Home / feature articles / With Trump, Investors See Profits Again in For-Profit Colleges

With Trump, Investors See Profits Again in For-Profit Colleges

It hasn’t been a good couple of years for for-profit colleges. Many of them, usually offering vocational training, have had to close outlets as the federal government cracked down on their advertising and student loan practices. Two of the largest, ITT Technical Institute and Corinthian Colleges, shut down.

Then came the election of Donald J. Trump as president. Stock prices of the companies still running for-profit colleges rose sharply. DeVry University shares rose 17 percent in the days after the election. The shares of the company that owns University of Phoenix, Apollo Education Group, the largest for-profit, increased 6 percent. Both are at a 52-week high. The broad S.&P. 500 index, by contrast, rose 1.3 percent in the days after the election.

Why are investors bullish on for-profits under Mr. Trump? Profits could be coming back.

The industry has faced high-profile federal and state investigations for their recruitment and student financial aid practices. Investors may expect that Mr. Trump will end the restrictions that slowed enrollments and checked the most lucrative practices.

The Obama administration has been tough on the industry. The Federal Trade Commission sued DeVry University for deceptive advertising. The Consumer Financial Protection Bureau sued ITT Technical Institutes for predatory lending. ITT, also the subject of a Justice Department probe, has filed for bankruptcy. Corinthian, which filed for bankruptcy protection last year, was recently ordered by a federal court to pay its students a restitution of $820 million and pay civil penalties of more than $350 million for illegal advertising practices.

This fall, the Education Department moved to revoke the status of the Accrediting Council for Independent Colleges and Schools (ACICS), the largest accreditor of for-profit colleges. Colleges have to be accredited for their students to get federal aid such as loans and Pell Grants.

ACICS was accused of insufficiently policing its colleges, in part because it raised no red flags about Corinthian Colleges, which lost access to federal aid amid accusations of false marketing. Pulling the plug on the accreditor was a clear signal from the Obama administration that accreditors should play their gatekeeper role more forcefully. ACICS has appealed the decision.

Photo

Advertisements for DeVry University on the subway in New York. The Federal Trade Commission sued DeVryfor misleading advertising. CreditMichael Nagle for The New York Times

The Obama administration’s move against for-profits was, in part, intended to close the worst colleges and keep the rest on their toes. Students at these for-profit colleges borrowed heavily and defaulted frequently on their loans. At the depths of the recession, for-profits accounted for nearly half of student loan defaults, even though they enrolled a minority of students. The administration took its action using its regulatory powers. No new laws were passed that led to the heightened attention to for-profits.

Investors may be expecting that a Trump administration will use a lighter touch in overseeing for-profits, giving them greater latitude to maximize profits. For example, recent rules dismiss the loans of students defrauded by for-profits, and put the colleges on the hook for repaying part of their balances. The new administration could choose to put few resources into enforcing these rules.

Mr. Trump’s decision on who will lead the Education Department could provide a glimpse of his priorities. Ben Carson, who ran against Mr. Trump in the Republican primaries, was a prominent candidate, but he has said he is not interested in serving in the Trump administration.

Recently floated names include Michelle Rhee, a former superintendent of Washington’s public schools, and Eva Moskowitz, founder of a network of New York charter schools (Ms. Moskowitz pulled her name from consideration). Those two reflect a focus on school choice and accountability for elementary and secondary schools.

Almost all the other people said to be under consideration have little to no background in postsecondary policy. Investors have little to go on in predicting Mr. Trump’s policy; he has released few concrete proposals about postsecondary education during the campaign. (The education section of his campaign’s website focuses on elementary and secondary schools.)

But his name is linked to education because he ran Trump University and lent his name to another education business, Trump Institute. Both businesses, now closed, are in a different category from DeVry or University of Phoenix. His sold real-estate training sessions, the seminars often held in hotel ballrooms. Neither school was accredited, and their students were ineligible for federal aid.

On Friday afternoon, Mr. Trump agreed to pay $25 million to settle a series of lawsuits stemming from the for-profit Trump University, after fraud allegations by former students. A trial based on those allegations was to begin later this month.

Top