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
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!