NEW YORK – Shares of for-profit education companies slid Monday as government data showed that many of their students aren’t repaying school loans, which could imperil the ability of their students to receive federal financial aid, the bulk of the schools’ revenue.
Several schools contested the government’s methodology, but that couldn’t stop shares of the companies from tumbling to their lowest points in a year or more.
For-profit schools offer a wide range of programs and certificates, from associate’s degrees in the culinary arts at Career Education Corp.’s Le Cordon Bleu to MBA degrees from the Apollo Group Inc.’s University of Phoenix.
The government released financial aid repayment data from more than 8,000 schools including for-profit, private and public colleges, as an example of how it will decide to grant access to government-backed financial aid. The Department of Education has been focusing on the schools, promising greater oversight and tougher rules. The industry has been the subject of a string of high-profile hearings in the Senate and a report by the Government Accountability Office that chronicled allegedly misleading and, in some cases, fraudulent recruiting tactics.
But several companies say the government’s complicated formula misrepresents their students’ repayment rates. The repayment rate is a key component of a proposed “gainful employment rule” that would link student debt burdens and repayment rates to schools’ access to federal financial aid.
“The validity of the (DOE)’s ‘data dump’ is suspect, in our view, given the shockingly low repayment rate for Strayer University,” said Jeffrey Silber, an analyst with BMO Capital Markets.
Strayer Education Inc. has said in the past it believed its programs would pass the government’s test and calculated its own student debt repayment rate at 55.4 percent, rather than the DOE’s finding of 25 percent.
Under the proposed rules, schools would be ineligible to receive federal financial aid if fewer than 35 percent of former students aren’t paying the principal on their loans and if graduates are spending more than 12 percent of their income to pay down student debt.
The Washington Post Co., which owns the Kaplan school chain; ITT Educational Services Inc.; Strayer Education Inc.; and Corinthian Colleges Inc. all had repayment rates below the key level of 35 percent.
Washington Post shares tumbled $28.27, or 8.2 percent, to $315.21; ITT dropped $8.52, or 13 percent, to $55.81; Strayer fell $31.56, or 16 percent, to $168.45; and Corinthian slid $1.37, or 21 percent, to $5.29.
Only four chains — Universal Technical Institute, Grand Canyon Education Inc., American Public Education Inc. and Bridgepoint Education Inc.—met or passed the government’s threshold of a 45-percent repayment rate, which would allow them continued unfettered access to government-backed student loans.
UTI rose 10 percent, Grand Canyon added 1.7 percent, Bridgepoint rose 9 percent, and Apollo gained 7 percent.
American Public Education Inc. fell less than 1 percent.
Some of the schools said the government’s methodology was unfair.
Strayer said its own analysis did not match the government data. Washington Post-owned Kaplan said that the DOE did not include interest-only payments and consolidated loans in its formula. Capella Education Co. CEO Kevin Gilligan said, in a statement, that the company’s own analysis found that more than 45 percent of former students are paying back their loans, rather than the government’s finding of 40 percent.
Capella’s shares slid 13 percent. Other school shares also suffered. Shares of DeVry Inc., which said it planned to work with the DOE to clear up inconsistencies in the data, lost 9 percent. Education Management Corp. tumbled 18 percent and Career Education dropped 5 percent.