* Q4 EPS $3.14 vs est. $3.10
* Sees further dip in 2011 student enrollments
* Preliminary 2009 default rates could be higher
* Shares up 9 pct; outlook could have been worse (Adds conference call on outlook, default rates)
BANGALORE, Jan 20 (Reuters) - ITT Educational Services (ESI.N), the 4th-largest U.S. for-profit college, forecast lower 2011 earnings and a further dip in new student starts as post-secondary private education firms adapt to new rules amid tougher regulatory scrutiny.
But investors marked up the stock -- to its highest in nearly 4 months -- as ITT's new student numbers and its outlook were not as bad as some had predicted, and fourth-quarter earnings beat market expectations.
ITT's new student enrollments fell 9.4 percent to 17,722 in October-December, compared with an increase of more than 31 percent in the same period a year ago.
Market leader Apollo Group (APOL.O) this month reported a more than 40 percent drop in new student enrollments at its flagship University of Phoenix in its latest quarter.
"(ITT's) New enrollment, down in the single digits, is a far better case than the bears in the stock had expected," said Trace Urdan, analyst at Signal Hill Group.
ITT, which in October posted its first drop in student starts in a decade, said its internal goal for 2011 earnings was $8.50-$10.50 a share, implying at 6-25 percent drop from 2010.
Analysts had pencilled in 2011 earnings of $10.92 a share, according to Thomson Reuters I/B/E/S.
"We expect (ITT's guidance) range will be viewed as a modest positive by investors given the stock would now imply an earnings multiple of about 6 times projected 2011 EPS," said William Blair analyst Brandon Dobell.
For-profit colleges have been battling to attract new students amid intense government scrutiny of a sector that has been criticised for providing courses that do not guarantee jobs and leave students with debt.
The industry had seen rapid growth during the recession as high jobless rates prompted people to retrain.
For industry TAKE A LOOK: [ID:nSGE67G0IH]
The government plans to introduce new rules in July to make for-profit colleges more accountable for the $145 billion federal aid they receive to fund student loans.
The S&P 1500 Education Services sub-index .15GSPEDUS almost halved in April-December last year as investors feared the new rules would dent growth at these colleges.
CEO Kevin Modany said ITT's colleges, which offer technology-oriented degree programs, will see year-on-year declines in new student enrollments in every quarter this year.
"We'll continue to have very difficult year-over-year comparisons for new student enrollment, particularly in the first and second quarters," he said on a conference call.
Carmel, Indiana-based ITT, which has some 85,000 students enrolled across 130 campuses, posted October-December income of $3.14 per share on revenue of $410.1 million. [ID:nASA01ELY]
ITT said late last year it would not change its enrollment policies until the new rules were finalized. Analysts have said ITT is one of the companies that will have to make operational changes to meet the new rules, as it has one of the lowest ex-student loan repayment rates. ITT Technical Institute has a 31.2 percent repayment rate.
Apollo and Corinthian Colleges COCO.O are amending their student intake policies to effectively head off students unlikely to pay back debt.
On the call, ITT's CFO Dan Fitzpatrick said the preliminary 2-year cohort default rate (CDR) for the 2009 federal fiscal year for ITT Technical Institute will be considerably higher than the final 2008 rates.
CDRs measure the percentage of borrowers who enter repayment on some federal loan programs during a particular fiscal year and then default within the same or next fiscal year.
Colleges risk losing their eligibility for federal student aid programs if their CDR exceeds certain thresholds.
ITT shares, which have dropped by around a quarter in the last six months, were trading up 9.5 percent at $68.72 on the New York Stock Exchange and helped push the sector sub-index up by 2.3 percent to a 2-week high. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Roshni Menon and Ian Geoghegan)