“The Santa Claus Bubble of 2013” — David Gardner’s Online College “Rule Breaker”

Motley Fool's "College 2.0: Meet the Leader of the Online Education Renaissance."

By Travis Johnson, Stock Gumshoe, July 30, 2013

“This is the only company in the online higher education industry that’s creating a win-win for everyone. Which means it’s the only one with long-term staying power.

The sad truth is, most online colleges exist for one simple purpose. To suck away federal loan dollars from Uncle Sam. These “diploma mills” don’t even care whether their students graduate… as long as they can keep getting new ones….

… most online colleges are bad investments. But that’s exactly why this one is such a GOOD investment!”

That’s the bit that caught my attention in this latest ad from the Motley Fool for their Rule Breakers stock-picking service — the acknowledgement that the sector is terrible, has massive regulatory risk, is rife with fraud and companies you wouldn’t want to have any association with .. and yet, they think there’s one company that’s a good investment in that sector?

Made me wonder which one it is. And while David Gardner has certainly picked some stinkers over the years, he has also had the foresight and persistence to stick with some incredible long-term winners that I didn’t much like (Netflix, Priceline.com) and some that I did enjoy riding along with him, at least for a time (Intuitive Surgical, Marvel). Stock pickers who look for huge, long-term, market-changing growth stories always have lots of bad picks … but the best of them have those few 1,000% winners that more than make up for them.

So, being the Stock Gumshoe, I went lookin’ to see what Gardner’s latest is. Whatever did I find? Keep reading and we’ll share.

The pitch is, basically, that higher education is in a ridiculous tuition hiking spiral that they’re calling a “bubble” — and that’s certainly not something that’s easy to argue about, though even with tuition consistently rising at twice the rate of inflation for decades now, no one is allowed to say that going to college is a bad financial decision (and yes, “twice the rate of inflation” doesn’t sound that crazy — but it compounds incredibly fast, the “list price” cost of attending an elite university has increased by at least 300-400% in just the 21 years since I graduated from college … and people were talking about the unsustainable rate of education inflation back then, too).

If you’re like the average Stock Gumshoe reader, somewhere between 55-75 years old, then there’s a good chance that you could have gone to college at 18 and been able to pretty much cover your costs with a part time job and a good summer job, covering a little extra if necessary with grants and with student loans that no one really thought they had to pay back. That hasn’t been the case for years — college costs make summer jobs seem almost trivial (and hard to get these days), and increasingly the cost is being borne both by parents who are sacrificing their own retirement savings at exactly the wrong time, and students who are taking on crushing levels of student loan debt (debt that can’t be easily written down even if you file for bankruptcy, and which carries a meaningful interest rate).

That doesn’t mean every student is absolutely crushed by student loan debt, of course, but colleges and universities who are selling $100,000 (or $250,000 in some cases) degrees but not really increasing the education level of the students they “teach” in a meaningful way, or giving them marketable skills, connections, or career counseling should certainly be ashamed of themselves. The college years are an important part of “growing up” and becoming an independent adult, but the balance between the cost of this transition period and the gains you make from your college experience means you don’t end up with a clear benefit for everyone.

And I don’t mean just a financial benefit — higher education is not just job training, I do believe that education for its own sake is important, that liberal arts educa