I am always interested in hearing from those who disagree with my opinions. That is why I am on the chat board.
Regarding my comparative analysis, I did not take the most expensive college costs and compare them to ESI's. I took the published average cost for colleges. This average is certainly not the lowest price for college and nor is it the highest. What the for profit schools show clearly is that the cost of education has a solid built in profit margin, very much like google advertising has a profit margin much higher than newspaper advertising. In any event, how can the for profit schools generate solid earnings and the not-for-profit schools generate no profit (they are required to be no profit) but then raise tuitions tuition so hugely every year. Do not fool yourself for one second thinking that the not-for-profit schools do not have embedded in them profitability levels that are equal to or above that of for profit schools. The not-for-profits simply take their profits and throw that money into projects, wages, costs, and facilities that are well beyond what is required. Sure its great for the student life to have all the excess amenities, but I bet you if people were offered a choice, they would cash in the amenities and take a lower tuition bill instead. Comparing the cost structure of the for profit and not for profit schools is difficult at best as the for-profits waste alot of money. Do not think for one second that the not-for profit schools do not advertise or have hugely paid administrative staffs, including those involved in attracting students to the school.
I am not adamant about anything. I simply state facts and opinions which people can agree with or disagree with. I understand the negatives of the for-profit schools. The negatives get hyped every day in the press, in Washington DC, and even here.
Regarding the stock performance for the past couple of years, it is what it is and the price history is all there for everyone to see. However, I see a stock whose p/e has collapsed to 5-6 while earnings which were $5.17 on 2008 rose to over $11 in 2011 and will probably exceed $10 in 2012, despite the bears calling for a massive earnings collapse every year since 2008. I also see a company generating huge free cash flow, trading at levels that look like a huge bargain to me. I also see massive ongoing stock buybacks. I hardly ever see a bear or short seller on ESI discuss any of the above. Swingtrader made an effort with his stock buyback analysis, but as I pointed out I think his analysis was not correct.
Everyone who goes to a school has every opportunity to evaluate that school (for profit or not for profit) and do all sorts of due diligence. It is not like there are not prior graduate or flunk outs to talk to. ESI has 70,000 students currently. You would think that there is no shortage of people to tell you that ESI sucks if that was the case. People do alot of due diligence when making a down payment on a house or buying a car and I believe that most people do the same with schools. The issue for the bears all comes back to the perception that no one should make a profit from education, even if the customer is a grown person capable of fending for themselves and making their own decisions regarding what to do with their lives. I think just the opposite. The capitalistic system should apply fully to colleges (I am not so certain for schools where the students are not of grown age) when the customers are grown people fully capable of making their own rational decisions. The reason why these for-profit schools have survived is that they offer an education and educational alternative that the customers have concluded is worth the money spent.
I disagree with your statement about cost. You pull up the highest cost colleges you can find and do a comparison with FP schools. There are plenty of colleges that provide excellent education for a much lower price than you would pay at FP schools and they don't need MASSIVE ADVERTISING BUDGETS AND HIGH PAID PROFESSIONALLY TRAINED SALES STAFFS to convince people to go to their schools.
I agree that the schools do not create jobs whether they are public or for profit, but the point is public schools don't imply or sell people on the idea that you are going to get a great paying job by going to their schools like FP schools did in the past and probably still are doing it by the looks of their commercials.
If you are holding a great deal of stock in this company I can see why you are so adamant about finding anything positive you can find after the way this stock has gone the last couple years, but you might want to consider the government is going to be deep in FP schools business for a long time into the future. Long term it should be good for them. Short term is anybodies guess.
your post is very insightful as it is indicative as tot he state of mind of many people as it pertains to education.
First off, I think that people perceive many "for profit" schools charging high tuition rates. Well, tuition costs are significant, but the tuition rates charged by the for-profit schools are alot less than those for the bloated not-for-profit schools. You and others can complain about the "overall cost of education" but I see no reason why people should complain about the for-profit schools when the not-for profits are far more expensive. One could say that that these schools are more expensive than community colleges, but community colleges are hugely subsidized by taxpayer dollars. In Connecticut, for instance, students pay only 20% of the cost of tuition at their community colleges while taxpayers pick up the rest of the tab for them, and the graduation rates from those community colleges are only 25%. This is just a big tax boondoggle for students who benefit from having everyone else pick up the tab for them. Local governments are out of money and the community college budgets are being cut sharply and the quality of education there stinks.
But you should know and recognize that there is no better investment in life than getting an education. There is absolutely no argument with statistics that support this statement.
You point about "the basic selling point being you will get a good paying job with their education" is completely unrealistic but is at the crux of how alot of people feel. People think that if they get an education and spend the money for such, they are somehow guaranteed a job after they graduate. And especially so if the school is a "for-profit" school. How could someone make money off me as a student and then me not be able to get a job afterwards? Unfortunately this mindset is prevalent, but completely unrealistic and lacks any responsibility being taken on by the student. People pay for an education and that is the product that is delivered. You do not pay for an education and a job is automatically included in the package. Certainly the education you undertake should be such that it increases your qualification to get the type of job you want in an area that is of interest to you. But that is for you to decide upon as you select a school to attend. No one forces anyone to go to an not-for-profit or a for-profit school. It is the consumer's choice. As I have mentioned previously, part of the current psychological problem in the marketplace (as manifested in your post) is that jobs are currently hard to come by. This is not the fault of the schools. The schools do not create jobs automatically for graduates. Jobs are created by third party employers. If you have a problem with the number of job opportunities in the marketplace and the level of overall unemployment, then call you congressman and Obama to complain.
Overall, I agree that the gainful employment numbers will hold schools to a high standard and there is nothing wrong with that. It should completely change the perception of the schools in the marketplace.
I did a web search to get an update on the Gainful Employment (GE) regulations and saw that there was an interesting conference held on May 16 this year by a company called TG Marketing and Product Management.
The GE regulations were much watered down from the original proposals made by the DOE. However, it remains to be seen how the existing regulations will play out in the sector. Bachelors of Arts programs are exempted from the regulations, which I find funny because these are the types of degrees which prepare you for no job at all. But how do you measure gainful employment when your education is not geared to producing specific employment discipline? What type of job do you get with a degree in European history?
In any event, it seems like the regulations will be applied to individual educational programs, as opposed to a school wide system. That is, ESI as a whole will not have its students denied access to student loans across the board. However, it is possible that ESI (and other schools) will have some specific educational programs not meet the DOE GE standards and those programs will have to be improved or else funding for that program will be discontinued. I further do not understand if a program in Detroit fails but the same program in Philadelphia passes, then what happens? Does the Detroit program lose its funding and Philadelphia maintain it? Or do both lose funding? Do both maintain funding if the average results for both geographic programs combined pass? I have no clue.
The GE regulations cause must pass only one of three standards: two standards regarding student loan payment levels as a percentage of income (one for "disposable income" and the other for "total income"). The other test is for debt repayment rates (default rate must be above 35%).
If a program fails all three, then what can an school do to get its numbers to pass one of the tests. There are several options.
1) a school can lower its tuition prices (thereby reducing the student debt load) and making the debt level in relation to income better. Lower pricing, means lower revenue, of course, for that program. Lower tuition prices itself should stimulate some additional demand and this would serve as a partial (but certainly not full) offset to lower per student revenues.
2) a school can require the student to put up more of their own money for tuition. This reduces the student loan amount, but the school probably loses some students who do to have their own money available.
3) the school offers students increased scholarship money, thereby reducing the student loan amounts. This is in effect like a tuition price reduction. ESI for instance already gives out over $20 million in scholarships.
4) The schools attempt to better screen students for ability to repay. The screening can be done on an ability to complete an educational program basis and on a financial risk worthiness basis. ESI has indicated that student loan repayment rates are closely correlated to whether a student gets into the second year of a educational program (ie gets close to completing or fully completes a program). Students who drop out early are more frequent defaulters, even though they have a smaller debt loads because they have loans on a short period of attendance. Tighter screening of students means that student enrollments would be somewhat lower as rejection rates would rise, translating into lower revenue. This lower revenue would be offset by a student base that stayed in school longer and therefore paid more tuition per student over time. ESI is already applying higher standards to prospective new student admissions.
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5) schools can most probably not affect the income level of graduates once they get a job after completing an educational program, but maybe they can improve outcomes through better job placement counseling. This would involve increased expense to the school. This measurement needle is one that is probably the hardest to move as employers, not the school, are the ones who make the job offers.
6) schools get more selective in the programs they offer and adjust their business models on an ongoing basis to optimize their programs to ones which meet the DOE GE standards. This would probably not cost the schools anything, but actually be more profitable as the student graduation rate would be higher (this means more students paying full tuition over the full duration of a program). I think that alot of this is already going on.
7) If a student is going into a default mode on his loan, it is possible for schools to have some sort of financial assistance effort post graduation. This could of course could be for students that have yet to get a job and are having financial trouble in some period not too long after graduation. This would reduce the number of defaulters. I have heard of no such assistance programs like this in place anywhere.
Thinking about these things, a couple of things are clear to me.
a) I doubt if ESI will be facing any massive shutdown of student loan availability. They may have a couple of programs that don't meet the standards and these will be dealt with by management.
b) there are many things the ESI can do to deal with any programs that do not meet DOE GE standards. These would cost ESI something (how mush I do not know), but ESI has the profitability to handle these costs. If the cost to do so were too high for any ESI program, I am sure ESI would simply shut down the program and open a different one in its place that would meet the GE Standards.
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