Education Stocks: Student Loan Interest Rates To Double

Posted:05/09/12
By:Joseph Setton

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Education Stocks: Student Loan Interest Rates To Double

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Student loan interest rates for more than 7.4 million students across the country will double if congress doesn’t act fast. According to Bloomberg the senate, requiring a 60-member vote, didn’t advance the plan to avert a July 1 increase in college-loan interest rates to 6.8% from 3.4%. However, Republicans were holding out for want of an alternative way to cover the $6 billion cost of the extension.

Student-owed debt has been escalating out of control: Federal loans for students have reached historical totals with over a trillion dollars owed. It correlates well with the statistic that tuition fees have increased around 400% since 1982. Worse, Investment News reports the student loan default rate is on the rise, up nearly 9% for the two-year period ending in 2010.

In the end it will be the unity of Republicans and Democrats to find a solution to the issue on interest rates. Quoted from reporters, Senator Jack Reed, D-R.I., stated, “both parties have to work together to find a fair and rational way of keeping the student loan interest rate in check.”

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Many for-profit institutions rely on these loans in order for students to afford, or simply to pay up, tuition. Is there a better way to provide services to students on loans? See below to compare educational institutions. How can they provide a more sustainable future for students without the risk of drowning in debt?

List sorted by market cap.

Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:

1. Apollo Group Inc. (APOL, Earnings, Analysts, Financials): Provides educational programs and services at the undergraduate, master’s, and doctoral levels. Market cap at $4.07B, most recent closing price at $33.72. Levered free cash flow at $659.83M vs. enterprise value at $3.41B (implies a LFCF/EV ratio at 19.35%).

2. ITT Educational Services Inc. (ESI, Earnings, Analysts, Financials): Offers postsecondary-degree programs in the U.S. that provide diplomas as well as associate’s, bachelor’s, and master’s degrees. Market cap at $1.51B, most recent closing price at $61.94. Levered free cash flow at $215.13M vs. enterprise value at $1.40B (implies a LFCF/EV ratio at 15.37%).

3. Bridgepoint Education, Inc. (BPI, Earnings, Analysts, Financials): Provides postsecondary education services. Market cap at $1.07B, most recent closing price at $20.15. Levered free cash flow at $130.91M vs. enterprise value at $745.79M (implies a LFCF/EV ratio at 17.55%).

4. Capella Education Co. (CPLA, Earnings, Analysts, Financials): Provides online postsecondary education services in the United States. Market cap at $407.26M, most recent closing price at $30.19. Levered free cash flow at $45.82M vs. enterprise value at $276.11M (implies a LFCF/EV ratio at 16.59%).

5. Universal Technical Institute, Inc. (UTI, Earnings, Analysts, Financials): Provides postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle, and marine technicians in the United States. Market cap at $301.54M, most recent closing price at $12.17. Levered free cash flow at $30.88M vs. enterprise value at $188.70M (implies a LFCF/EV ratio at 16.36%).

(Written by Kelly Haugen)

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