How Obama's Free Community-College Program May Kill For-Profit Education Companies
BYRichard SaintvilusFollow | 01/09/15 - 12:57 PM EST|
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NEW YORK (TheStreet) -- For-profit education companies have been anything but profitable for investors. Among the industry's biggest losers in 2014 were Education Management Corp. (EDMC) , whose shares fell 97%, and Corinthian Colleges (COCO) , whose stock dropped 96%. Both are now penny stocks. Education Management trades on the over-the-counter bulletin board, while Corinthian's shares trade for less than 10 cents apiece and are in danger of being delisted from Nasdaq.
To make matters worse for the industry, President Obama was scheduled to announce details in a speech Friday of a proposal to make up to two years of community college free for American workers, with the federal government covering three-quarters of the costs. He unveiled his plan on Thursday in a video on Facebook (FB) .
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"We have to make sure that everybody has the opportunity to constantly train themselves for better jobs, better wages, better benefits," Obama said.
The promise of better jobs and wages is the same message that for-profit schools use in their marketing material, and the prospect of competing with free community colleges for students may be the last thing free for-profit education companies such as Apollo Education Group (APOL) , which runs the University of Phoenix, want to face.
Apollo's stock has fallen 12% during the past 12 months, while shares of Strayer Education (STRA) , another big company in the industry, have risen 77% during that time.
The for-profit schools have been controversial. A Boston University study found that students who graduate from a for-profit institution are less likely to get a job than those who graduate from a nonprofit school and that in the cases where for-profit graduates do get a job, they are paid far less than their traditional counterparts.
A study by the nonprofit Institute for Higher Education Policy showed a link between poverty and high-enrollment numbers at for-profit institutions. IHEP said for-profit education schools profited mostly from students between the ages 18 and 26 whose total household income was near or below the federal poverty level.
Now with stricter government regulations, the Gainful Employment Act and other levels of scrutiny aimed at reducing poor student loan repayment rates, for-profit education companies have suffered. And with the White House saying it expects an 9 million students to participate in the community-college program, the industry may find itself on life support.
Officials from Apollo, Corinthian Colleges, Education Management and Strayer didn't immediately return messages for comment.http://www.thestreet.com/story/13005580/1/how-obamas-free-community-college-program-may-kill-for-profit-education-companies.html