February 18, 2011 / 11:11 PM / 9 years ago

UPDATE 1-US House votes to block key education rule

(Adds details, comments, background)

By A. Ananthalakshmi

BANGALORE, Feb 18 (Reuters) - The U.S. House of Representatives voted to block the Department of Education from pursuing the implementation of the proposed gainful employment rule that could cut-off for-profit colleges’ access to federal student aid.

The Republican-controlled House voted 289-136 to a bipartisan amendment introduced by John Kline, chairman of the House Education and the Workforce Committee.

“By blocking the administration’s regulation, we prevented an unnecessary hurdle to important skills and training at a time when workers need every advantage to succeed in the workplace,” Kline said in a statement following the House vote.

BMO Capital Markets analyst Jeff Silber said the passing of the amendment showed the broad support the industry and others have gained against the rule.

However, the colleges face a tougher battle getting the amendment passed in the Senate, which is controlled by Democrats.

Tom Harkin, head of the Senate Health Education Labor and Pensions Committee, has been leading the push in Congress to tighten regulation on for-profit schools.

“I don’t think one could declare victory yet for the industry,” Sterne Agee & Leach analyst Arvind Bhatia said. “It is going to be a tough road to get this through the Senate.”

The Senate is expected to vote on the amendment in the week of Feb. 28, according to analyst Silber.

The proposed rule ties federal aid to colleges proving they are doing a better job of preparing students for work. Programs that fail to offer good job opportunities stand to lose federal funding — the primary source of revenue for many colleges.

The gainful employment rule is part of a larger package of rules introduced by the Obama government aimed at making for-profit colleges more accountable for the $145 billion in federal funds they get for student aid.

The rule would restrict access to federal aid for over 2 million students at private-sector colleges and universities in the next 10 years, according to The Association of Private Sector Colleges and Universities.

For-profit colleges have been lobbying heavily over the last few months to either get the rule scrapped or at least weaken it before a final version comes out.

The gainful employment proposal was delayed last year after it received a large number of comments — about 90,000 — calling for delaying the rule. It is expected to be finalised in early part of this year.

The S&P 1500 Education Services Sub-Industry index closed up 4.64 percent on Friday on the news. For-profit colleges have indicated that the gainful employment rule could hurt their growth significantly.

Market leader Apollo Group’s stock closed up 5 percent on Nasdaq. American Public Education’s shares closed up 24 percent after it reported strong student starts.

“My inclination is that this is short lived and the move in the stocks today is a head fake,” analyst Bhatia said. (Reporting by A. Ananthalakshmi in Bangalore; Editing by Roshni Menon)

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