September 23, 2010 / 6:58 PM / 9 years ago

Regulation on for-profit schools could be delayed

BANGALORE/WASHINGTON (Reuters) - The U.S. Education Department’s schedule for implementing proposed regulations on for-profit schools is not final, according to a media report that caused share prices in the sector to rise.

“We are keeping our options open,” Education Secretary Arne Duncan was quoted as saying when asked about a possible delay in finalizing the regulations. His comments appeared in a blog run by Washington publication The Hill.

The remark pushed up share prices for the schools, which have been volatile on news that the Education Department may declare some programs ineligible for financial aid.

Shares of Corinthian Colleges were up 10.53 percent at midafternoon at $6.80. Apollo Group was up 2.91 percent at $51.91. DeVry Inc was up 3.7 percent at $45.96 and Career Education Corp was up 6.22 percent at $22.01.

The share prices rose on hope that the Education Department would push back plans to implement the rules.

“There has been a hearing scheduled for next week in the senate. ... I think there is a continued optimism perhaps that the gainful employment rules maybe delayed or perhaps modified. And I think that is what is driving the group up a little bit,” said ThinkEquity LLC analyst James Maher.

The Education Department declined to comment on the scheduling. “Tomorrow we will announce our timeline for moving forward with gainful employment,” said spokesman Justin Hamilton in an email.

The scrutiny follows criticism that the schools produce poorly prepared students with big debts, often financed with federal aid.

The department’s proposed rules said for-profit schools would have to prove that their former students were either paying off loans or were capable of doing so in order for the schools’ current students to receive federal loans. Duncan has predicted that 5 percent of programs would lose those funds.

Under the proposed rules, the federal government would no longer lend to programs if more than 65 percent of former students failed to pay the principal on federal loans, and if their graduates’ debt was more than 30 percent of discretionary income and 12 percent of total income, the department said.

The department is also tightening rules against deceptive advertising and would close loopholes on paying recruiters in hopes of removing incentives for them to enroll unqualified pupils or deceive prospective students.

The institutions would be required to ensure that their students have a valid high school diploma or otherwise show that they are ready for college.

For-profit schools enroll around 12 percent of all U.S. post-secondary students, but receive 23 percent of all federal student aid.

Reporting by Megha Mandavia in Bangalore and Diane Bartz in Washington; Editing by Saumyadeb Chakrabarty, Vyas Mohan and Robert MacMillan

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