I did a post back on October 2nd about how tempting the for-profit education sector looked. This evening's announcement by APOL has sent the stock down over 12% after-hours, and similar stocks are falling in sympathy. I am happily short all of them.
In case you haven't been following the news, it turns out that these for-profit outfits, like University of Phoenix, Devry, and the like, are running into this kind of reality:
(1) Jethro Jobless is watching People's Court on TV, and he sees an ad for Devry which strongly suggests that a better "education" will improve his job prospects;
(2) Jethro undergoes the rigorous entrance examination – which consists of checking for a pulse – and secures federal loans to pay the exorbitant tuition (I read in the Times this weekend that one particular course runs $14,000, and an identical education could be had at a community college for under $500);
(3) Jethro gets his "degree" and enters the job market;
(4) Suppressing snickers at his diploma, hiring managers don't hire Jethro;
(5) J.J. is still unemployed – but now buried in student debt – so he blows off his student loans;
(6) You – the responsible taxpayer – have this debt added to the trillions already owed by the U.S., and J.J. resumes watching People's Court.
The Federal Government made noise about getting a little bit tough on the above, but since they have no backbone whatsoever, they delayed any concrete action until sometime next year (which means never).
These companies, however, are starting to get a little nervous, so they are getting more rigorous about enrollment (perhaps, besides a pulse, you also have to have an IQ greater than your shoe size). Thus enrollments – and profits – are dropping.
For once, I'm looking forward to the opening bell.