Greenberg: Spotlight on CEO Pay at For-Profit Schools
As for-profit college scrutiny increases, executive compensationat these companies may be worth a look.
That's especially true in the wake of the government's crackdown on excessive compensation at TARP-taking financial institutions. Many, if not most, of these schools are, after all, de-facto government-subsidized companies.
The role Title-IV government funding has played in juicing their growth and profitability was a key point of Steve Eisman of FrontPoint Partners in his recent critical report on for-profit schools, titled, "Subprime Goes to College."
Among his primary points, Eisman zeroed in on how many for-profit colleges get as much as 90 percent of their revenue from Title IVloans. That’s a big change from a number of years ago, when the government turned up the Title IV spigot.
Using ITT Education and the Apollo Group as examples, his report noted that:
- In 2009, using a going-forward formula that includes increases in Stafford Loans, 85 percent of ITT’s revenue was from government loans versus 65 percent in 2001
- 89 percent of revenue at Apollo came from government loans, versus 48 in 2001
With loan availability rising, so was enrollment and for-profit school profitability. According to Eisman, for-profit schools became “among the most profitable businesses in the world.”
Again, using ITT and Apollo as examples:
- ITT’s EBIT margin shot up to 37 percent last year from 12.9 percent in 2001
- Apollo’s zoomed to 27 percent from percent
Which gets us to compensation:
- At ITT, CEO Kevin Modany earned a total compensation of $7.6 million last year, while at Apollo, co-CEOs Charles Edelstein and Gregory Cappelli took in more than $18 million.
That compares with:
- The presidents of Harvard and the University of Virginia earned $822,000 and $773,000 respectively in 2009
- Much lower salaries for presidents of community colleges
All of this is against the backdrop of the government’s projection that based on 2007’s loans, the default rate on loans created in 2007 for two-year for-profit colleges is expected to rise to 47 percent.
That compares with 43.5 percent for the class of 2006 and 15.3 percent for all government student loans.
The schools declined comment.
My take: With the government getting tough on compensation of financial-services firms that took government bailouts, you can only wonder if for-profit schools are next.