And here’s the summary of Bridgepoint Education Inc (NYSE:BPI):
Along with (Bridgepoint’s) rapid growth, have come rapid increases in student withdrawal rates (the student withdrawal rates for the Associate programs is the highest of any company analyzed), student loan defaults, and spending on marketing and executive compensation. These outcomes call into question whether Bridgepoint’s students are receiving an education that affords them to the ability to repay the loan debt they incurred.
And finally, Strayer Education Inc (NASDAQ:STRA):
The company’s performance, measured by student withdrawal and default rates, is one of the best of any company examined, and it appears that students are faring well at this degree based for-profit college.
While Tom Harkin and the rest of the committee are clearly critical of for-profits in general, they complimented practices at Strayer Education Inc (NASDAQ:STRA) and were less critical of Apollo Group Inc (NASDAQ:APOL) than Bridgepoint Education Inc (NYSE:BPI).
Accreditation
A school’s accreditation status and relationship with its accreditor is a good indicator of the school’s value proposition to students.
Apollo’s University of Phoenix has had accreditation issues recently. A peer review team visited the school a while back and in February, recommended that the school’s accreditor, the Higher Learning Commission, place the school on Probation. Probation would signify that the school is out of compliance with HLC criteria. Last week, Apollo Group Inc (NASDAQ:APOL) announced that HLC had reviewed the recommendation and decided to instead place the U of Phoenix on Notice, a lesser sanction indicating that the school is on a course of action that could lead it to be out of compliance. It’s not as bad as Probation, but accreditation security at the university will still be uncertain for the next 2 years.
Bridgepoint’s Ashford University has also had issues with accreditation, but last week received initial accreditation from WASC for 5 years.
Of the 3, Strayer University has the best relationship with its accreditor. In 2007 the university actually requested an accreditation reaffirmation 4 years before it was required to do so, suggesting that the school was confident in the academic quality and outcomes it produced. It received a reaffirmation for 10 years through 2017 without any sanctions being placed. 10 years is the maximum duration an accreditor can reaffirm accreditation for and is rarely given, which Middle States was impressed with in its findings.
Conclusion
Recent developments in the for-profit education industry strongly suggest that schools will have to offer students a better value than they have in the past. Financial performance going forward will heavily depend on this value proposition. It appears that Strayer Education Inc (NASDAQ:STRA) is best positioned to capitalize on this trend of the three companies analyzed. Apollo Group Inc (NASDAQ:APOL) has the most issues of the three, and Bridgepoint Education Inc (NYSE:BPI) is somewhere between the other two. Investors should use this data in conjunction with traditional profitability and financial health metrics to determine the opportunity in investing in these and other education companies.
The article Searching For Value in the Education Industry originally appeared on Fool.com and is written by Brian Grosso.
Brian Grosso has no position in any stocks mentioned. The Motley Fool recommends Bridgepoint Education. The Motley Fool owns shares of Bridgepoint Education. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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