For-Profit Education Sees Massive Win in D.C. Loss (STRA, APOL, CECO, EDMC, COCO, ESI, DV)

Investing

Published: June 2, 2011 9:03 am

The final version of the regulatory acts against for-profit education companies is far less troublesome on the surface than what had been originally proposed. It is also far less stringent than many investors had feared. The Department of Education is now targeting a federal gainful-employment regulation that will effectively block federal aid to students with excessive debt at graduation who cannot get jobs that allow them to afford that debt. These institutions and their students must meet some employment benchmarks to quality for future federal aid. At least 35% of graduates must be paying their student loans. The other criteria is that annual loan payments must not be more than 30% of discretionary income nor more than 12% of a graduate’s total earnings.

For-profit education stocks are soaring on the news even if this seems harsh on the surface.

Strayer Education Inc. (NASDAQ: STRA) was called “in full compliance” by RBC… Shares are up 19% at $145.50 versus a 52-week range of $113.25 to $255.65.

Apollo Group Inc. (NASDAQ: APOL) is up almost 13% at $48.40 and the 52-week range is $33.75 to $53.61, but this hit $75.00 in late 2009.

Career Education Corp. (NASDAQ: CECO) is up 18% at $27.00 against a 52-week range of $16.36 to $28.57, but this was $35.00 in late 2009.

Education Management Corporation (NASDAQ: EDMC) is up almost 15% at $23.32 and the 52-week range is $7.76 to $23.19. This one came public in late-2009. BofA raised its rating today.

Corinthian Colleges Inc. (NASDAQ: COCO) is up 39% at $5.55 as its 52-week range is $3.76 to $13.16.

ITT Educational Services Inc. (NYSE: ESI) is up over 26% at $89.77 versus a 52-week range of $50.00 to $102.32.

DeVry, Inc. (NYSE: DV) is up almost 16% at $62.60 and its 52-week range is $36.34 to $59.53. This was a $70 stock just over a year ago. BofA raised its rating.

We always wondered throughout this entire process how and why these schools have not fought harder for more of the same scrutiny to be placed upon community colleges or other universities because many students emerge with student debt that can be higher than this. Many discount online degrees and for-profit education degrees, but in today’s job market it seems a bit pressuring to make these institutions live up to employment standards.

JON C. OGG

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