Despite continued demand for information technology professionals, enrollment in "tech" courses has declined steadily over the last few years. The widespread perception is that IT careers have limited prospects, due to global outsourcing.
If that trend reversed, it would be a boon for private technical-education providers like DeVry (NYSE: DV) and ITT Educational (NYSE: ESI). And according to recently released survey data, it now looks like that just might be happening.
Interest Tech Education Rebounding
Late last month, the widely followed Taulbee survey, which tracks enrollments in computer science and computer engineering departments across the country, reported that the number of new computer science majors had finally stabilized during the fall 2006 semester, after dropping for five consecutive years.
News that we may have finally seen the bottom in the IT enrollment trend prompted a buying frenzy in DeVry, which jumped nearly 10% on the announcement.
However, a follow-up survey by Wall Street broker Piper Jaffray & Co., suggested that, while interest in IT education is experiencing a bit of revival, DeVry was not be the educational institution of choice for many potential students. A survey of high school guidance counselors revealed that 78% of students had no interest in enrolling in a technology program at DeVry, but 89% indicated they were interested in pursuing tech courses at community college or public university.
So why the overwhelming thumbs down on DeVry?
DeVry Degrees Are Expensive
Getting a tech degree from DeVry is a fairly expensive proposition. On average, a two-year program costs around $51,000 in tuition and other direct costs. This probably explains why DeVry's $22,000 revenue-per-student number is the highest among its peer group of for-profit post-secondary education providers like ITT Educational, Career Education Corp. (Nasdaq: CECO) and Apollo Group (Nasdaq: APOL).
While DeVry still boasts a top-of-its-class 90% post-graduation placement rate, the average starting salary comes in at just over $40,000. That's decent money, but when you consider the debt burden a lot of students probably have after a couple years at DeVry, you're looking at a lengthy payback period on an investment in an education. No wonder a lot of students are considering alternative, and less expensive ways to get a tech degree.
Kickback Investigation Could Impact the Industry
With more and more students forced to seek out student loans, lenders are competing hard for a piece of the market. That competition might have crossed a few legal and ethical lines if a recent investigation by the New York State Attorney General's Office is any indication.
It has been alleged that some lenders have been paying kickbacks to colleges in exchange for being put on a list of "preferred lenders". More than 60 schools, including DeVry have received formal queries as part of this investigation.
While it's still much too early to begin assigning guilt, any potential disruption of the student-loan pipeline can't be good for any of the for-profit post-secondary educational stocks, including DeVry.
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