BOSTON ( TheStreet) -- For-profit post-secondary schools, known for their flexible schedules and aggressive marketing techniques, boomed over the past decade, particularly as people bet that a college certificate would boost their employment chances in the midst of the recession.
They also benefited from huge demand for college and vocational programs that the public sector couldn't meet, low borrowing rates, the increased availability of federal student loan funding, including the G.I. Bill and Pell Grants, low cost and online-course delivery.
But the tide has turned on the $35 billion business, and its prospects appear dimmer almost by the day. Its biggest challenge is the increasing government scrutiny over high student loan default rates, questions about whether its degree offerings actually help their graduates further their careers, some schools' ethics in recruiting vulnerable students and, finally, whether demand will wane as the job market recovers.As a result, investors are giving the educators' shares an "F," despite some analysts' "buy" ratings on these stocks. The S&P Education Services Index, which tracks for-profit educational firms' shares, is down 21% this year and 28% annually over the past three years, versus the S&P 500's gains of 10% and 21%, respectively. At the very least, the industry is due for a shakeout, given the overriding trends it faces. "Despite a spectacular multi-decade run, we believe increased regulatory scrutiny of the for-profit education sector is forcing participants to react and adapt to potentially game-changing rules, which are likely to alter the industry landscape for years to come," wrote Peter Wahlstrom, Morningstar's educational services industry analyst, in a research note last week. Similarly, S&P analyst Michael Jaffe reported that "following much improved operating results in 2009 and 2010, many U.S. for-profit educators have been experiencing highly diminished performances over the past few quarters, and we see results remaining (that way) for an extended period. "We think the less favorable outcomes have stemmed mostly from new regulations being put in place by the Department of Education" in an effort to lower student loan default rates, he said.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV