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Senators Request Probe of For-Profit College Rules

Nov. 18 (Bloomberg) -- Republican Senators Richard Burr and Tom Coburn called for an investigation of government disclosure of proposed regulations restricting federal aid to Apollo Group Inc., Education Management Corp. and other for-profit colleges.

The senators said they were concerned that the U.S. Education Department may have leaked the proposed regulations, known as “gainful employment,” to supporters of the rules and investors who stood to benefit, according to a letter, dated yesterday, to the agency’s Office of the Inspector General. The proposed rules contributed to a 32 percent decline in for-profit stocks through yesterday, according to an index of 13 companies.

“We believe an independent investigation will provide additional transparency surrounding the actions taken by Department officials and those who stand to benefit financially from the regulations,” Burr of North Carolina and Coburn of Oklahoma wrote to Kathleen Tighe, the education department’s inspector general.

The gainful employment proposal would restrict colleges from receiving federal aid if data show that their graduates have poor records for repaying government loans.

Phoenix-based Apollo, the largest-for-profit college chain by enrollment, fell 16 cents, or less than 1 percent, to $35.48 at 4 p.m. New York time in Nasdaq composite trading. Pittsburgh-based Education Management, the second largest, rose 28 cents, or 2 percent, to $14.42.

Embargoed Information

The Institute for College Access and Success, an Oakland, California-based nonprofit research and advocacy group, received embargoed information about proposed regulations in advance of their public release on June 16, Burr and Coburn wrote, citing copies of e-mails.

Lauren Asher, president of the college access group, declined to discuss the receipt of the materials.

“This appears to be an attempt to deflect attention from the urgent need to curb waste, fraud and abuse in the for-profit college sector,” she said in a telephone interview.

On June 15, after the close of normal market trading, reporters received the information, which had a midnight embargo, Education Department spokesman Justin Hamilton said in a telephone interview.

Reporters typically contact outside groups for comment and “that was the case here,” Hamilton said.

The release involved tightening oversight of for-profit colleges, including banning the practice of tying recruiters’ pay to the number of people they enroll. The agency said then it was postponing the release of proposed gainful employment rules.

“We’ve operated with transparency and integrity,” Hamilton said. “We’ll continue to do so.”

To contact the reporters on this story: John Hechinger in Boston at jhechinger@bloomberg.net; Stefanie Batcho-Lino at sbatcholino1@bloomberg.net

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net.

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