How to Short the Student Loan Bubble: DeVry Inc. (DV), Apollo Group Inc (APOL)

ITT Educational Services, Inc. (NYSE:ESI)

Students who attend this well-known for-profit university obtain 80% of their tuition assistance from the federal government, most of which comes from the Stafford loan program. The company trades at a single-digit earnings multiple as it is already undertaking steps to cut enrollment to stay within the 90/10 rule for tuition assistance and Federal aid limits.

This stock will be least responsive to the threat of cuts to federal aid because investors are already pricing it for big changes in enrollment. ITT Educational Services makes a bet on Apollo Group Inc (NASDAQ:APOL) and DeVry Inc. (NYSE:DV) look that much more attractive.

With the government budget being a primary focus in Washington D.C. and family dinner tables, the title IV funding to for-profit universities will be a talking point for some time to come. While the regulatory environment is anything but predictable, the number of graduates coming out of for-profit universities with record debt loads and no possibility for employment solidifies my belief that a combination of regulatory action and changing perceptions of for-profit colleges will eventually end the industry.

The article How to Short the Student Loan Bubble originally appeared on Fool.com and is written by Jordan Wathen.

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