UPDATE 2-Apollo says more student loan requests rejected

(Adds analyst comment, details, stock movement)

By Helen Chernikoff

NEW YORK, Feb 21 (Reuters) - Education company Apollo Group Inc (APOL.O) said on Thursday it was seeing more student loan applications rejected by lenders, which are focusing on credit quality after the subprime mortgage market's collapse.

Because students have more than one choice of lender, however, this tightening has not yet had a significant adverse impact on Apollo students, the company said in a statement.

Compared with peer companies such as Career Education Corp (CECO.O) and Corinthian Colleges (COCO.O), private loans account for a relatively low amount of Apollo's revenue, at just 4 percent, Barrington Research analyst Alex Paris said.

That's because Apollo's typical student is a working adult taking one or two classes at a time who can cover tuition with federal loans and therefore doesn't need private loans, Paris said.

Apollo made the disclosures more to address investor anxiety around headlines about the spreading credit crisis than because that crisis might hurt its enrollment numbers.

"The issue of the day is private lending," Paris said. "These comments are reassuring."

Apollo also said private loans had become more difficult to obtain for international students as lenders have tightened their credit criteria or canceled international loan programs.

As a result, the company is seeking alternative lenders and might have to pay an upfront amount of up to 10 percent of its international students' private loans.

Some international loan programs already require this, however, the Phoenix, Arizona-based company said.

Apollo also said that it had reduced its exposure to $107 million from $365 million in auction rate securities, a market where auctions have failed recently as the credit crunch that started in the subprime market has spread.

Of the $107 million, $79 million could not be liquidated due to failed auctions, but there have been no defaults on the underlying securities and Apollo continues to receive their investment income in a timely manner.

"This is a liquidity issue, not a default issue," Paris said.

Apollo continues to generate positive cash flow and has about $1 billion in liquidity, the company said.

Apollo's shares were down 2.1 percent at $67.70 during early morning trade on the Nasdaq. (Reporting by Helen Chernikoff; Editing by Lisa Von Ahn and Dave Zimmerman)