For-Profit Education Rally Is Just Beginning

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I have a current working theory that the rally in for-profit education stocks is just beginning.

The Obama administration was critical of the for-profit education industry. The Department of Education proposed various regulations on the industry, like the 90/10 rule, which states that a proprietary education company cannot receive more than 90% of its revenue from Title IV loan programs and the gainful employment regulation, which mandates loan repayment be less than 20% of discretionary income after graduation or 8% of total earnings.

Trump appears intent on rolling back many regulations placed under the previous administration. Newly appointed head of the Department of Education Betsy DeVos appears very unlikely to pursue further regulation of for-profit colleges, and I think there’s a good chance that the gainful employment regulation and the 90/10 rule are both rolled back.

In the meantime, the industry has been working hard to fix its problems. The industry has invested to lower dropout rates and increase employment post-graduation. Moreover, in a strong economy, more of these students can count on finding jobs when they graduate. Tuition has actually come down across the industry while tuitions at non-profits continue to rise. The schools seem to offer a better value proposition now.

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