NEW YORK – Shares of for-profit education companies slid Monday as government data showed that many of their students aren’t repaying school loans, which could imperil the ability of their students to receive federal financial aid, the bulk of the schools’ revenue.
Several schools contested the government’s methodology, but that couldn’t stop shares of the companies from tumbling to their lowest points in a year or more.
For-profit schools offer a wide range of programs and certificates, from associate’s degrees in the culinary arts at Career Education Corp.’s Le Cordon Bleu to MBA degrees from the Apollo Group Inc.’s University of Phoenix.
The government released financial aid repayment data from more than 8,000 schools including for-profit, private and public colleges, as an example of how it will decide to grant access to government-backed financial aid. The Department of Education has been focusing on the schools, promising greater oversight and tougher rules. The industry has been the subject of a string of high-profile hearings in the Senate and a report by the Government Accountability Office that chronicled allegedly misleading and, in some cases, fraudulent recruiting tactics.
But several companies say the government’s complicated formula misrepresents their students’ repayment rates. The repayment rate is a key component of a proposed “gainful employment rule” that would link student debt burdens and repayment rates to schools’ access to federal financial aid.
“The validity of the (DOE)’s ‘data dump’ is suspect, in our view, given the shockingly low repayment rate for Strayer University,” said Jeffrey Silber, an analyst with BMO Capital Markets.
Strayer Education Inc. has said in the past it believed its programs would pass the government’s test and calculated its own student debt repayment rate at 55.4 percent, rather than the DOE’s finding of 25 percent.
