STRA, COCO, APOL, LINC- Any opinions on this sector? In my opinion, I can't see this administration cutting back on higher education lending, or tax credits/deductions for education. The money's going in this direction, and although there's some lobbying/inquiries into the industry, I think they'll continue to do well. thoughts?
I think the sector may hold up for the short term. During an economic downturn or slump a lot of people lose their jobs and go back to school to gain more skills for when things get better. The whole industry has gotten a boost over the past few years and is still riding off of that wave. Long term (2+ years) I foresee big trouble. Loan default rates are so high that eventually the money wont be there for everyone who wants to go. People are going to realize that a lot of these programs aren't worth it and do little to actually promote their careers. Nursing schools are probably the only programs that will see sustained growth and profitability due to the aging population.
Terminal. These will go down for months. You can't sell edumacation to people who will never pay back the loans.
The long term outlook is not good. I have no idea what will happen in the intermediate term. It is finally being recognized that nearly all these for profit institutions exist solely to milk the Federal backed loan and grant programs. They have virtually no filter on who they will enroll as long as the student can qualify for tuition loans. Consequently average quality of graduates is terrible. I don't want to paint all for profit educational institutions with the same brush, however, because those few that do maintain some kind of quality standards, and do flunk non-performing students out, will probably survive if they are in a vocational niche not-well served by patron-supported institutions. A good formal education is generally quite expensive; thus traditional educational institutions have always had patrons to make up the difference between what the student can afford and what the real cost is. In the past the patron was almost always a church, religious order, or wealthy individual; nowadays, in the case of public institutions, the taxpayer joins these more traditional patrons in subsidizing higher education. It will be impossible for a for-profit institution to both make a lot of money for share holders and have high standards -- because these two conditions are mutually exclusive. There are many who will say that private for profit enterprise can do a better job of educating than can patron supported institutions. This, of course, is nonsense, for the reason I stated..
Thanks everyone for the replies, good info. As for this snippet above- I'm under the impression that leading universities in America are bringing in a lot of money- am I wrong?
They're all non profits though. Top schools receive massive (tax deductible) donations from rich alumni. It all goes to hiring new faculty, building new buildings, providing more financial aid, etc. No one, aside from the university's staff I suppose, is making tons of money off their success. For profit schools are in it for the money, any excess is returned to shareholders or reinvested to make more money and increase stock value. They're always going to be inclined to cut costs as much as possible to make as much money as possible.
You're quite correct. Major Research Universities must bring in many millions in grant money to survive. On most grants an overhead charge is negotiated. Typically this is about 50% of personnel costs, but can range up to 100% depending on the institution. However for-profit corporations and research institutions average even higher on the overhead they charge sponsoring agencies. Where does this money go? It goes to pay for the facilities including utilities and grant administration costs, and some of the overhead money may be used to support internally funded research or other research related costs. The non-overhead portion of the grant goes to pay salaries for professors and assistantships and fellowships for students working on the grant and research expenses such as supplies, equipment, travel, etc. Research in the sciences is often extremely expensive, in the humanities less so. Most basic research in the United States is carried out in Universities or in the National Laboratories, and most of it is government or corporate sponsored.