For-Profit Ed Sector Rebounds Under Trump, etc.

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For-Profit Ed Sector Rebounds Under Trump, etc.

The day of the presidential election, many for-profit education companies were trading near historic lows. In the tertiary sector, DeVry (DV) closed November 8th at $23.50, down 36 percent over five years; Strayer (STRA) at $58.68, down 38 percent over the same period; Apollo (APOL) at $8.73, down 92 percent; and American Public Education (APEI) at $14.85, down 61 percent. In addition, in the K-12 sector, K12 (LRN) closed November 8th at $11.19, down 67 percent over five years.

In the fifteen weeks since Trump's election, all five stocks have climbed considerably: DeVry closed February 24th up 39 percent; Strayer, up 29 percent; Apollo, up 14 percent; American Public Education, up 64 percent; and K12, up 62 percent. Moreover, Laureate (LAUR) returned to the public market at the beginning of February, raising $490 million with an initial public offering of 35 million shares, reported The Baltimore Sun. The Baltimore-based company was publicly traded from 1993 to 2007, when it was taken private in a management-led buyout.

There should be little mystery to this transformation. "Top officials in Washington who spearheaded a relentless crackdown on the multibillion-dollar industry have been replaced by others who have profited from it," reported Patricia Cohen of The New York Times. Secretary of Education Betsy DeVos has been an especially ardent advocate of for-profit educational management. DeVos lobbied aggressively to make her home state of Michigan home to the highest concentration of for-profit charter schools in the nation. And in her confirmation hearing, DeVos refused to commit to perpetuating the Obama administration's imposition of a gainful employment rule, which stipulated  that the provision of federal funds to tertiary institutions (via student grants and loans) required that "the estimated annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income ... or 8 percent of his or her total earnings."

In accordance with this new regulation, two major tertiary for-profit operators repeatedly investigated for duplicitous advertising shut down: Corinthian Colleges in 2015 and ITT Educational Services in 2016. Soon after ITT announced its closure, the Department of Education nullified the authority of the Accrediting Council for Independent Colleges and Schools (ACICS) on the grounds of inadequate supervision; founded in 1912, ACICS served as the chief accrediting agency for for-profit colleges and universities. And in the final weeks of the Obama administration, the Federal Trade Commission announced that DeVry had agreed to pay $100 million to settle a federal lawsuit alleging the company had both inflated the earnings of graduates and the percentage of graduates finding jobs in their fields within six months of finishing their programs.

K12 likewise suffered a significant reprimand and financial setback in 2016. In acknowledgment of having overstated student progress and parent satisfaction in advertisements and of having inflated student attendance data while operating virtual charter schools in California over the previous twelve years, K12 agreed to a $169 million settlement with the state's attorney general, reported The San Jose Mercury News.

To Steven Gunderson, the president and CEO of Career Education Colleges and Universities, an advocacy group for for-profit schools, the Trump administration represents redemption for commercial operators. "We're going to get some regulatory relief, which is desperately needed," Gunderson said to Cohen of The New York Times. Gunderson explained that his group now has support in both the White House and Congress and aims to get the gainful employment rule repealed and the authority of ACICS restored.

Another privatization sector has rebounded since the election of Trump to an even greater degree, pointed out The New York Times in a cautionary editorial: commercial management of prisons. Trump made clear his support of this sector in a March 2016 interview with Chris Matthews of MSNBC: "I think we can do a lot of privatizations and private prisons. It seems to work a lot better." On election day, both of the nation's major corrections companies were trading near historic lows. CoreCivic (CXW), formerly Corrections Corporation of America, closed November 8th at $14.19, down 60 percent from three years earlier; the GEO Group (GEO) at $23.88, down 29 percent. Fifteen weeks later, CoreCivic was up 147 percent; and the GEO Group, up 105 percent.

Published Tuesday, Feb. 28, 2017