Bridgepoint Education Inc (BPI.N) was unexpectedly denied an accreditation for its university, threatening the for-profit education provider's ability to attract students for its programs.
The company's shares fell as much as 34 percent to a 20-month low of $14.24, making the stock the top loser on the New York Stock Exchange.
Bridgepoint, which wants to switch its accrediting body to the Western Association of Schools and Colleges from the Higher Learning Commission, said the WASC found Ashford University not complying with its standards. Ashford University makes for most of the company's student population.
The rejection heightens concerns that the company might lose its accreditation with the Higher Learning Commission as well. The company in a regulatory filing on Monday said it had received a deadline from HLC to comply with certain requirements.
A loss of accreditation could lead to the company losing federal student aid, which accounts for more than 70 percent of revenue for most for-profit colleges.
A letter on the WASC website said Bridgepoint fell short on its standards regarding student retention, program review and full-time faculty members.
The accrediting body noted that the university spends a nearly a third of its money on recruiting students, which is far more than what it spends on faculty, student services and academic support.
The WASC said even though Bridgepoint had made progress on these issues after being notified, the impact of these pilots could not be measured yet.
The San Diego, California-based company mentioned in the regulatory filing that the HLC requires Ashford University to demonstrate "substantial presence" in the 19-state north central region by December 1 this year.
Failing to do so could result in reconsideration of accreditation by the HLC, the company said. The HLC's next evaluation is scheduled for 2014-15.
"Regional accreditation is thought to be something that allowed Bridgepoint to grow, as they have very good transfer credits and majority of its students are transferred in," said analyst Rob Young of WM Smith Securities.
Total student enrollment at Bridgepoint was up 11 percent at 86,642 in 2011. This growth contrasts a fall in enrollment reported at most other colleges.
"The challenge that this rapid growth and enrollment model present to management, quality (and) student access cannot be overstated," the letter from WASC said.
The commission said Ashford has experienced dramatic growth in a short time — moving from 10,000 students in 2007 to nearly 100,000 students in 2012.
Bridgepoint intends to appeal the decision and also reapply for initial accreditation with the WASC, the company said. However, it added the WASC could act on the reapplication only in June next year.
Most analysts do not expect Bridgepoint to lose out on accreditation.
Trace Urban, an analyst with Wells Fargo, said Ashford's academic quality is as deserving of regional accreditation as any comparable open access institution.
Bridgepoint shares were down 26 percent at $15.97 in afternoon trading.
(Reporting by Megha Mandavia in Bangalore; Editing by Maju Samuel and Saumyadeb Chakrabarty)