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For-Profit Schools Can’t Dodge This Bullet Any Longer

It’s time for Strayer, Corinthian Colleges, Apollo Education and the rest to face the music

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To say the last few years have been interesting ones for the for-profit schools like Apollo Education (APOL) or Corinthian Colleges (COCO) would be a significant understatement.

Strayer LogoBetween a nasty recession that shoved people out of the market and back into classes, the subsequent risk of many of these schools’ students losing financial aid, and the hysteria that ensued for the entire industry when Apollo Education was at risk of losing its accreditation, the past several years have been downright dramatic for the group.

Yet, for all the challenges the likes of Corinthian Colleges, Strayer Education (STRA) and other for-profit schools have faced since 2007, their biggest battle — what is ultimately a fight for their lives — has only just begun.

Anybody who owns a stake in APOL, COCO stock or any other of these companies should heed the warning.

For-Profit Schools Headed for Expulsion

It’s admittedly a bit ironic to argue that for-profit school stocks are in jeopardy in the shadow of last Friday’s 38% gain from shares of STRA stock and bumps higher in related stocks. Strayer Education posted much better Q4 results than anticipated, earnings $1.32 per share last quarter to put estimates of 98 cents in the dust. Revenue of $124.1 million topped expectations of $119.3 million, too.

So what’s the problem for the industry?

In short, the jig is up.

While the idea that many of these schools’ programs were worthless had quietly been whispered for years, as it turns out, investigators might be about to prove it in a more significant context. Specifically, the allegation is that these these companies knowingly don’t make its students any more marketable in the workplace, yet they saddle students with debt they’ll never be able to repay.

And the arguments might be coming to a courtroom near you sooner than later.

The attorneys general in 13 states have ordered investigations (civil investigative demands, technically) of Corinthian Colleges. Per the company’s most recent 8-K, Corinthian notes…

“The CIDs seek documents and answers to interrogatories related to the students recruited from the various states; organizational information; tuition, loan and scholarship information; lead generation activities; enrollment qualifications for students; complaints; accreditation; completion and placement statistics; graduate certification and licensing results; and student lending activities, among other matters.”

Thirteen states is a lot, and those investigators are leaving no stone unturned.

It’s not just at the state level that the for-profit schools are under some serious fire, however. The Justice Department sent an official inquiry in the latter part of last year as part of what might become a false claims lawsuit by the DoJ.

The Securities and Exchange Commission also subpoenaed documents from Corinthian Colleges in the middle of 2013, as part of an investigation along the same lines as those being conducted by the Justice Department and several state attorneys general. And, as of last month, the Department of Education rejected Corinthian’s request to open new locations, saying…

“The Department has denied approvals for certain new locations and new programs because CCI has admitted to falsifying placement rates and/or grade and attendance records at various institutions and because of ongoing state and federal investigations into serious allegations with respect to CCI’s improper administration of Title IV programs.”

Fans and investors of for-profit schools will respond with an explanation that these are nothing more than allegations at this point, and all of them are pointed at only one school: Corinthian Colleges.

In response to the first defense … as they say, where there’s smoke, there’s fire. The SEC and the DOJ and the DOE and several states’ attorneys general can’t all be nosing around just for kicks.

As for the second defense of these schools, no, it’s not just Corinthian Colleges in the spotlight.

Article printed from InvestorPlace Media,

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