A New Era of Cash and Optimism in For-Profit Education

A New Era of Cash and Optimism in For-Profit Education
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Educational companies have seen their stock surge since the election.

While the market as a whole has done well since Nov. 8, major companies including K12 Inc., Career Education Corp., DeVry Education Group Inc. and Capella Education Co. have grown faster than indexes.

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Laureate Education, Inc., which educates over one million post-secondary students in dozens of countries internationally, also concluded its (second) IPO in recent days. The company was publicly traded until 2007 when a group of investors took it private.

Optimism and growth in the for-profit education market could mean changes to how the public thinks about higher education and career readiness.

Many of the bigger higher education corporations tend to be more nimble in where they set up shop and more likely to build partnerships with business, said Guilbert Hentschke, a dean and professor emeritus at the USC Rossier School of Education.

Many of the firms are focused on ensuring a local labor market is stocked with a stream of specifically accredited workers, compared to traditional non-profit four-year degree programs focused on the liberal arts.

There are also signs of increasing collaboration between for-profit education companies and private non-profit institutions. Yesterday, Vanderbilt University joined with dozens of other schools in partnering with 2U Inc. to launch online degree offerings through its graduate school of education program.

A big reason the for-profit education sector has seen renewed buoyancy in recent weeks is tied to the end of the Obama era.

Hentschke, who is also affiliated with the Ernst & Young consultancy Parthenon-EY, said in an interview that the new administration and the new education secretary, Betsy DeVos, have not given a specific indication of their attitude toward for-profit education.

Nevertheless, Trump’s business-oriented disposition and DeVos’s preference for free market fixes to the education system have not been lost on investors.

The mere “absence of negative signals” represents a major shift from previous policy priorities, said Hentschke.

Under Obama, the education department was unapologetic in explicitly targeting for-profit education companies, in some cases holding them to stricter regulatory standards than non-profits based on calculations later found to be flawed.

“People of goodwill have been on both sides of this issue,” said Hentschke, though he said he leans toward an approach where regulatory standards are applied evenly across education sectors, for- and non-profit institutions alike.

“Problems exist everywhere,” not only in for-profit schools but also in many local two-year community college programs that operate in a similar way to for-profits, he said. These problems include some of the standard concerns raised across higher education, such as job placement numbers.

Whether the Trump administration decides to keep controversial Obama era regulations like the “gainful employment rule”—DeVos said she would “review it” during her confirmation hearing—is unknown. Regardless, Hentschke argues that such regulations, if kept, should apply uniformly to higher education institutions.

There have been times, he said, when some policymakers have engaged in “economic sector profiling,” or the biased treatment of a higher education system simply on the basis of its financial structure.

Opponents of for-profit higher education argue it’s impossible for schools to serve two masters—their shareholders and their educational mission.

There have been widely publicized reports of bad actors in the for-profit sector aggressively recruiting students by skewing student outcomes. Though the company was never formally accredited, the controversy and legal settlements surrounding Trump University place that business in the “bad actor” category.

On the other hand, said Hentschke, the for-profit sector has been key in driving areas of innovation and educational advancements in recent years.

Kevin Gilligan, the CEO of Capella Education Company recently testified before the House’s education committee about the competency-based assessments used in the programs he oversees.

Rather than receive credits through time spent in class, some Capella students advance based on when they master assessments. Students are encouraged to learn at their own pace and focus on areas where they personally need improvement, a learning style trend that has gained traction in K-12 systems as well.

As part of their career training and competency-based emphasis, Hentschke also points out that for-profit schools have taken a lead in promoting hands-on learning outside the classroom. As he puts it, “if you are in a nursing program, you can’t prove that you can draw blood by taking a written test.”

There is also a growing push to standardize “micro-credentialing” systems, or “digital badge” platforms, that can be earned when a person shows mastery in a given skill or area. Public-private sector partnerships have had a big role in these efforts.

Elementary and secondary schooling could also see changes if the return of for-profit education is sustained.

K12 Inc., in particular, which operates a number of cyber-charter schools in states across the country, has seen the value of its shares rise by over 60 percent since the election.

The Herndon, Va.-based company has a mixed reputation. While the online charters it operates often attract some of the most marginalized students in public school systems, its business practices recently came under scrutiny as part of a recent Education Week investigation.

DeVos had previously made investments in K12 Inc., another topic that came up during her confirmation hearing. DeVos promised to divest from any education related companies.

“Anything deemed to be a conflict will not be part of our investing,” she said.

DeVos has argued that online course offerings, an area that for-profit education firms in general have pioneered, are uniquely well-suited to expand educational choice, especially in rural areas.

Online education initiatives are is still relatively new, and while many education experts believe they hold promise, there have been false starts.

Numerous public-interest services in America—including health care, defense, and even fire rescue—are already provided, at least in part, by the for-profit sector according to Hentschke.

The main takeaway, he said, is to be open-minded and creative in “how to make education—broadly construed—more effective.”

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