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For Investors, It Pays to Skip School Stocks

Although those regulations, which track post-graduation employment and wages and tie them to student loan defaults, "turned out to be less severe than those originally proposed, we still believe this rule will be the most challenging of the group of newly created regulations," Jaffe said.

Federal student aid programs can account for as much as 90% of some for-profit colleges' revenues so the threat of a loss of part or all of such programs could be a serious blow.

The pressure of having to significantly reduce those loan default rates are forcing for-profit schools to toughen their admissions and loan eligibility standards, which will put a big dent in the size of their student body and crimp their profits.

The new regulations take effect in July, but deficient schools' programs will get three years to improve default rates before they lose their eligibility for government-funded programs.

But that's not the only regulatory challenge on the horizon, as last week a bill was introduced in Congress that would prohibit colleges from using money from federal student assistance programs to pay for advertising, marketing and recruitment.

For-profit schools spend an average of a quarter of their revenues on advertising, marketing and recruiting students, which in some cases approaches what they spend on instruction, according to a recent Senate report, which also found that they have spent a combined $3.7 billion annually on marketing and recruiting.

Further undermining potential students' views of the value of post-secondary education are the negative experiences of recent college graduates of both non-profit and for-profit schools. The Associated Press reported Monday that in its recent survey of young college graduates, half said they are either jobless or underemployed in positions that don't fully use their skills and knowledge.

It also found that median wages for holders of bachelor's degrees are down from 2000 and that the job prospects for bachelor's degree holders fell last year to the lowest level in more than a decade.
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