Sept 30 The U.S. House of Representatives has
proposed a cut in certain federal student aid funding in fiscal
2012, potentially hurting for-profit colleges.
The House has sought significant cuts in the Pell Grant
funding -- federal aid to mainly low-income undergraduates --
from the 2011 levels in the Labor, Health and Human Services
A BMO Capital analyst note said the reduction is about 7
percent of the total estimated Pell Grants received in fiscal
The proposal, which was released late Thursday, seeks to
stop Pell Grants for students attending school less than half
time and for students who do not have a high school diploma.
Cutting Pell Grants would negatively impact the for-profit
schools, where a majority of students are in the low-income
Colleges like Corinthian Colleges , Lincoln
Educational Services and Career Education are the most
exposed to these students, compared with other schools in the
post-secondary education industry.
Though news of the cuts upset post-secondary stock prices,
it is far too early in the process to discount what Budget will
be passed given the political conflict in Washington, said Trace
Urdan, an analyst with Wunderlich Securities.
The bill also looks to block the state authorization rule,
which was finalized last year. This could prove to be a positive
for the education companies.
The state authorization rule sets minimum standards that
U.S. states must follow while approving or monitoring which
schools get federal student aid.
Shares of education companies were down slightly on Friday
morning. The education sector index was trading
down 2 percent.
(Reporting by Megha Mandavia in Bangalore; Editing by Sriraj