far away from the industry, as an investor, as possible. Since then, the biggest industry players are drastically underperforming the market.

So far, we’ve focused on two factors to account for this poor showing: lower new student enrollment numbers , and high reliance on government funding. Today, we’ll focus on other important metric: the number of former students whose debt payments go into default in the three years following their time at school.

Understanding the rule
If you think about it, college is supposed to be an investment in one’s future. Though it can get very expensive, the training you receive is supposed to provide you with what you need to make a living in the world.

One way to measure whether or not a college is succeeding in this respect is to see if students are able to pay back their loans. It is especially disheartening to see high levels of default on student loans because — unlike other forms of debt — student loans cannot be wiped off your slate by declaring bankruptcy.

DeVry Inc.The government has recently changed how they measure this metric. In the past, it used to check for the percentage of students who default on loans in the two years following their exit from school. Recently, that timeline was changed to three years — all but guaranteeing that default rates would go up (at least, they certainly can’t go down if covering the same time frame).

The Department of Education states, “No sanctions will be applied to schools based on the three-year rates until three annual rates have been calculated.” That’s because sanctions are levied against schools that have cohort default rates above 30% for three consecutive years. So far, we’ve only got one reading on three-year default rates, from 2009 to 2012. Here’s what it looks like.

Company 3-Year Default Rate
DeVry Inc. (NYSE:DV)* 24.1%
American Public Education, Inc. (NASDAQ:APEI) 7.2%
ITT Educational Services, Inc.(NYSE:ESI) 33.9%
Apollo Group Inc (NASDAQ:APOL)** 26.4%
Corinthian Colleges Inc (NASDAQ:COCO)*** 29.9%
Bridgepoint Education Inc (NYSE:BPI) 19.8%

Source: U.S. Department of Education. *Represents core DeVry Inc. (NYSE:DV) schools. **Represents University of Phoenix. ***Represents core Everest schools.

The first thing to note is that all of these numbers, regardless of whether they fall below the 30% threshold, are alarming. Among public schools, the average default rate is 11%, and among private institutions, it is 7.5%.

Think about what these numbers really mean: Anywhere from a fifth to a third (excluding American Public) of all students are unable to repay their debts to the federal government. The schools got their money up front; it’s the taxpayers — and the former students — who are left to foot the bill.

Ironically, I think the trends will start to reverse themselves as default rates come out in future years. Because the government started clamping down on recruitment practices after 2009, schools were likely more careful with who was let in, meaning students will have been more likely to stay out of default.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!