Inane Department of Education Ruling Sends Education Stocks Flying

By: Mike Shedlock | Thu, Jun 2, 2011
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The only thing student loan programs do is saddle students with debt and pad the pockets of educators, especially for profit colleges.

Students are defaulting in record numbers. Worse yet Yahoo Finance reports that students at for-profit institutions represent just 12 percent of all higher education students but 46 percent of all student loan dollars in default. Please see Big student debt could limit schools' aid access for details.

The government solution is to ban federal aid programs for profit colleges unless a minimum of 35 percent of its former students are repaying their loans.


35 Percent Effective Is OK??!!

Secretary of Education Arne Duncan said "We're asking companies that get up to 90 percent of their profits from taxpayer dollars to be at least 35 percent effective. This is a perfectly reasonable bar and one that every for-profit program should be able to reach."

35 Percent is NOT a "perfectly reasonable bar". However it certainly is a bar that "every for-profit program should be able to reach."

Yet, amazingly, the DOE said it expects 18 percent of for-profit schools' programs to fail its tests at some point, and 5 percent of programs to lose eligibility under the new law.

69% is flunking, 35% is preposterous.


Education Stocks Rip Roaring

On that inane ruling by Secretary of Education Arne Duncan, Education Stocks Rally 15 Percent.

Education stocks were the top gainers on U.S. exchanges on Thursday. Shares of Corinthian Colleges, up almost 40 percent, were the most heavily traded on Nasdaq.

Market leader Apollo Group rose 15 percent, while stocks of Strayer Education, ITT Educational and Education Management rose more than 20 percent.

An education index was up 15 percent.

Analysts said the new rule benefited all companies in the sector. Companies like Apollo and Capella Education, which were in the restricted zone to access federal aid based on the repayment rate metric, can now grow their student base unrestricted.

The education department surprised with the number of changes that benefited the colleges, given its tough stance on the issue in the last two years.

A key change in the rule is that colleges have now till 2015 before a program can be denied tuition loans over too many defaults by ex-students.

The rule is part of the Obama administration's crackdown on for-profit schools, accused of overcharging students, burdening them with debt and not preparing them adequately for jobs.

The department finalized a set of 13 rules last year but delayed the 'gainful employment' rule after much opposition.


Crackdown by Obama? What Crackdown?

The abuses are staggering as is the burden on students who graduate collage hundreds of thousands of dollars in debt, with useless degrees in English or culinary arts. In regards to the latter, for-profit colleges include burger-flipping as getting a degree in the field.

Obama brags about safeguarding student loans. That is like bragging about safeguarding the plague.

Student loans have done four things, all of them bad.

  1. Jack up the cost of education
  2. Make students debt slaves for the rest of their lives
  3. Unjustly hand over huge profits to schools like the University of Phoenix at taxpayer expense
  4. Add to the national debt

The best thing to do with student loans would be scrap the program entirely.

Please consider

Reflections on a Wise College Major

Student Loans Comic


Student Loan Projections 2009-2020 in $Billions

Student Loan Projections


Scalpel and Machete Both Wrong

We do not need to take a Scalpel or a Machete to the student loan program. The student loan program should be scrapped in entirety. Indeed there are entire departments that should be scrapped entirely, including the department of education and department of energy.

 


 

Mike Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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