NEW YORK, NY--(Marketwire -11/04/11)- Not long ago for-profit school stocks were riding high. Profits were up, and the Association of Private Sector Colleges and Universities was touting a Department of Education study that showed graduates of four-year private sector colleges and universities were employed in higher percentages than graduates of public or private non-profit universities. One year later the entire industry is coming under fire as disappointing earnings and an inordinate number of student loan defaults has brought the credibility of the sector way down. The Paragon Report examines investing opportunities in the Education & Training Services industry and provides equity research on Career Education Corporation (NASDAQ: CECO - News) and Corinthian Colleges, Inc. (NASDAQ: COCO - News). Access to the full company reports can be found at:
The US Department of Education, has certainly changed its tone this year, and recently came out with a statement saying that 8.8 percent of federal student loans for fiscal 2009 were being defaulted upon. This figure represents all student loans, including those for not-for-profit schools. When one considers that the default rate of for-profit schools was a whopping 15 percent, it is not surprising to find that much of the Education and Training Services sector has come under major fire lately.
Iowa Democratic Sen. Tom Harkin also released a report that said more than half of students at for-profit colleges will drop out in the first two years, likely with big debts to repay.
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With their image and revenue streams in question, many companies in the sector are reworking their recruitment strategies to try and offer a more viable and realistic product. Enrollment volumes have taken a major hit across the board, leading several marquee for-profit schools to turn to emerging markets for growth. "It makes sense to go overseas with everything going on in the US market," says Jeff Silber of BMO Capital Markets. "The overseas market is about 8 times larger, with the college participation rate well below the U.S. in many areas, so there are lots of opportunities."
Corinthian Colleges Inc. said that it moved to a loss in its fiscal first-quarter, burdened by impairment and severance charges. Corinthian said that new student enrollment growth fell during the quarter due to economic conditions, tuition increases and its decision to lower the risk profile of its students. Corinthian predicts that the rate of year-over-year enrollment declines will slow significantly in the second quarter and improve during the last half of the fiscal year.
Shares of Career Education Corporation collapsed this week after the company said that an independent investigation found its job placement practices improper at certain health education and art and design schools. A probe into these practices began because of a subpoena from New York's attorney general.
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