Reuters is reporting on rising bad debt in Strayer's recent earnings anouncement:
Their problem: students who previously dropped out of the program in 2008 and aren't paying their bills (more on that later):
"A higher percentage of currently enrolled students are paying their tuition bills, but it's getting harder to collect the tuition bills owed from students who have previously dropped out of the university, the company said in a conference call with analysts.
According to the Higher Education Act, if a student drops out before completing 60 percent of a course, universities must return the portion of unused Title IV funds to the government."
Here is how the company described the issue in their conference call:
"I mean, the other way to say this Kelly is we don't lend to our students, we're not in the student lending business, so it is purely a timing issue with regard to, as you put it, packaging of Title Four loans. Although in some cases, these are students who are not Title Four payers, they're self-payers and we've entered into some sort of promissory note over a 30-90 day period to get them enrolled."
I wonder what the interest rate is on that "sort of a promissory note." This concept of enrolling people before their financing is lined up...sounds like a way to stretch to hit enrollment numbers to please our friends on Wall Street:
"What we allow students to do is, because we only have four starts per year, is if the campus dean has established that this is going to be a good student, serious student, and the campus director has not, through their staff, been able to finalize the payment mechanism, we will allow the student to enroll.
But we expect the student to finalize that payment mechanism whether it's paying themselves, a corporate alliance partner or a Title IV loan immediately. The point that I was making is that at the end of the quarter if for some reason that hasn't happened, they won't be allowed to enroll for the next quarter. So we never have this receivable going past that point."
Let's see how the next few quarters unfold...
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