Most for-profit college programs may sail through new rule

Tue Jun 26, 2012 11:38am EDT

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(Reuters) - Most programs at for-profit colleges, including those at Apollo Group and Strayer Education Inc, could clear new rule requirements, according to latest data on loan repayment by students released by the Department of Education.

Shares of Apollo jumped 9 percent, while Strayer's were up 6 percent on Tuesday morning. The S&P Education sub-index rose 6 percent, also helped by strong results posted by Apollo on Monday.

"Overall this data was better than expected," said analyst Jerry Herman of Stifel Nicolaus.

"Companies have already undertaken corrective measures, which are not yet reflected in this data, thus very few, if any programs, at the publicly traded colleges are expected to ultimately fail the gainful employment rule."

Under the gainful employment rule, at least 35 percent of graduates and dropouts of programs must be paying back loans or their loan payments must equal 30 percent of discretionary income or 12 percent of total earnings.

Schools that fail to meet this standard three years out of four will no longer be allowed to accept students who pay with federal loans.

Monday's rates are just an indication of future performance and would not result in any regulatory action, as the rule takes effect mid-2012.

Career Education's 19 percent programs failed all the three tests, while Corinthian Colleges Inc's 13 percent programs failed, an analysis by Height Analytics, an investment research firm, showed.

Shares of Corinthian fell 6 percent.

The analysis also showed 10 percent programs at Education Management did not meet the requirements, while only 1 percent programs at Apollo failed.

Education Management said it found errors in the education department's data, while Capella Education Co said it could not rely on the accuracy of some of the data.

(Reporting by Megha Mandavia in Bangalore; Editing by Sriraj Kalluvila)

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