NEW YORK (

TheStreet

) -- Stocks in the for-profit education sector were mostly higher Friday, with shares of

Grand Canyon Education

(LOPE) - Get Report

jumping 6.2%.

For-profit schools traded sharply lower over the summer when the U.S. government proposed regulations that were seen as a threat to the industry's booming earnings growth. Those same stocks jumped in the past few trading sessions, suggesting investors may have dumped the companies' shares too early.

Leading the group high Friday afternoon was

Career Education

(CECO) - Get Report

, up 5.3%,

Education Management

(EDMC)

, up 4.1%,

Lincoln Educational Services

(LINC) - Get Report

, up 4%, and

ITT Educational

(ESI) - Get Report

, up 3.5%.

Princeton Review

( REVU) bucked the trend, falling 1.4%.

Shares of Education Management skyrocketed on Thursday after the for-profit school, speaking at conference hosted by BMO Capital, said its graduation rate of 41% was "above that of schools with similar Pell Grant use in both the not-for-profit and for-profit schools."

Career Education forecast sales growth of 15% this year, with expectations for operating profit margins between 17% and 17.5%, and said it was "prepared to adapt" its business model based on the Department of Education's recently proposed gainful employment regulations.

Lincoln Educational Services said new regulations are likely to have a short-term impact on its business, and remained confident in its own long term growth.

The

S&P 1500 Education Index

, which tracks the industry, was up 11% this month through Tuesday, while the benchmark

S&P 500 Index

rose 6.8%.

Apollo

(APOL)

, the largest company in the industry and parent of the University of Phoenix, jumped nearly 13% in September after losing half its value over the summer.

The industry index dove 34% from June through August, a retreat that began after the Obama administration announced June 16 that it would seek regulations aimed at stanching for-profit schools' high rate of student-loan defaults and curbing their aggressive marketing practices.

>>Corinthian Miss Drags on School Stocks

That was followed by a series of proposals to meet those objectives from the Department of Education, including one that would reduce schools' ability to make federal loans based on the rate of their students' loan defaults.

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 provide their students "gainful employment in a recognized profession."

Since as much as 90% of for-profit schools' revenue is tied to government loans, losing the right to offer them would be devastating to earnings.

The Education Department also issued its calculations of student-loan-repayment rates for specific schools in August in an attempt to preview its suggested rules' potential impact. That also roiled shares since it showed that most companies are not in compliance.

DeVry

(DV)

averaged repayment rates of 40% at its universities last year.

Strayer Education

(STRA) - Get Report

,

Corinthian's Everest colleges

(COCO)

and

Washington Post's

(WPO)

Kaplan averaged in the 20s.

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

For now, the industry's investment prospects remain cloudy since the Education Department has to walk a fine line in its attempts at reform. Although critics have suggested that loose student-loan practices have created a scenario similar to that seen prior to the sub-prime mortgage bubble, the Obama administration has done much to emphasize post-secondary education's role in retraining workers to meet the demands of a changing economy.

Although there will probably be some casualties due to reforms, what is clear is that the for-profit education industry is not going to go away since it now serves an estimated 12% of the nation's post-secondary students. And that number should continue to grow as budget cuts force public and non-profit schools to cut their offerings.

In related news, shares of

Student Loan

( STU) skyrocketed more than 40% Friday on reports that

Discover Financial Services

(DFS) - Get Report

will pay $600 million, or $30 per share, to acquire the loan provider.

>>Student Loan Soars on Buyout Talk

Student Loan, an indirect subsidiary of

Citigroup

(C) - Get Report

, will sell $28 billion of assets to

Sallie Mae

(SLM) - Get Report

and $8.7 billion of assets to

Citibank

, Citigroup's retail banking operations, and "will explore opportunities to reduce these assets over time," Citigroup said.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here:

Miriam Reimer

.

>To follow the writer on Twitter, go to

http://twitter.com/miriamsmarket

.

>To submit a news tip, send an email to:

tips@thestreet.com

.

READERS ALSO LIKE:

>> 18 Overbought Stocks to Sell Now

>> School Stocks: Winners & Losers

>> 18 Dividend Stocks Increasing Payouts

>> Bankruptcy Watch: 20 Riskiest Restaurant Stocks

>> Bankruptcy Watch: 10 Riskiest Hotel Stocks

>>See our new stock quote page.

Get more stock ideas and investing advice on our sister site,

Stockpickr.com.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.