Behind the $1.2 Trillion Student Debt Crisis Is A Scam Manipulated by Education Predators
NEW YORK ( MainStreet) Taking out student loans is all too common a solution for most Americans to cover exorbitant education costs. Yet it's a practice that's disproportionately common at for-profit colleges: the College Board reports that at for-profit schools like Corinthian Colleges, Inc. (COCO) or Apollo Education Group's (APOL) University of Phoenix, 96% of graduates took out student loans, compared to 72% and 62% at public four-year and private non-profit four-year institutions, respectively. Recently, though, there's been an increased federal crack down on the predatory lending practices that have plagued for-profit college alumni.
As the Department of Education is shutting down Corinthian campuses nationwide, after the largest career-driven diploma provider failed to report student enrollment numbers and falsified job placement and attendance data , for-profit universities like University of Phoenix are increasingly coming under scrutiny for shady federal student loan practices. As a result, for-profits, which purposely overcharge federal student loans to survive, are seeing their revenues dwindle in the wake of federal discipline from ED and the Consumer Financial Protection Bureau. But though that federal reprimand may have stifled some of the success of these universities, the action has not been enough to stop the robust profits.
DeVry Inc. (DV) is one of the for-profit educators that was recently upgraded by research firm Stifel from a "hold" rating to a "buy" with its price target raised to $48; its net operating cash flow, compared to the same quarter last year, has also climbed by 47% to $150.09 million with a high gross profit margin.
The ongoing student loan debt scam may hurt for-profit universities' reputation, yet the damage is not devastating enough to stop the publicly traded behemoths in a short period of time.
Paying the For-Profit Piper
Garry O'Neal, 34, firmly believes pursuing his psychology master's degree at the University of Phoenix, the for-profit education brand well-known for its online-based programs, was one of the smartest decisions he has ever made. Since receiving his diploma in 2010, he has been employed as a youth advocate for the Department of Juvenile Services in Baltimore; however, his education has left him $80,000 in debt as he tries to feed his two children.
That's a disappointing truth O'Neal now has to deal with; now four year since he's graduated, he hasn't yet been able to afford to start making a dent in his $600 monthly loan repayment plan.
Accredited by the Higher Learning Commission, a regional committee assigned on behalf of ED and the Council for Higher Education Accreditation, the University of Phoenix delivers financially for its parent group, the education giant Apollo. In 2012, it represented more than $4 billion of Apollo's net revenue. The company also derives over 80% of its revenue from federal financial aid program funds, such as Pell grants and Stafford loan programs, according to Apollo's SEC filing.