Will For Profit Education Stocks Face Greater Scrutiny In 2014?
James Dennin, Kapitall: President Obama has highlighted growing student loan debt. Will this include new regulations in for profit schools?
In last night's State of the Union, President Obama reiterated his pledge to help the rapidly ballooning student debt in this country. To underscore the importance of this part of his platform, he invited a deeply indebted graduate (to the tune of $90,000) of Devry (DV), to sit in First Lady Obama's box.
Read more from Kapitall: 2 Bellwether Stocks to Watch as Macro Headwinds Weigh on Markets
Calls have come from various state attorneys general to investigate some of the practices of for profit colleges like Devry, many of whom derive close to 90% of their profits directly from federal student loan programs.
And yet it doesn't seem to have had much of an effect on stock prices in the industry so far. Despite the lackluster month for the stock market, about half of the seven biggest for profit education stocks are up in 2014, with Career Education Corp (CECO) gaining almost 13%.
Click on the interactive chart below to view data over time.
As of now, four major for profit educators have received demands for information from a network of 12 state attorneys general, and the Federal Trade Commission has strengthened guidelines regarding how these companies are allowed to market their programs.
While some stocks have performed well this month, and the largest educator Devry seems generally unmoved, some like Education Management Company (EDMC) (which is partially owned by Goldman Sachs [GS]) have been throttled as of late:
Now it seems like Wall Street has cooled off somewhat on the industry. Most companies in for profit education are rated 'hold' by analysts. And yet at the same time, it also seems possible, if not likely, that for profit schools will remain part of the equation for the foreseeable future.