Why For-Profit Universities Won’t be Making Much Profit for a While

Greg is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

For-profit universities like Strayer University , which most people know about by way of their online offerings, have lots of good things to say about themselves. Judging from the happy, satisfied folks that populate their television commercials, they are the perfect solution for those that are stuck in dead-end jobs or who can’t find a job at all. But a look at the stock history of three of these education providers over the last few years suggests that their golden age might already be past.

 I believe that these for-profit schools succeed or struggle based on the state of the nation’s overall employment, and at the moment the environment does not favor their success. Here are some reasons why it is a bad idea to put money behind these companies right now:

1. Job Scarcity

One of the major stories in employment is the inability of recent business college graduates to land jobs in their field. Phoenix University, owned by the Apollo Group (NASDAQ: APOL), promises to equip its students for careers from technology to business management. That may be true, but when even graduates from prestigious traditional schools cannot find a firm that is able to hire them, what chance does a graduate of an online degree program have? In an environment in which employers were constantly, actively looking for qualified new recruits, a Phoenix or Strayer University diploma would be a great and affordable advantage to hold. But today, in most business fields, even a traditional four-year degree doesn’t go as far as it used to in getting an interview.

2. Other Career Paths

One of the major target groups of for-profit schools—those that are dissatisfied with their job and want to enter a new field—have less liberty than they used to. In the current economy, if you already have a family or are responsible for providing for others in some other capacity, it generally isn’t a good idea to invest a lot of time, effort, and money into getting a degree from an online university. A more attractive choice is the “ground-up” career path, putting in time as an entry-level employee at a large business that will train you in-house for better-paying positions while allowing you to retain your current income.

Why cut back on working hours and pay Phoenix or Strayer for an education when you can just climb the ladder of your own company slowly but surely? You may not end up with the corner office you dream of, but at least you won’t have to go through the stress of giving up a job in the hope of getting another one. DeVry University (NYSE: DV) advertises career assistance for life for its students, in the form of a lead database and direct connection with potential employers, but it is still a scary prospect to stake the financial stability of your family on getting a job at the end of your degree program.

The Pudding (Where the Proof Is)

All theoretical? The stock history of these and other for-profit universities are eerily similar. Strayer Education reached a peak price of $254.50 per share in early 2010, followed by a steady decline through the present (just $65.26 on October 15). In September, it lost its spot on the S&P 500. Stock of the Apollo Group (owner of Phoenix University) actually peaked a year earlier, in 2009, but also experienced a rise in early 2010. DeVry, like Apollo, never reached anything close to Strayer's $254.50 per share, but it did hold out until the middle of 2011 before going into somewhat of a tailspin.

Since 2010, stock prices reflect that the for-profit education business hasn’t been very profitable. They’ll probably continue to fall until the economy recovers to the point where a degree from one of these schools actually provides an advantage in the job market.


copyhubwriters has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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