UPDATE 3-Apollo Group Q1 tops; sees further drop in enrollments

* Q1 adj shr $1.63 vs est. $1.35

* Q1 student starts down 42.4 pct

* Sees decline in starts to continue through the year

* Shares jump 12 pct after the bell, pare gains on warning (Recasts; adds conference call details, analyst comments)

By A.Ananthalakshmi

BANGALORE, Jan 10 (Reuters) - Apollo Group's (APOL.O) quarterly results blew past expectations on higher tuition fee, but the largest U.S. for-profit education company spelt out a tough year as it expects a further fall in enrollments.

Apollo's shares, which rallied 12 percent after the bell, lost most of their gains on the company's warning. The stock, which fell 40 percent in 2010 making it the third-worst on the S&P 500 index .SPX, closed at $35.94 on Monday on Nasdaq.

Apollo said new student enrollment at its flagship University of Phoenix fell about 42 percent in the first quarter, compared with a growth of 14 percent in the year-ago period.

"We would expect the year-over-year decline in new degreed enrollment in the second quarter to be about the same as the first quarter," CFO Brian Swartz said on a conference call.

"Because of a large decline in new enrollments, coupled with the graduation of some of our existing student population, we expect increasing declines in total enrollment as we move through the year," Swartz said.

Apollo said it does not expect any significant adverse findings from the education department's review that began in December to look into its programs that receive federal aid.

The battered U.S. for-profit education sector has come under fire for burdening students with debt and not fully preparing them for the workplace.

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For an industry TAKE A LOOK: [ID:nSGE67G0IH]

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The U.S. government introduced tough rules for the sector to make it more accountable for the $145 billion in federal aid it receives to fund student loans.

Colleges are tightening their enrollment practices to come clean on the regulatory front, but this has hurt their student numbers over the last couple of quarters.

"Outlook for most of these companies in the space still remains murky," said Stern Agee & Leach analyst Arvind Bhatia.

Earlier in the day, U.S. education stocks tumbled after Strayer Education (STRA.O) said new enrollments at its university fell by a fifth in the winter term, compared with a 16 percent increase a year earlier. [ID:nSGE7090BG]

Apollo's new student enrollment numbers have taken a hit as the company started an orientation program to weed out 'high risk' students -- those who might not be able to pay back debt.

Apollo, with 438,100 enrolled students, said the decline was due to change in admission policies and how it evaluates compensation for its counsellors.

Apollo said total costs rose 6 percent to $919.3 million as it spent more on student advisory and marketing.

Apollo's earnings from continuing operations were $1.63 per share, excluding special items, well above Wall Street view of $1.35 a share. Revenue rose 5.4 percent to $1.33 billion versus estimates of $1.26 billion. (Reporting by A.Ananthalakshmi, Additional reporting by Soham Chatterjee; Editing by Gopakumar Warrier)