Monday, August 16, 2010

For profit education companies get hammered as education bubble bursting

From Bloomberg:

For-profit college stocks fell after the U.S. Department of Education released data that said fewer than 36 percent of the colleges’ students repaid federal loans, compared with 54 percent at public universities.

Corinthian Colleges Inc, based in Santa Ana, California, plunged 25 percent to $4.97 at 11:06 a.m. in Nasdaq Stock Market composite trading after the data said one of its campuses had a repayment rate of less than 20 percent. Washington Post Co., which owns Kaplan Inc., tumbled 13 percent to $299.81 in New York Stock Exchange composite trading. An index of 12 education stocks fell 5.4 percent.

Nationally, for-profit colleges have a 36 percent student- loan repayment rate, compared with 54 percent at public universities and 56 percent at private nonprofits, according to an analysis of the Education Department data by the Institute for College Access & Success, an Oakland, California nonprofit research and advocacy group. The Aug. 13 data release continues a run of bad news for education stocks, said Gary Bisbee, an analyst at Barclays Capital in New York.

Subprime here:

A 36% repayment rate!!???!!! Wow! And a whopping 54% repayment rate for public universities?? The weakest link is going down hard hard hard. By summer of 2012 things will be getting red hot out there. The education bubble is bursting!


  1. Why is it bursting? Because you say so? It's a lucrative business with many advocates on Capitol Hill. Obama is an education guy, he might tweak it...but to say it's bursting is a bit heavy on the side of melodrama.

  2. The education bubble is bursting because the news is getting out that students are paying their loans back at a dismal 36% rate. In addition, when the share prices of these "education" companies get hammered on news like this is signals the beginning of the end. You can believe what you want about it being a lucrative business. Subprime and mortgage lending was a much larger market with much larger and wealthier advocates on wall street and Capitol Hill and yet when that bubble burst the industry collapsed and has yet to rebound.

  3. The guy that shorted the mortgage market starting in 2007 and made billions of dollars was asked what his next project was... and I'm paraphrasing what he said: "I didn't think there was an industry as socially and self destructive as the mortgage industry, but the student loan industry is filling in quite nicely."

    I think what's going to end up happening is that the BK courts are going to start expanding the meaning of "undue hardship" when it comes to discharging student loans. Perhaps they can be made slightly more difficult than discharging your credit card debt, but much easier than it is now.

    Only then will we start seeing a change.

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