Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

DeVry Inc. (DV), ITT Educational Services, Inc. (ESI): Following the Money in For-Profit Education

Page 1 of 2

As a former teacher and son of a current university professor, I’ve always been interested in following for-profit education companies. By and large, this interest has led me to believe that staying away from the industry — as an investor — was the smart thing to do.

DeVry Inc.Yesterday, I showed how declining new student enrollments at DeVry Inc. (NYSE:DV), ITT Educational Services, Inc. (NYSE:ESI), Apollo Group Inc (NASDAQ:APOL), Corinthian Colleges Inc (NASDAQ:COCO), and Bridgepoint Education Inc (NYSE:BPI) coincided with dramatic drops in the share prices for all of these stocks. Even American Public Education, Inc. (NASDAQ:APEI), which showed an increase in new student enrollment between 2010 and today, saw its stock drastically underperform the market.

Today, we’ll be examining how each of these schools measures up against one of the most important rules in the industry.

The 90/10 rule
An enormous portion of the revenue that these schools receive comes not from students, but from federal government loans. Because these schools tend to focus on students who may have a hard time paying full tuition out of pocket, it makes sense that a lot of money is provided through Title IV federal funding.

At the same time, the government wants to make sure that the schools aren’t just siphoning away tax dollars to provide a piece of paper — a degree — to students who may or may not be benefiting from their college experience.

That’s why every school needs to derive less than 90% of its revenue from Title IV funding. If a school eclipses that benchmark, it’s put on probation. If it continues above the benchmark for a second consecutive year, the school loses its eligibility to receive Title IV funding. As you’ll see, that usually means a death blow for the school.

Here’s where the six schools I mentioned stood at the end of 2012, compared with the end of 2010.

Source: SEC filings. DeVry Inc. (NYSE:DV)’s data represents an unweighted average across all schools. Apollo Group Inc (NASDAQ:APOL)’s is representative of the University of Phoenix, which accounts for more than 90% of Apollo’s revenue.

There are a couple of key takeaways here. The first is that DeVry Inc. (NYSE:DV) and Corinthian Colleges Inc (NASDAQ:COCO) have done a good job at lowering the proportion of funds coming from Title IV. That’s especially important for Corinthian, since, combining all schools, the company was in danger of losing funding back in 2010.

The second takeaway is that American Public Education, Inc. (NASDAQ:APEI) and ITT Educational Services, Inc. (NYSE:ESI) showed alarming increases in Title IV funding, while Apollo Group Inc (NASDAQ:APOL) — parent company to the University of Phoenix — is in serious danger of violating the 90/10 rule.

Three important caveats
When it comes to calculating the 90/10 rule percentages, only Title IV funds are counted. Money from the Department of Defense — by way of the GI Bill — doesn’t count against a school.

That’s important to understand with American Public Education, Inc. (NASDAQ:APEI), which had spent the better part of its life as a school focusing solely on catering to active-duty and retired military personnel. Over the past two years, however, the school has reached out to nonmilitary students, and doing so has accounted for a gargantuan leap in public funding.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

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 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!