Shares of for-profit education companies dropped Tuesday after DeVry Inc. and Capella Education Co. reported weak enrollment.
Enrollments at for-profit colleges soared during the recession as job-seekers tried to improve their appeal. That trend reversed after the federal government announced that it was putting new regulations in place that are aimed at ensuring students can find jobs and pay off their debt following graduation.
Under these rules, schools must meet certain performance criteria or risk losing access to federal student loans. A number of for-profit education companies have stiffened enrollment guidelines as a result but that has put a crimp on enrollment and profitability.
While it appeared that companies had nearly adjusted to the new environment, reports from two major companies caused those concerns to resurface.
DeVry reported late Monday that enrollment at DeVry University is expected to fall 15 percent to 17 percent in the summer term versus last summer. Enrollment also fell at its Carrington Colleges Group during its fiscal quarter that ended in June. It said the weak enrollment is forcing it to cut 570 jobs.
The company also said that its fiscal fourth quarter will likely fall far short of market expectations
Citi analyst James Samford said that DeVry is one of the high-quality names in the industry and its mix of programs has helped it mitigate some of the volatility in the industry. So he sees DeVry's announcement as a "clear indication that shaky consumer confidence and job uncertainty will continue to weigh on enrollment" for the industry.
Capella reported Tuesday that its second-quarter net income fell 25 percent as tightening industry regulation crimped enrollment. The company also said that it expects total enrollment to fall about 3.5 percent to 4.5 percent in its third quarter from the year-ago period. Revenue is also expected to decline by 3.5 percent to 4.5 percent.
It doesn't bode well for the rest of the industry. Many for-profit schools will report quarterly results in coming weeks.
DeVry's shares plunged $6.75, or 24.5 percent, to $20.81 in afternoon trading. Strayer Education Inc.'s shares fell 8 percent to $93.45. ITT Educational Services Inc.'s shares fell $3.63, or 6.3 percent, to $53.72. Both Strayer and ITT are scheduled to report their quarterly performance later this week.
Industry leader Apollo Group Inc.'s stock price fell $1.07, or 3.7 percent, to $27.85 in afternoon trading. Shares of Corinthian Colleges Inc. fell 14 cents, or 5.7 percent to $2.31 while Career Education Corp. both fell 38 cents, or 7.1 percent, to $4.95. Capella's stock rose 36 cents, or 1.3 percent, to $28.78 in afternoon trading after falling as low as $27.01 earlier in the session.