Sector Snap: Education companies mostly decline

Sector Snap: Education companies must adjust to softer demand, become more affordable -analyst

Associated Press

NEW YORK (AP) -- For-profit education companies need to adjust their businesses to weakening demand and make their institutions more affordable in order to survive the current environment, an analyst said Monday.

After soaring early in the recession as job-seekers tried to beef up their skills, enrollments have dropped significantly at for-profit schools. That is in part because the Obama administration enacted new regulations that require schools to meet certain performance targets aimed at making sure students can find jobs and pay of their debt following graduation, or risk losing access to federal student loans.

Recent data released by the Department of Education shows that students at for-profit schools have the highest default rates on student loans. Critics charge that such schools provide poor value for the money, have poor graduation rates, and have too few incentives to ensure their students succeed in the job market. For-profit schools say that they're working to improve and argue higher default rates are to be expected because they serve lower-income students.

Jerry Herman of Stifel Nicolaus said in a client note that total enrollment continues to drop at these educational institutions, and quarterly results are likely to continue to reflect disruption in the industry.

Meanwhile, the industry is keeping a close eye on the potential impact of the elections, he added.

A win by Mitt Romney, who is supportive of for-profit education companies, would likely lead to new leadership at the Education Department and influence the fate of the Consumer Financial Protection Bureau, the analyst said. If the Republicans also take control of the Senate, however, the industry could see aggressive cuts for student aid. But no the positive side, some senators who are outspoken adversaries of the industry would lose power with their party and the new regulations enacted by the Obama administration might be thrown out.

Herman said President Barack Obama "has been no friend to the for-profit sector as he has pushed his community college agenda," and enacted stricter regulations. If the president is reelected but Republicans take control of the Senate, chances for student funding cuts look more likely, he added.

Here's how some education companies are faring in afternoon trading on Monday, as the broader markets moved higher.

Apollo Group Inc. fell 82 cents, or 2.9 percent, to $27.82.

Universal Technical Institute Inc. added 13 cents to $13.57.

American Public Education Inc. shed 85 cents, or 2.3 percent, to $36.94.

Bridgepoint Education Inc. declined 11 cents to $10.93.

Corinthian Colleges Inc. gave up a penny to $2.62.

DeVry Inc. lost 15 cents to $23.57.

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