Education Stocks Fall as Government Supports Loan Payback Data

Higher-education stocks fell after the U.S. Department of Education said it stood by student loan repayment data released Aug. 13, which showed low payback rates at for-profit college providers.

Lincoln Educational Services Corp., based in West Orange, New Jersey, lost 5.8 percent to $10.31 at 4 p.m. in New York. Strayer Education Inc. shares retreated 0.9 percent to $161.61 after rallying as much as 8.5 percent earlier. Corinthian Colleges Inc. declined 1.9 percent to $4.36. An index of 12 education stocks fell 1.1 percent, reversing an earlier gain of as much as 3.7 percent.

The index sank 7 percent on Aug. 16 as data from the Education Department showed that colleges owned by for-profit education providers have campuses where fewer than 20 percent of federal student loans are being repaid. The government wants to use the data to determine whether programs can remain eligible for aid.

“We’ve got comments from Strayer and other people on the data we published and we’ve gone back and looked at it,” said James Kvaal, deputy undersecretary of education, in a telephone interview today. “We haven’t found anything yet that would make us doubt the repayment rates we’ve calculated.”

The data were released as 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.

’Major Problem’

“There’s a major problem that we see with the methodology, at least in the draft numbers the department released,” said Robert Silberman, Strayer’s Chairman and Chief Executive Officer, in a telephone interview yesterday.

The Education Department didn’t count students who consolidated their loans among those who had begun repayment, Silberman said.

“These loan products allow students to pay interest only for some period of years after they graduate. The department’s own theory is that having a gradual amortization of the student loan that matches more closely their rise in earnings is in the student’s interest,” he added.

Strayer, based in Arlington, Virginia, was “surprised” when the department didn’t include consolidated loans in its metric of those that were being repaid, Silberman said.

The department’s proposed metric treats “consolidated loans the same way we treated any other loan,” Kvaal said. “Are students making payments to pay down the principal? That’s true for consolidated loans and regular loans.”

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; John Lauerman in Boston at jlauerman@bloomberg.net;

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