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For most 25-year olds, $1.3 million is a hefty sum of money. In addition, most consumers of any age would jump at the chance to more than double their annual salary. Sound like a fairytale? Well, it isn't. In fact, well over 1.5 million Americans jump at this opportunity each and every year, and their ranks have been swelling. Specifically, I'm talking about
the economic benefits that are enjoyed by U.S. citizens with a college
education. According to the U.S. Census Bureau, the average 25-year old
worker with a high school degree earns about $1.0 million before the age
of 65. By contrast, the average worker with a Bachelor's degree earns
more than twice that amount during their working career -- over $2.0
million. Meanwhile, students with a Master's degree earn still more --
$2.5 million in the same 40-year period. In addition, the income gap has only been widening over time, and higher degrees are now offering an ever-greater advantage in the workplace. With this as a backdrop, it should come as little surprise that America's universities have seen enormous growth in demand for their services. In fact, the number of students enrolled in American universities jumped by nearly +30% between 1989 and 2005 -- a period when the U.S. population grew by barely half that amount. And according to U.S. Department of Education statistics depicted in my chart, admissions are set to continue their steady rise over the next decade.
And it's not just Americans that are benefiting. The United States remains the world's most popular destination for international students -- in nations like China, Japan and India, a U.S. degree spells increased opportunity and earnings at home. Some 600,000 foreigners are currently enrolled in U.S. institutions and many more are enrolled at online universities or campuses of U.S. universities located overseas. Better still, students aren't the only ones able to profit from a good education -- publicly traded for-profit universities in the U.S. also offer investors a golden opportunity to cash in on this trend. Thanks to steady growth in admissions and unusually high profit margins, for-profit education providers have delivered exceptional revenue and earnings growth over the past several years. The industry is also attractive for a variety of other reasons, including: Online Expansion -- Many education companies have recently opened up online universities. This cuts down on costs because the university doesn't need to maintain a full-sized campus. The online option has also proven popular and convenient for busy, working adults and foreigners having trouble obtaining a student visa. Barriers to Entry -- It isn't easy to set up a university and start offering degrees online -- companies must first go through a lengthy accreditation process that receives significant oversight from the government. Accreditation is not a rubber-stamp and requires considerable time, expense and review to accomplish. Many employers will not accept non-accredited degrees and students can't transfer credits from non-accredited universities. This process gives an advantage to established players that have already been accredited. Student Visa Law Changes -- In the immediate aftermath of 9/11, student visa laws were tightened and growth in foreign student admissions slowed. But new visa laws enacted by Homeland Security are streamlining the process, a move that's expected to encourage faster growth in foreign student admissions. Adult Students -- Traditional non-profit universities have been slow to encourage adult student admissions. By contrast, for-profit institutions actively encourage these students to enroll by offering convenient night classes and online options. Working adults also often have at least part of their education paid for by their employers. As a result, they're more likely to pay in a timely manner and can be charged higher rates.
From a valuation standpoint, most stocks in the education industry are now trading at a significant discount to their 2003/2004 highs, offering an opportunity for investors to jump into this highly profitable group at a nice discount. A few factors have contributed to the slide in the group, including increased government scrutiny of federal financial aid and heightened competition in the online education market. Over the long run, however, I'm confident that many of today's leading for-profit education firms will overcome these near-term hurdles. The government has already announced $13 billion in financial aid cuts over the next 5 years, including a hike in the interest rates students pay for loans. But these cuts are already well known and have now been priced into most education stocks. Furthermore, several government investigations into allegations of federal aid fraud at for-profit schools have been dropped with no action. And as I pointed out above, many of the better for-profit intuitions accept a large number of working adult students who are sponsored by their companies and don't receive aid. And there's plenty of growth ahead for today's leading universities, particularly in international markets and in online education. In the table below, I present a list of the key players in the for-profit education industry. And in the text that follows, I'll highlight three of my favorite plays in the group... Editor's Note: Throughout the remainder of this article, StreetAuthority.com founder Paul Tracy and his staff provide a closer look at several of today's leading for-profit education stocks. To view the remainder of this article, you'll need to subscribe to our premium Market Advisor newsletter. Please visit one of the following links to continue... Good investing!
Paul Tracy founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to that he spent several years as Managing Editor at a multi-million dollar financial publishing firm with over 150,000 subscribers. In addition to his role as managing editor and lead financial writer, he was also responsible for equity research and managing a team of seasoned professional financial writers, researchers and market commentators. Paul's previous experience includes a position at Robert W. Baird & Co.'s full-service brokerage operations as well as economic research work on a Money and Banking project funded by the National Bureau of Economic Research. He has also spent time doing outside consulting and research for the University of Virginia, has appeared as a guest expert on several prominent financial radio shows, and has been a featured speaker at various investment conferences across the U.S. Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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