Why is the Washington Post down 8% today?
The Post, owner of Kaplan, is a major player in the for-profit education industry. The industry is getting slammed hard from government investigation of its fraudulent, predatory practices.
The for-profit education companies have traded wildly this year ahead of changes in Department of Education regulation intended to make student loan availability more stringent. Yet just a few weeks back, companies in the sector were breathing a sigh of relief and thinking that the Department of Education changes would not be as draconian as feared.
What's happening?
The immediate issue for the stocks, in particular Corinthian Colleges(COCO), Strayer Education (STRA) and the Washington Post(WPO), which owns Kaplan, was a gainful employment rate that missed by a wide mark. The new Department of Education standard for allowing federal student loan financing for for-profit schools is based on a 45% gainful employment rate being the threshold for full eligibility.
For-profit colleges receive as much as 90% of revenue from student loans.
In short, thanks to the health care bill, the Federal government now makes student loans, cutting out the middle man. But the Federal government shouldn't be making loans to schools that promise their prospective students unrealistic salaries or career prospects after graduation, leaving them unable to pay huge loans. Obviously, for-profit schools have a huge incentive to just crank up the highest volume possible. Education costs are rising even faster than health care, and every new student equals tens of thousands of revenue.
With the job market so bad these days, a lot of young people are looking at school. But will it really pay off? Or will it leave them with a lot of debt and poor prospects... not to mention waste taxpayer money? Will they end up like Carianne Howard, the stripper who found her degree, profitable for Goldman Sachs, wasn't worth it?
[In June], the prominent investment fund manager Steven Eisman testified before a Senate education subcommittee hearing on the "emerging risk" posed by increasing federal subsidies to for-profit schools. Eisman is best known for predicting the crash of the subprime mortgage market. He's become a scathing critic of for-profit colleges and universities, and in his testimony referred to the practice of recruiting at homeless shelters. Eisman predicted that students at these schools will default on $275 billion in government loans over the next 10 years.
http://www.propublica.org/...
The NY Times reported on August 3:
Undercover investigators posing as students interested in enrolling at 15 for-profit colleges found that recruiters at four of the colleges encouraged prospective students to lie on their financial aid applications — and all 15 misled potential students about their programs’ cost, quality and duration, or the average salary of graduates, according to a federal report.
...
According to the report, courses in massage therapy and computer-aided drafting that cost $14,000 at a California for-profit college were presented as good values, when the same courses cost $520 at a local community college.
http://www.nytimes.com/...
This morning the following was reported:
Data prepared for the Department of Education by the non-profit Institute for College Access & Success shows that Corinthian Colleges, Career Education and the Washington Post's Kaplan have schools where less than 20% of federal student loans are being repaid. Nationally, for-profit colleges trailed public and private non-profit universities by a wide margin, with only 36% of students repaying loans, versus 54% at public universities and 56% at private non-profit schools.
http://www.thestreet.com/...
Thanks to the efforts of ProPublica, CREW, Sens. Harkin and Durbin, the Department of Education, and the GAO, a massive fraud has been uncovered that could save taxpayers billions. Had the Bush administration been this vigilant on subprime housing, instead of pre-empting state anti-predatory lending laws, the housing bubble might have been avoided.