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For-Profit Colleges Decline on Concern About Probe of Recruiting Tactics
For-profit education stocks declined in the U.S. after a Government Accountability Office probe of the industry found recruiters lied to entice students and encouraged them to commit fraud to qualify for aid.
Education Management Corp. and Bridgepoint Education Inc. helped send an index of 12 education companies to a 2.9 percent loss at 10:52 a.m. New York time. Recruiters at 15 unidentified colleges studied by the GAO, Congress’s investigational arm, misled potential students about the costs, duration and quality of their programs, according to a report obtained by Bloomberg News that will be released publicly tomorrow.
The shares retreated in six of the last seven days, losing 4.7 percent since July 20, on concern the government will reduce student aid for some programs. Apollo Group Inc., owner of the biggest for-profit university in the U.S., has lost half its value since Jan. 16, 2009, data compiled by Bloomberg show.
“The main bear case is that they’re fraudulently recruiting people,” said Robert Kean, a trader at Kern Suslow Securities Inc. in New York. “Whenever you’re going in front of Congress you have a huge overhang for your stock.”
The 30-page report examined colleges in Arizona, California, Florida, Illinois, Pennsylvania, Texas and Washington, D.C. Both privately held and publicly traded education companies were included.
Share Movers
Education Management dropped 5.3 percent to $14.92. Bridgepoint Education fell 5.4 percent to $17.92. DeVry Inc. lost 1.9 percent to $53.44. Corinthian Colleges Inc. declined 3.7 percent to $8.91. Apollo Group retreated 3.6 percent to $45.43.
Career Education Corp. decreased 2.7 percent to $24.19. Capella Education Co. fell 2.3 percent to $91.38. ITT Educational Services Inc. slumped 2.8 percent to $80.34. The Washington Post Co., which operates Kaplan Higher Education, declined 1.9 percent to $425.62.
The Senate Health, Education, Labor and Pensions Committee, which commissioned the report, will hold a hearing tomorrow to examine how for-profit colleges attract students. GAO investigators posed as prospective recruuits to investigate practices in the education industry, which received at least $4 billion in U.S. grants and $20 billion in Department of Education loans last year, the report said.
“While the GAO findings are serious, we note that no public companies are cited for the most egregious ones (i.e., fraud),” New York-based BMO Capital Markets analysts Jeffrey Silber and Paul Condra wrote in a note today. “While no specific schools were named, based on the data provided, we believe two are owned by Apollo, two by Corinthian Colleges, and one by Washington Post. These schools were not accused of fraud, but rather misleading marketing.”
To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.
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