NEW YORK (
) -- Educations stocks are rallying again on Friday as closure is finally provided on a major regulatory change that has been in the works from the Department of Education since the beginning of the year. The new regulation covering student loan debt racked up by students at for-profit education companies is being seen as less restrictive than the original plan from the Department of Education, leading to the surge in trading in these education stocks. These institutions collect a significant percentage of revenue from federal student loan money, yet their students have higher loan default rates than students at private and public institutions.
have been among the market's most volatile stocks -- not even to mention favorites of short sellers -- as new regulations from the Department of Education were expected to restrict the ability of these for-profit institutions to access federal student loan money.
Shares of Education Management and DeVry were up 10% on Friday. Bridgepoint Education was up close to 8% midday Friday.
was up 6.5% on Friday. The gains were more modest in the rest of the education stock sector, with Apollo Group up 5% for the next largest gain.
The Department of Education held a conference call on Thursday ahead of the planned Friday release of the major piece of the new regulation still missing: a formula tying access to student loan money to the student loan debt racked up by an institution's students, and the student ability to repay that debt. On June 15, the Department of Education releases its proposal for these educations companies, except for the component related to student loans.
Earlier this week, when there were whispers in the markets that the Department of Education student loan formula would not be a harsh as originally proposed, the education stocks shot up.
The original formula from the Department of Education would have ended aid to an institution when a majority of graduates of these for-profit companies were using more than 8% of income for student loan repayment.
The Department of Education's revised rule replaces the 8% cap with a two-part test. Institutions whose graduates carry debt-to-earnings ratios of less than 20% of discretionary income or 8% of total income, and where at least 45% of former students (graduates and non-graduates) were paying down the principal on their loans, would not see any restriction in access to federal student loan money.
Institutions where graduates have debt-to-earnings ratios above 30% of discretionary income, and 12% of total income, and where fewer than 35% of former students were paying down principal on their loans, would not be eligible for federal student loan aid.
Programs that fall in between might see enrollment limited, be forced to highlight to students the risk of student loan default, and be required to show that they had relationships with potential employers for their graduates.
The rules are slated to go into effect for the 2012-2013 school year.
-- Written by Eric Rosenbaum from New York.
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