Who Profits From the For-Profit College Industry? Let's Take a Look at Adtalem Global Education

Higher Education in the United States was once considered a civic activity intended to improve people's lives and benefit society. 

Then some people realized they could make money in the education racket, and the for-profit-college industry was born. 

Who makes money from for-profit colleges? Mostly hedge funds, equity funds, and institutional stockholders. 

Let's look at Adtalem Global Education (AGTE), a for-profit education company that owns Walden University, two Caribbean medical schools, and a Caribbean veterinary school. It's trading on the NASDAQ for about $39 a share--near its 52-week high.

Virtually all of Adtalem is owned by institutions, mostly hedge funds and financial companies. 

Which funds own the stock? You would recognize some of them: Blackrock, Berkshire Hathaway, Goldman Sachs, Morgan Stanley, JP Moran Chase, Soros Management, and the California Teachers Retirement System.

Some analysts are bullish on Adtalem and are predicting a higher share price. Certainly, the big financial players think Adtalem is a money maker.

Without a doubt, Adtalelm's educational institutions have been busy little bees. According to the Chronicle of Higher Education Almanac, Adalem's Walden University produced 867 doctoral degrees in 2020--more than Harvard, Yale, or Columbia. It logged 124 doctoral degrees in education and 357 doctorates in psychology and social sciences. That should make investors happy.

Adtalem gets most of its revenues from federal student aid money. Tuition costs are high. Tuition at Adtalem's American University of the Caribbean Medical School is about $25,000 a semester.

My guess is that most of the graduates of Adtalem's medical schools sign up for income-based repayment (IBR) plans that stretch out payments for 20 or 25 years.  

That keeps monthly loan payments down, but often IBR loans are negatively amortizing. In other words, student borrowers in IBRs see their loan balances go up with each passing month because their loan payments aren't large enough to cover accruing interest.

Indirectly, then, taxpayers are subsidizing the for-profit college industry, including Adtalem, because so many of their students will never pay off their student loans.

Is that a good deal for the American people? No, but it's a good deal for the hedge funds, and that's why the federal government will keep propping up the for-profit college industry.

The hedge funds love the for-profit college industry.

Own a Piece of the American Dream: Buy Stock in the For-Profit College Industry

 Fifty years ago, most Americans understood that education was a public responsibility. It was the community's job to operate good public elementary and high schools. It was the state's job to support high-quality public colleges and universities.

All in all, this notion of publicly supported education worked well. Some public schools were better than others, but most were pretty good.

Some public universities were also better than others. The University of Michigan, University of Wisconsin, the University of Virginia, and the University of Texas were universally regarded as some of the finest universities in the world. Still, even the states of Idaho, Oklahoma, and other flyover states operated pretty good public colleges.

Of course, there was always a place in American education for non-profit schools and colleges. Harvard, Dartmouth, and dozens of lesser-known private colleges were well respected as public-spirited organizations, and the Catholic Church operated flourishing parochial schools.

Until recently, it hardly occurred to anyone that schooling should be turned over to investors who could make a fast buck in the education racket.

How times have changed. We now have for-profit K-12 charter schools and almost a thousand for-profit colleges.

And anyone can get in on the action. Equity funds own some for-profit colleges, and others trade on the stock market.

Adtalam Global Education (ATGE), which owns Walden University and two medical schools in the Caribbean, traded for $39 a share last week--down a few bucks from its 52-week high. 

Grand Canyon Education (LOPE) operates Grand Canyon University, a Christian school that makes money for investors. You can buy into that outfit for $84 bucks a share.

You can't buy shares in the University of Phoenix (UP) anymore. In 2017, a private equity fund out of Chicago took over the company that operates UP.

We all know that complaints have barraged the for-profit industry for many years. Critics have argued that for-profit college tuition is too high at most schools and that many for-profits deliver a shoddy product. Some commentators have pointed out that the for-profit industry preys on minority and low-income students.  

But, hey--this is America, and we're all entitled to make a buck off the rubes. So, if you want a piece of the American Dream, you can purchase some for-profit stock or buy a piece of an equity fund that owns a college.

As for me, if I am going to invest in a dodgy industry, I would prefer to buy stock in the casinos. 

Chicago, home to Adtalem's corporate headquarters