So… What Becomes of College

College Education

Market momentum is Green. However, we experienced a flat trading day combined with weakness in the technology sector. Investors shouldn’t start buying up stocks ahead of tech earnings or the Fed meeting. Another leg down is highly possible.

I’m on day seven of COVID-19, and even the slightest amount of work is painstaking. These headaches are no joke, and the fatigue is real. I keep telling myself that if I’m tired, I’ll rest. I don’t think I’d slept all day on a Saturday since college. And I felt like a big bag of “you know what” for doing so.

Speaking of college, I remember a prediction that didn’t quite come true. In 2020, I worked with a team, and we had a pretty simple thesis. 

The “Death of College” – the idea that Americans would stop attending physical colleges and embrace technology as a means of self-education. You know: A real “do it yourself” approach to education. As a result, we would see hundreds of bankruptcies from mid-tier universities that had saddled themselves with record levels of debt in recent years.

The stock we focused on was called 2U (TWOU). It’s a digital provider of software tools to make education more affordable and transportable. It was supposed to be a revolutionary company.

Even Cathie Wood bought a bunch of shares and added it to her ARK Innovation Fund (ARKK). That should have been the first sign of a problem. 

After shares hit $55.00 in February 2021 – the height of the COVID-19 tech bubble – the stock has declined by more than 80% and just received multiple downgrades. We’ll dive into why.

The Problem With Dartmouth College

How unaffordable is college right now? This month, I conducted a deep dive into the cost of college. I wrote about Dartmouth College – or its tax name, the Trustees of Dartmouth College. The all-in cost of the university is $83,802 per year for room, board, tuition, and fees. What a steal, right

Especially for a university with an endowment of $8.5 billion that can’t even be bothered to provide scholarships in their latest effort to make the price more affordable for families making under $125,000. The school raised money from outside sources to help pay lower-income tuition…

What great use of that endowment that avoids the capital gains taxes that you and I pay. So, I examined the return on investment for the school and found a stark divide between students who received degrees in STEM (Science, Technology, Engineering, and Mathematics) and anything else. 

Analysts at the Foundation for Research on Equal Opportunity (FREOPP) conducted a return on investment (ROI) analysis on 30,000 degrees at colleges across the United States. 

A Dartmouth college graduate with a degree in mathematics earns a lifetime ROI for that degree of $2.68 million. Computer science generates $2.11 million, and economics generates $1.8 million. 

Again, these are all publicly available numbers from FREOPP. But liberal arts majors do much worse. It’s not even close. FREOPP’s calculation on the lifetime ROI for a fine arts and studio arts degree: -$172,362. 

Yes, that’s a NEGATIVE six-figure estimate…

And a degree in “cultural minority, gender, and group studies” comes with a negative $-107,391 ROI. I can’t for the life of me understand how these degrees are even legal. You’re better off not going to school.

And That’s Happening

Today, 2U shares slumped nearly 12% after Macquarie downgraded the sector to account for macroeconomic risks linked to a pending recession. The clear trend is a drop in post-secondary college enrollments as students struggle to pay the higher costs accelerated by cheap lending practices by the government. 

Wrote Macquarie’s team: “We think declining U.S. higher-ed enrollment trends and the firm’s high net leverage present risks offset potential benefits from integrating edX.” It downgraded 2U stock to $11 per share. 

This story will likely generate more attention as the fall approaches and students “Return” to campus. Believe it or not, this is the first real recession that the U.S. has experienced since 2008, which means that it’s also the first since the U.S. government took over the entire college loan origination process (part of the Affordable Care Act 2010). 

It wouldn’t be surprising to see fewer enrollments this year, and questions start to circle around many mid-tier, private universities that face substantial debt levels and declining student populations. Perhaps the “Death of College” prediction will finally come true.

As for 2U shares, they do not present a buying opportunity. They are now trading at nearly 80% of their 52-week high. Even though we are in positive momentum conditions, there remain some trends that are best ignored for now. That includes the weakness in college education for the foreseeable future.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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