Aug. 26 (Bloomberg) -- Corinthian Colleges Inc., the for- profit operator of colleges and trade schools, dropped the most in seven months in Nasdaq trading after it began making loans to students, raising concern that costs will erode earnings.

Corinthian fell $3.12, or 19 percent, to $13.09 at 4 p.m. New York time in Nasdaq Stock Market composite trading, the biggest percentage decline since Jan. 22, when SLM Corp. quit making higher-risk loans to students. Corinthian shares had risen 20 percent in the 12 months before today.

The Santa Ana, California-based company has established a lending program for students with poor credit who can't borrow from SLM, known as Sallie Mae, Corinthian said today in a statement. Investors fear Corinthian will have to write off some of the accounts and won't meet its fiscal 2009 earnings forecast of 58 to 63 cents a share, said Jeffrey Silber, an analyst with BMO Capital Markets Corp. in New York, who recommends buying the stock.

``It adds risk to the forecast,'' Silber said in a phone interview today. ``People were expecting sizable margin expansion and this is going to put a damper on that. People are not giving them the benefit of the doubt.''

Corinthian will spend on student loans in fiscal 2009 all of its available cash that isn't earmarked for capital expenditures, Chief Financial Officer Kenneth Ord said today on a conference call.

The company's net loss narrowed to $620,000, or 1 cent a share, for the fiscal fourth quarter ended June 30, from $8.76 million, or 10 cents, a year earlier. Income from continuing operations was $4.76 million, or 6 cents, compared with a loss of $2.09 million, or 2 cents, as enrollment increased.

Corinthian Colleges Chief Executive Officer Jack Massimino said fiscal 2008 was marked by ``the most challenging student financing environment in the company's history.''

Company Financing

``We established a new company-sponsored student lending program, Access, and thus far, have arranged financing for the vast majority of students,'' Massimino said in the statement.

Revenue for the fourth quarter rose 18 percent to $274 million.

Earnings for the fiscal first quarter ending in September will be 6 to 8 cents a share, the company said. The low end of the forecast is less than the average of 8 cents a share predicted by 11 analysts surveyed by Bloomberg.

Corinthian runs post-secondary programs at more than 100 schools in the U.S. and Canada. Shares of the company rose 30 percent from June 3 through yesterday, after a Lehman Brothers analyst's report said growing numbers of new students were increasing revenue. Corinthian executives told analysts in May they expected revenue to grow 10 to 12 percent annually over the next three years, with 6 to 8 percent annual enrollment increases.

Corinthian also said today that Leon Panetta will join its board. Panetta, 70, served as the chief of staff to former U.S. President Bill Clinton. The move expands the board to 11 members.

To contact the reporter on this story: Oliver Staley in New York at ostaley@bloomberg.net.

Last Updated: August 26, 2008 16:08 EDT