NEW YORK (
) -- Stocks in the for-profit education sector were widely spread Tuesday after
became the latest sector player to warn of softer student enrollment.
Capella posted an increase in profits and revenue for the third quarter. In its forward-looking statements about the current quarter, Capella cautioned that "new enrollment is anticipated to be slightly down from fourth quarter 2009, due to an increasingly challenging external market environment."
Capella's cautionary outlook led its shares to tumble 17.8% Tuesday afternoon. Shares of
Grand Canyon Education
Among sector gainers in Tuesday's session were
ITT Educational Services
Capella's warning echoed similar statements in recent weeks from ITT Educational Services and Apollo Group.
ITT said last week that new student enrollment fell in its recent quarter for the first time in several years -- by 3.9% to 26,664. Revenue per student also fell by 2.5% to $4,730.
Apollo warned a week earlier that enrollment would be down more than 40% in fiscal 2011's first and second quarters.
The for-profit education sector has been experiencing "a hard reset," said Herb Greenberg on CNBC last week.
For-profit schools traded sharply lower over the summer when the U.S. government proposed regulations that were seen as hurting the industry's booming earnings growth. The Obama administration argues that for-profit schools like Apollo,
Everest colleges parent
and a number of their peers saddle their students with debt yet leave them unequipped for the job market and a means with which to repay the hefty loans.
Tuesday morning Greenberg commented on ITT's board's recent decision to buy back five million of its shares. "This makes zero sense to me because the company has told investors it really doesn't know how it'll be affected by new Education Department rules, a giant chunk of which are expected to be published any day now."
In a regulatory filing, ITT conceded that "there are many open questions and interpretive issues with respect to the proposed regulations related to gainful employment, including questions as to the availability of, and the ability of institutions to obtain and verify, the information needed to calculate the applicable metrics," adding that "due to the unavailability of data, we cannot predict with any certainty which or how many of our programs of study would be restricted or ineligible under the Title IV Programs."
Gainful employment rules are expected to be published sometime in early November.
Greenberg also pointed out that Apollo Group "withdrew guidance entirely for next year because it said there was simply too much uncertainty."
S&P 1500 Education Index
, which tracks the industry, 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.
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.
Worries were amplified after data showed nearly two-thirds of for-profit colleges' students were not repaying their loans. 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."
-- Written by Miriam Marcus Reimer in New York.
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