For Profit Colleges: The Death Rattle

Andre Cuadrado
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Andre Cuadrado

Founder at Rhenium Capital
Andre is a Founder here at Rhenium Capital.Andre is also a former Army Ranger with 2 combat tours in Afghanistan.His focus is management and leadership."Rangers Lead the Way"
Andre Cuadrado
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I don’t plan on rehashing what I covered in my original and revised article For Profit Colleges: Just Say “No”, which covered an abridged history of recent events conspiring against this concept. As a quick rundown, we recounted the massive regulatory risk that this business model is facing due to long term predatory practices, and what it means to commercial real estate.

What we can touch on here is the not­so­shocking revelation that the U.S Department of Education has just banned ITT Education Services from enrolling new students who use federal financial aid.

Per the LA Times:

“Among the measures, ITT has been ordered to pay $152 million to the department within 30 days to cover student refunds and other liabilities in case the company closes. The chain, based in Indiana, is still paying an additional $44 million demanded by the department in June for the same reason.

The Education Department also has prohibited ITT from awarding its executives any pay raises or bonuses, and it must develop “teach­out” plans that would help current students finish their programs at other colleges if the chain shuts down.

Under the new measures, current students can continue receiving federal grants and loans.

Education Secretary John King said the government is taking action to protect students and taxpayers following “troubling” findings about the company. This month, a group that accredits ITT found that the chain failed to meet several basic standards and was unlikely to comply in the future.”

Last year ITT raked in $850M in revenue. 5 years ago their revenue was $1.5 billion, with $300M in profits. At the time it’s stock traded at $77 per share. This morning the stock was at $0.64 cents per share.

As another gentle reminder from my last entry:

86% of all funding at for­profit colleges are from federal tax­payer dollars; they enroll between 10 to 13% of students, yet receive 25% of all federal financial aid.

Per the Dept. of Ed, roughly $580 million of ITT’s revenue was sourced from federal aid dollars. The students are entitled to loan forgiveness when colleges close. Let’s be frank. You and I, the tax payer will be on the hook for yet another bail out in the wake of a long­term, lobbyist fueled, deformed racket in epic, free­fall collapse.

Yet I digress.

There is currently $1,800,000,000 in CMBS with for­profit college exposure. Just something else to keep an eye on as 2016 comes to a close.

  • Reply

    Mike

    03-11-2016

    My hopes of higher education are ruined!

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