For-profit colleges are rebounding under Trump
CHICAGO — It may be too late for shuttered Corinthian Colleges, ITT Technical Institute or even Trump University, but Wall Street is betting the potential rollback of Obama-era initiatives to hold forprofit colleges accountable may lead to a resurgence of the beleaguered industry.
Rebounding from what some analysts saw as an existential threat during the Obama administration, for-profit college stocks are up sharply since Donald Trump’s November election amid renewed investor optimism — and growing concern from education watchdogs.
“The perception of investors has been that the prior administration was really out to get the sector,” said Trace Urdan, a research analyst at Credit Suisse. “Trump helps make these companies more investable because there is less concern that the government is trying to drive them out of business.”
Less than 100 days into Trump’s presidency, the Department of Education under Secretary Betsy DeVos has delayed implementation of gainful employment rules, withdrawn key federal student loan servicing reforms and signaled a less onerous regulatory environment for the essentially taxpayer-financed career education sector.
While good news for investors, the policy shift may mean “buyer beware” for students such as Gilbert Caro, of Chicago, who amassed nearly $100,000 in debt while working toward a master’s in business administration at DeVry University, only to end up working as a prison guard. Caro is among the tens of thousands of for-profit college graduates alleging they were misled and seeking relief from their federal student loans.
“The initial signs are troubling,” said Pauline Abernathy, executive vice president of the Institute for College Access and Success, a nonprofit research and advocacy organization focused on alleviating student debt.
The for-profit college industry, which saw enrollment peak during the depths of the Great Recession, became the focus of an Obama administration crackdown in 2011, taking on everything from inflated job placement claims to predatory financial practices.
Regulators investigated a number of for-profit schools, alleging students were lured by false promises of success and ended up ill-prepared for their chosen careers and drowning in debt.
Major players such as Corinthian and ITT Tech went out of business over the past two years, while DeVry in December agreed to pay $100 million to settle a Federal Trade Commission lawsuit alleging it misled students.
Meanwhile, Career Education, which reached a $10 million settlement with New York authorities in 2013 over charges of inflated job placement rates, is winding down its money-losing Le Cordon Bleu culinary schools to focus on its for-profit universities, Colorado Technical and American InterContinental.
Since the Nov. 8 election, DeVry’s stock price has risen 52 percent, while other forprofit colleges such as Strayer University and Grand Canyon University have gained 37 percent and 55 percent, respectively, as of Friday’s closing bell. Career Education’s stock is up 34 percent. The broader Standard & Poor’s 500 index is up 10 percent over the same period.
Fueling the gains is a delay in implementing gainful employment rules, a signature reform under former President Barack Obama designed to hold for-profit college programs accountable for successful career placement. Finalized in 2014, the rules set a minimum debt-to-earnings rate for graduates. A program that fails in two of three consecutive years would be ineligible to participate in crucial federal student aid programs.
“There’s no reason taxpayers should continue funding programs with those types of outcomes,” Abernathy said. “These are programs that are often funded 90 percent by federal taxpayers.”
The first annual results, released in January, showed 800 programs failed the gainful employment standards, with graduates having annual loan payments greater than 30 percent of discretionary income and 12 percent of total earnings. Of the failing programs, 98 percent were offered by forprofit institutions, according to the Education Department.