UPDATE 2-New U.S. House education chair backs for-profits

Fri Dec 10, 2010 5:08pm EST

* Kline will "push back hard" against possible Harkin bill

* Hopes Education Dept employment rule will be eased

* For-profit stocks rise after Kline comments

* For-profits contributed to Kline's 2010 campaign (Adds detail on campaign donations, Education Dept comment)

By Diane Bartz

WASHINGTON, Dec 10 (Reuters) - The incoming Republican chairman of the U.S. House of Representatives education committee intends to defend for-profit schools from possible Senate legislation and hopes the Education Department will soften a planned rule that could cut federal funding.

Representative John Kline, the Minnesota Republican who takes over the Education and Labor Committee next month, said in an interview that existing rules had not been effectively enforced and the department was punishing the whole sector.

The department wants to bar federal loans to students in programs where fewer than 35 percent of former students are paying back loans or are capable of doing so. A final rule on repayment rates is due out early next year.

Asked if the final version of the rule would be eased, Kline told Reuters, "I certainly hope so."

For-profit schools often offer graduate and undergraduate degrees but also train people wanting to become mechanics and medical technicians, among other trades.

But some of the schools have come under fire for high loan default rates - some topping 30 percent-- and graduation rates that are sometimes in the single digits.

Students at for-profit schools represented 26 percent of federal education loan borrowers for 2008-2009 but 43 percent of defaulters, according to the Education Department.

Senator Tom Harkin, a Democrat from Iowa who chairs the equivalent committee in the Senate, reiterated on Thursday that legislation might be needed next year to rein in the schools.

Kline said he would oppose such an effort. "I would push back really hard against a bill that might come out of Chairman Harkin's committee."

Asked if such a bill could succeed, Kline said: "I don't think so."

The stock of for-profit education companies rose after Kline's remarks were published on Friday. The S&P Education Services index .GSPEDUS closed 2.4 percent higher.

Shares of University of Phoenix operator Apollo Group (APOL.O) ended up 2.8 percent at $37.95. Corinthian Colleges (COCO.O) shares finished 3 percent higher at $4.47.

Records from the Center for Responsive Politics show Kline's 2010 campaign received $15,250 from Corinthian Colleges and people who work for it. Another $15,000 came from a trade group of for-profit schools. Total donations to Kline's campaign for 2010 from all sources totaled $1.5 million, according the Federal Election Commission.

Kline, who described one recent discussion with Education Secretary Arne Duncan as "heated," said the department's new rules affected all for-profits, rather than just pursuing what he called "bad actors."

"If you've got bad actors, let's go see why they're bad actors and if they're bad actors, if they're breaking the law, if it's deceptive practices if it's fraudulent or something, then they ought to be prosecuted," said Kline.

A study last month by Education Trust found that just 22 percent of freshmen who enrolled in for-profit schools graduated within six years, compared with 57 percent at nonprofit schools.

The Everest brand of schools, owned by Corinthian Colleges, has more than a dozen schools with loan default rates above 20 percent and two schools above 30 percent, according to Education Department data.

The Education Department recently banned incentive pay for admissions recruiters, it also now requires disclosure of graduation rates and job placement rates to new students.

James Kvaal, the department's point man on the issue told a conference of for-profit schools on Friday that it has increased staff for program reviews, and plans to increase the number of reviews conducted each year from 200 to 300.

"The administration is not totally against for-profit schools," he said. "We think that there are a minority of programs that are not doing well." (Reporting by Diane Bartz; Editing by Tim Dobbyn)

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