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 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

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!