For-Profit Education Stocks Drop on Repayment Data, Downgrades

For-profit college stocks fell after the U.S. Department of Education released data that said fewer than 36 percent of the colleges’ students repaid federal loans, compared with 54 percent at public universities.

Corinthian Colleges Inc., based in Santa Ana, California, plunged 20 percent to $5.33 at 1:52 p.m. in Nasdaq Stock Market composite trading after the data showed one of its campuses had a repayment rate of less than 20 percent. Washington Post Co., which owns Kaplan Inc., tumbled 7.7 percent to $317 in New York Stock Exchange composite trading. An index of 12 education stocks fell 6 percent.

Nationally, for-profit colleges have a 36 percent student- loan repayment rate, compared with 54 percent at public universities and 56 percent at private nonprofits, according to an analysis of the Education Department data by the Institute for College Access & Success, an Oakland, California-based nonprofit research and advocacy group. The Aug. 13 data release continues a run of bad news for education stocks, said Gary Bisbee, an analyst at Barclays Capital in New York.

“The overhang on the stocks is likely to persist longer than we had previously expected,” wrote Bisbee, who downgraded Corinthian, ITT Educational Services Inc. and Lincoln Educational Services in West Orange, New Jersey.

More Falling Shares

ITT, based in Carmel, Indiana, declined 13 percent to $56.01 in New York trading after being downgraded to “equal weight” from “overweight” at Barclays Capital. DeVry Inc., based in Oakbrook Terrace, Illinois, fell 8.9 percent to $38.93.

Strayer Education Inc. sank 16 percent to $168.23. The Arlington, Virginia-based company said the data was “significantly at odds with Strayer University’s own internal analysis” and that it was requesting a meeting to clarify the situation. In a regulatory filing today, Strayer said its students’ repayment rate was 55.4 percent, not the 25 percent reported by the Department of Education.

The repayment rates published by the Education Department may be skewed because they don’t include students who have consolidated their loans, said Harris Miller, president and chief executive officer of the Career College Association, a trade group with 1,520 members based in Washington.

Scratching Heads

“A lot of my members over the weekend were scratching their heads,” Miller said in a phone interview. “ A lot of schools with low default rates were surprised to see how low their numbers were using the methodology of the department.”

Congress and the Obama administration are proposing tougher regulation and oversight of for-profit colleges, which can rely on federal financial-aid programs for as much as 90 percent of their revenue. The Education Department released the data as it pushes for a rule that could restrict or disqualify for-profit college programs from getting federal grants and loans if their students have loan-repayment rates below 45 percent.

“What we know is that there are many for-profit schools that are doing a great job of educating students, and we know there are some bad actors who have been perpetrating fraud and deceit,” said Justin Hamilton, an Education Department spokesman, in a telephone interview. “We want to do everything possible to protect students and save taxpayer dollars.”

Misled Students

For-profit colleges have been under fire after a government report found that recruiters at 15 colleges misled students to boost enrollment. Senator Tom Harkin, an Iowa Democrat who has held two hearings on for-profit colleges, has said he plans to hold more sessions before the end of the year, and has demanded information from 30 companies. U.S. Education Secretary Arne Duncan, in an Aug. 13 letter to Harkin, said he was beefing up enforcement.

Federal grants and loans to for-profit colleges jumped to $26.5 billion in 2009 from $4.6 billion in 2000, according to the Education Department.

The agency said the proposed rule could restrict aid to programs, rather than colleges, with low repayment rates, so the college-level data would not necessarily trigger regulatory action.

In addition, under the rule, schools failing to meet the threshold could show that their students could meet their obligations based on other criteria, such as their incomes after graduation. The Education Department said that 5 percent of for- profit programs could lose eligibility under the rule.

Loan Calculations

Using four years of data, the Education Department calculated the percentage of students who paid down at least some of their loan principal under a formula that gave more weight to loans with larger dollar value. The data excluded students given deferments because of further education or military service.

The repayment rate at Career Education’s Sanford Brown College-Hazelwood in Missouri was 9 percent, according to the data posted on the Education Department website. Corinthian Colleges’ Everest College in Earth City, Missouri, had an 8 percent rate. A Corpus Christi, Texas, campus of Kaplan had a 16 percent repayment rate.

In contrast, the State University of New York at Buffalo had a 59 percent repayment rate; the University of California, Berkley, 73 percent; and Northeast Iowa Community College, 53 percent. Harvard University’s rate was 84 percent and Baylor University’s was 69 percent.

Washington Post

In a regulatory filing today, Washington Post said the proposed rule “disproportionately impacts schools with students from low-socio-economic backgrounds.” The company said students who are paying only interest on their loans or who have consolidated their loans don’t count toward the administration’s definition of repayment.

“Kaplan’s institutional repayment rate would be roughly 20 to 30 percentage points higher if it were not penalized for student participation in these government-sponsored debt management programs,” Washington Post said in its filing. Kaplan’s average repayment rate is about 28 percent, the Washington Post said.

Anna Marie Dunlap, a Corinthian spokeswoman, and Jeff Leshay, a Career Education spokesman, didn’t return calls seeking comment.

To contact the reporters on this story: Oliver Staley in New York at ostaley@bloomberg.net; John Hechinger in Boston at jhechinger@bloomberg.net.

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