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Corinthian Miss Drags on School Stocks

Delinquency of student loans is likely to slow student growth at Corinthian Colleges. The for-profit school forecasts weaker-than-expected earnings and may lose federal aid for student loans.

Editor's note: This article has been corrected to reflect that the weighted average rate for the Washington Post's Kaplan is 28%.

SANTA ANA, Calif. (


) -- Shares of

Corinthian Colleges


tumbled sharply Friday, dragging sector peers




Strayer Education

(STRA) - Get Report

down with it, as fears mounted the for-profit post-secondary education companies may become ineligible for federal aid under newly proposed legislation.

Corinthian Colleges also forecast earnings guidance well below Wall Street's expectations.

The school operator's shares plummeted 15.6% in morning trading Friday at nearly triple their average volume, dragging the rest of the sector along with it. Shares of DeVry lost 5.8%,

Apollo Group


2.1%, Strayer Education 2.4% and Kaplan-operator

Washington Post



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A number of for-profit colleges saw share prices tumble earlier this week on concerns about tighter regulations for student loans. Worries were amplified after data showed nearly two-thirds of for-profit colleges' students were not repaying their loans.

Corinthian averaged repayment rates in the low 20s last year, meaning it could lose its eligibility for federal aid for student loans. The company said it would limit enrollment of new students more likely to default on their loans at some of its colleges, but high-risk students accounted for almost 15% of its total student population in the recent quarter.

Corinthian said it expects first-quarter pro-forma new student growth of less than 2%.

Repayment rates at for-profit schools were just 36% in fiscal 2009, according to research from the Institute for College Access and Success, a student-advocacy group. At private nonprofit schools the repayment rate was 56%, and at state colleges and universities the rate was 54%.

Under the Department of Education's proposed "gainful employment" rule, federal aid would be cut for schools where less than 45% of students are able to repay their loans. Additionally, schools would only be eligible for federal aid if student debt remains below 8% of total income or below 20% of discretionary income.

The Higher Education Act of 1965 requires that programs in need of federal aid must provide their students "gainful employment in a recognized profession."

DeVry averaged repayment rates of 40% at its universities last year. Strayer Education, like Corinthian's Everest colleges, averaged in the low 20s. The Washington Post's Kaplan came in slightly higher at weighted average of 28%, the company said.

At those levels, Strayer, Kaplan and Everest colleges would be ineligible for federal aid if the proposed legislation is enacted.

Santa Ana, Calif.-based Corinthian, which operates in 24 U.S. states and the Canadian province of Ontario, grew fiscal-fourth-quarter profits by 46.1% to $33.9 million, or 38 cents per share, up from $23.2 million, or 26 cents per share, in the year-earlier period.

Despite the marked improvement, Corinthian's earnings missed expectations for earnings of $34.4 million, or 39 cents per share.

Corinthian expects first-fiscal-quarter earnings per share in a range between 38 cents and 41 cents, while analysts' consensus call is for earnings of 45 cents per share.

Revenue came in at $482.7 million, up 36.5% from $353.5 million in the fourth quarter of fiscal 2009, and beating expectations for revenue of $477.1 million.

-- Reported by Miriam Marcus Reimer from New York.

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