PORTLAND, Ore. (AP) -- The market showed a mixed reaction to a federal report released Tuesday on career training, which found that 5 percent of programs at for-profit colleges do not meet the U.S Department of Education's new rules designed to make sure students can get jobs and pay off student debt.
These for-profit schools may lose access to federal student aid if they don't improve. Yet, the shares of these companies behind the schools showed mixed response as the data came in slightly better than expected.
The report found that most major for-profit colleges will meet the new requirements, which go into effect in the fall of 2012. The information is intended to give schools time to improve or make changes necessary before new regulations are enacted. No program would lose eligibility for access to federal student aid before 2015.
Shares of companies where most of the programs would likely clear the hurdle, such as industry giant Apollo Group Inc., jumped in trading. Apollo's shares were up $3.08, more than 9 percent, to $35.55 by early afternoon. And shares of DeVry Inc. jumped $1.33, nearly 5 percent, to $29.02 on its largely positive assessment as well.
The report wasn't as good for companies such as Corinthian Colleges Inc., whose shares fell nearly 6 percent by early afternoon. The report found more than 40 of Corinthian's programs, including many at its Everest and Heald colleges, failed to meet the metrics.
Education Management Corp. also took a hit in the report with poor scores on its Art Institutes and Brown Mackie schools. Its shares fell 22 cents, more than 3 percent, to $6.51. The company filed a regulatory document with the U.S. Securities and Exchange Commission saying that it found several inaccuracies and believes the conclusions are misleading. It said it has contacted the U.S. Department of Education and intends to work with them to resolve these issues.
The Obama administration announced the new "gainful employment" rule last year with the intent of making sure students in career-training programs at for-profit, nonprofit and public institutions are able to get a job and pay off their student loans when they graduate. Schools risk losing access to federal student loans for its students if they do not meet these terms over an extended period of time.
Graduates are consider gainfully employed if the program they participated in meets one of three metrics: The estimated annual loan payments for a typical graduate does not exceed 30 percent of his or her discretionary income or 12 percent of total earnings; or at least 35 percent of former students are repaying their loans.
The U.S. Department of Education has estimated 8 percent of all career programs would fail to meet the three benchmarks at some point in time, while only 2 percent would eventually lose student aid eligibility.
Industry analysts largely found the results better than expected. Baird analyst Jeffrey Meuler said in a research note said that he was "generally encouraged" by the data. He said it can be seen as a positive for the industry as the larger companies met at least one of the three metrics. And because the data is informational only, no company is facing regulatory action yet.
Several analysts noted that many companies have changed their practices since last year.
The government was clear, though, that it will take action in the future if the 193 programs at 93 schools that failed all three metrics do not improve.
"Career colleges have a responsibility to prepare people for jobs at a price they can afford," Education Secretary Arne Duncan said. "Schools that cannot meet these very reasonable standards are on notice: invest in your students' success, or taxpayers can no longer invest in you."
Many students attend for-profit schools because of their flexible schedules, but critics say they have weaker student outcomes and that quality varies widely. Twelve percent of students in higher education attend a for-profit institution, yet they represent 46 percent of student loan dollars in default.
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AP Education writer Christine Armario contributed to this report.
