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For-profit college stocks slammed on student loan repayment data

August 16, 2010 |  2:13 pm

Shares of for-profit colleges plummeted Monday, continuing a summer-long plunge on deepening fears over a potential federal crackdown on the industry.

Heavy selling hit stocks including Santa Ana-based Corinthian Colleges Inc., which tumbled $1.44, or 22%, to $5.22, and ITT Educational Services, which sank $9.40, or $14.6%, to $54.93.

The Education Department late Friday released 2009 data indicating that many for-profit schools had dismal track records in terms of their students’ ability to repay federal education loans.

From the Institute for College Access and Success, an advocacy group:

The data is extensive and eye-opening. One thing that jumped out at us right away was the difference in student loan “repayment rates” by type of college. At public colleges, 54% of borrowers were paying down the principal on their loans, compared to 56% of those from private non-profit colleges. But at for-profit colleges, only 36% were paying down their student loans -- which means that almost two-thirds of them couldn’t.

The Obama administration last month proposed new rules that could cut off federal loan eligibility for for-profit degree programs that fail to adequately prepare students for “gainful employment.”

The rules “seek to protect students from taking on unsustainable debt they cannot repay and to protect taxpayers from high loan default rates,” the Education Department said.

Sen. Tom Harkin (D-Iowa) has been spearheading a probe of high-pressure sales tactics and other alleged abuses by for-profit schools.

Some of the companies have protested the way the government has calculated loan repayment rates. DeVry Inc. said in a statement Monday that it would “work collaboratively with [the government] to gain clarity on its methodology and reach a resolution on inconsistencies in the data.”

But that didn’t soothe investors, who drove DeVry shares down $3.74, or 8.8%, to $38.97.

Other stocks falling sharply included Strayer Education Inc., off $36.75, or 18.4%, to $163.26, and Washington Post Co. (which owns Kaplan University), down $27.83, or 8.1%, to $315.65.

Many of the stocks now have lost between one-third and one-half of their market value from their spring highs.

-- Tom Petruno

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