Thursday, June 2, 2011

Why Are Education Stocks So Strong?

For-profit education stocks surged against a rather gloomy broader market. These companies claimed a victory on Gainful Employment Rules that are much more lenient than expected.

From Star Tribune

The stock of Corinthian College (COCO), which runs The Everest Institute, a chain of medical field for-profits with a location in Eagan, was up 30 percent by mid-day. The Apollo Group (APOL), parent company of the University of Phoenix, was up 10 percent.
Minneapolis-based Capella Education Company (CPLA) watched its stock climb nearly 4 percent. Capella enjoys a good reputation and has not been linked to any of the bad practices that sparked the gainful employment rules. After a long wait, the U.S. Department of Education has issued rules that require public and private colleges which offer career education to prove that they are preparing students for "gainful employment."
The regulations come in reaction to reports of high tuition charges, high pressure sales tactics, high dropout rates and job placements that don't pay enough for students to pay back federally insured loans if they do graduate and find work..................
If students default on government loans, taxpayers must pick up the tab..................................
What are outlined in Gainful Employment Rules?

To qualify for federal aid, the new rules require that "most for-profit programs and certificate programs at nonprofit and public institutions prepare students for gainful employment in a recognized occupation," the education department announced. "A program would be considered to lead to gainful employment if it meets at least one of the following three metrics: at least 35 percent of former students are repaying their loans; the estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income; or the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings."

Schools with programs that don't meet those criteria will have until 2015 to bring them into compliance or risk losing access to federal money to pay for students in the program.

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