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Student Loan Payments Are Down Significantly In 2020, And That Could Be The Death Knell For For-Profit Colleges

Derek Newton
·3 mins read

That’s what Steve Gunderson told education website Inside Higher Ed about the proprietary of the for-profit colleges he represents as President and CEO of Career Education Colleges and Universities. Many of those schools are owned by public companies. 

The for-profit colleges worry about a Biden administration reinstating Obama-era rules requiring them to prove that their degrees lead to good jobs. Some schools have been scrambling to get out of the business, diversify their holdings, or change their status ahead of time. There’s no question that for-profit colleges face very uncertain times in the event of a Biden win in November. 

What’s been less reported is that many of those schools are in trouble already. Some may not make to see the next President assume office. 

According to research by Kevin Miller at a left-leaning think tank, based on federal data, student loan payouts for the summer are down significantly across the board, but the details are very bad news for the for-profit colleges specifically. 

For the summer, Miller reported that loan payouts to for-profit schools were down a deep 46% over last summer – from $4.9 billion in 2019 to just $2.6 billion this summer. 

That’s an even bigger problem than it seems because for-profit schools rely very heavily on student loan funds. Students who attend for-profits tend to take out more loans for more money than their peers at other types of schools. Comparatively few pay tuition directly.  In 2017, for example, Brookings estimated that for-profit colleges get between 80 and 90% of their revenue from public funds, in the form of grants and loans. So, taking a 46% hit to their main source of revenue is a very big deal. 

Even worse, Miller notes that for-profit colleges take in most of their loan revenue in the summer quarter, where this decline is measured.  “In 2018–19, the summer quarter loan volume made up 45 percent of [for-profit colleges’] annual loan volume. At the public and private nonprofit institutions, summer quarter loan volume is a smaller portion of annual loan volume—10 percent and 20 percent, respectively,” Miller wrote. So, even similar drops would make less of a dent at other schools. 

At the University of Phoenix, one of the largest and best known for-profit colleges, owned by Apollo Global Management (NYSE: APO), summer loan volume was down by nearly half (48%). That’s, “a substantial financial hit when you consider that in 2018–19, their summer quarter accounted for just over half of their total annual loan volume,” according to Miller. 

At Grand Canyon University (NASDAQ: LOPE), summer loan volume was down 39%. Summer loans at Walden University, owned by Laurate Education (NASDAQ: LAUR) were also down 48% year over year where summer loans had been 48% of their total annual loan income. Strategic Education (NASDAQ: STRA) owns Capella University where summer loans were down 16% and Strayer University, where loan volume was down 43%.  

Ashford University, which was recently “acquired” by the University of Arizona to create a new brand and revenue source, saw loan volume drop 56% year over year. Ashford was owned by Zovio (NASDAQ: ZVO) and the deal with Arizona still requires some administrative approvals.

Keeping in mind that enrollment numbers have been on A steady decline at for-profit schools for the past decade, the steep and dramatic drops in summer loans are nothing but bad news. As such, it may be an ideal time to evaluate holdings in companies that rely on for-profit colleges. 

The revenue numbers for the summer are potentially catastrophic, even catastrophic enough to make fears about a Biden victory distant, as real as they may be. 

Photo by Good Free Photos on Unsplash

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