Posted by: abcdyg | December 15, 2009

For-Profit Education Shares Rise Despite Default Rate Data

 NEW YORK (Dow Jones)–For-profit education stocks rose Monday, even as data were released showing rising default rates on government loans to their students, though analysts said investors appeared to be taking a more positive view of the data.

Bridgepoint Education Inc. (BPI), ITT Educational Services Inc. (ESI), Apollo Group Inc. (APOL) and Corinthian Colleges Inc. (COCO) were among the leaders in the industry’s rally on Monday.

Analysts said the Department of Education’s data on 21% of students at for-profit institutions defaulting during the first three years they were required to make payments wasn’t good news, but it was largely expected and not enough to scare investors.

Bridgepoint, the operator of Ashford University and the University of the Rockies, climbed 5.6% to $17.25 in recent trading while ITT, operator of its namesake technology schools, rose 4.1% to $94.62. Apollo, parent of University of Phoenix, gained 4.1% to $58.91, while Corinthian rose 2.3% to $14.01. Also rising was Strayer Education Inc. (STRA), up 2.1% to $209.16, and Career Education Corp. (CECO), up 1.5% to $27.62.

RBC Capital analyst Robert Wetenhall said some of the gains might be coming from comments from the Department of Education, which had the agency taking a “benign” interpretation of the results. He was referring to comments by Dan Madzelan, acting assistant secretary for postsecondary education, made in a Wall Street Journal story Monday morning. Madzelan said the data are unofficial and won’t result in sanctions. He added that schools would have time to get their default rates down, and the government “isn’t interested in shutting down schools.”

“It’s really a read on the language,” Wetenhall said.

That interpretation by the Department of Education would be important because there are new regulations regarding the three-year default rates for-profit schools, which have sometimes been criticized for aggressive enrollment practices leading to unqualified students getting loans.

Starting in 2014, because of concern about rising defaults, schools with rates exceeding 30% for three years – or 40% for one year – can lose federal financial aid, which can put schools out of business.

BMO Capital analyst Jeffrey Silber said that some of the companies had already begun putting the default rates out last week, so that what might be bad news was already widely anticipated by investors. And the stocks also were weighed down by conferences and regulatory discussions going on last week, that investors may be feeling better generally to start another week.

“People came back from last week feeling a little bit better than they did going into the week,” Silber said. “It’s funny because sometimes in this sector bad news is good news.”


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