The Morally Bankrupt Industry
The Dynamic Wealth Report
August 17, 2010
by Jay Chernoff, Editor
It’s barely been two years since the subprime debacle.
In fact, we’re still reeling from the financial crisis of 2008. It’s one
of the largest bubbles to burst in the history of the financial markets.
And we know the crisis was caused by the ridiculous excessive use of
subprime mortgages (and related derivatives).
There’s an excellent book on the subject called The Big Short by Michael
Lewis. You can find it in any bookstore.
One of the main characters is Steve Eisman. He’s become famous for
betting against subprime mortgages. People thought he was out of his
mind. Remember, he was betting against housing when it seemed house
prices would never fall.
When the subprime market crashed, he made $1.5 billion. No one’s
laughing at him now. In fact, he’s become a very popular, widely
followed hedge fund manager.
Now Steve Eisman is already predicting the next market to crash.
You’ll never guess what it is…
For-Profit Education.
Check out this quote from Eisman. I think it says it all…
“Until recently, I thought that there would never again be an
opportunity to be involved with an industry as socially destructive and
morally bankrupt as the subprime mortgage industry. I was wrong.”
Wow. Strong words coming from a hedge fund manager.
Why the harsh words? What’s the deal with these for-profit education
companies?
Let me explain…
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
For-profit colleges aren’t cheap. But they always seem to have high
enrollment numbers. You see, the companies who own them spend a ton of
money on marketing. And they paint a rosy picture for perspective
students… a better life with more money.
And who doesn’t want a better life?
The enrollment agents at the for-profit schools have an easy sell, particularly when they target the low-income demographic. And low-income
people are flocking to these schools.
But even average-income earners can’t afford the pricey tuition without
help. How can low-income students afford it?
Student loans of course.
Over 80% of the revenue for these for-profit colleges comes from federal
student loans. In fact, 25% of the nearly $90 billion a year of federal
student loans are going to the for-profit colleges. Keep in mind, only
10% of all college students are attending for-profit schools. For-profit
education is obviously sucking up a disproportionate share of the money.
But here’s the key point…
Many of these student loans never get paid off. The default rate is
climbing higher and higher. And there’s no reprieve in sight. Guess who
gets stuck with the bill? The taxpayer.
There are several reasons for this unfortunate situation.
First off, the education at many of these for-profit schools isn’t
exactly top notch. This is particularly true regarding the liberal arts
degrees. Technical degrees can be valuable. But it’s widely thought the
more generic diplomas are not getting students into better jobs. They
simply don’t provide a lot of value to a potential employer.
More importantly, we’re in a recession. There are plenty of people with
advanced college degrees from renowned universities who can’t find work. It’s even harder for the for-profit school graduates.
But that’s not even the scariest part…
There’s over a 50% dropout rate at for-profit schools!
Many students at the for-profit schools just don’t value the education
they’re receiving. Remember, a lot of these people were recruited by
enrollment agents. It appears many have no real desire to learn or
attend classes.
But it gets even worse…
You won’t believe where some of the students were recruited.
According to Steve Eisman, enrollment agents recruit from homeless
shelters and casinos. Can you believe it?
Now I understand why Eisman used the term ‘morally bankrupt’ to describe
the for-profit school industries.
Obviously, the companies running these for-profit schools are only
concerned with higher revenues. They know they’ll get federal student
loan money. The schools don’t care if students drop out. They’ve already
booked their profits…
Let me put this another way…
You and I are stuck paying the bill.
And the only people profiting are the corporate executives.
Because of Eisman and others like him, the government has finally taken
notice. Companies can’t keep using such unethical business practices.
Eventually, it catches up to them.
As you read this, Congress is debating how to deal with the for-profit
schools.
I don’t know what the result will be. But, it’s pretty clear something
will change.
The markets have taken notice. The leaders in the industry have all
taken a beating. Apollo Group (APOL), Corinthian Colleges (COCO),
DeVry
(DV), and ITT Educational Services (ESI) are all trading lower in recent
months.
But the window for lower prices isn’t closed yet. APOL and ESI in
particular still have room to drop. Both stocks tend to be volatile. The
next time either of these companies gets a bounce higher, I’d recommend
shorting the shares or buying puts.
The for-profit schools are in the crosshairs. It won’t be long before
changes are made. The industry is sure to suffer from whatever happens.
And when the prices drop, we can be there to profit.
Another busy week of IPOs with five new companies hitting the market.
China Kanghui (KH), MediaMind Technologies (MDMD),
MakeMyTrip Limited
(MMYT), RealPage (RP), and Electromed
(ELMD) all completed successful IPOs. Of the five, MMYT had the best
opening. It closed over $12 above the offer price.
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map