Tags: Shares | for | profit | schools | swing

Oversight Fears Sink For-Profit School Shares

Friday, 25 Jun 2010 09:32 AM

Shares of for-profit schools remained pressured Friday, a day after lawmakers called for more regulation and oversight of the sector during a hearing.

The for-profit sector relies on federal aid for the bulk of its revenue, but has higher rates of default on student loans than do not-for-profit and public universities.

Sen. Tom Harkin, a Democrat from Iowa and chair of the Health, Education, Labor and Pensions Committee, raised questions about the proprietary schools' quality of instruction and said dropout rates were higher.

"We emerged more concerned that legislation that could hamper all for-profits' growth and/or margins may be more likely to be introduced," said Credit Suisse analyst Kelly Flynn in a note.

The Department of Education recently proposed a series of rules changing the way the schools do business — eliminating bonuses for college recruiters, which would likely slow enrollment, forcing them to provide more data to the federal government and tell students more about the job opportunities of their prospective programs.

A rule that would limit students' debt repayments to a specific proportion of their post-graduation income is still being considered. If that rule is enacted, schools may have to lower tuition costs or modify some of their programs to keep getting federal student aid.

Apollo, the owner of the University of Phoenix, the largest for-profit school, was one of the bigger decliners. A federal appeals court reinstated a jury award of about $280 million to plaintiffs who had sued Apollo Group Inc. in a securities class action lawsuit in 2004 on Wednesday after the market closed.

Apollo may need to increase the amount of cash it needs to reserve for litigation costs by $180.5 million, cutting into earnings per share, said BMO Capital Markets analyst Jeffrey Silber.

Shares of Apollo dropped $1.72, or 3.7 percent, to $44.25.

Other school chains whose stocks dropped sharply:

• DeVry Inc. lost $1.43, or 2.5 percent, to $55.16.

• Corinthian Colleges Inc. fell 70 cents, or 6.5 percent, to $10.14.

• ITT Educational Services Inc. shed $4.05, or 4.5 percent, to $86.19.

• Education Management Corp. fell 47 cents, or 2.9 percent, to $15.89.

• Career Education Corp. fell 98 cents, or 3.8 percent, to $24.74.

• Strayer Education Inc. dropped fell $9.44, or 4.1 percent, to $223.16.

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