Thursday, April 23, 2009

$700 Million Dollar Misunderstanding

By Richard Vedder

On Tuesday morning, the value of Apollo Corporation stock, as measured by the opening price on the New York Stock Exchange, was $700 million less than it closed on the Big Board less than 18 hours earlier. What happened over night? A horrible earnings report? A huge general fall in stock prices because of some national economic calamity? Indictments against key Apollo officials? No --Robert Shireman was named by President Obama as the new Deputy Secretary for Higher Education.

Credit Suisse lowered Apollo's rating. Investors were nervous. Why? Shireman ran the Project on Student Debt and constantly has harangued against the private provision of student loans, on one occasion referring to them as "dangerous." Apollo, and all for profit higher ed institutions, for that matter, are very dependent on student loans for their students. Already the Obama administration wants to end private guarantee loans as part of its apparent effort to nationalize financial services (e.g.,the government controls AIG, Citi Group, and is trying to keep banks from paying back TARP monies that potentially give them a stock interest). Shireman appears to be a socialist, and as such, is probably against people profiting from higher education services.

This is a shame. I don't know whether the fears against Mr. Shireman are justified, but I do know that for profits are a huge part of the solution, not the problem, with respect to American higher education. They educate far larger proportions of minorities and low income students than the flagship state universities, and at a vastly lower cost per student. Their rapidly rising market share suggests that their clientele is largely happy with their services. They are the home for roughly 30 percent of the increase in higher ed enrollments in the U.S., relieving public funding for expansion of public schools. They are efficient, cost effective, and, on average, good guys. Let us hope that the socialist ideological orientation of many of the OBamaistas does not lead to an unfortunate attack on this valuable resource.

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