NEW YORK ( TheStreet) -- After meteoric growth in the '90s, the for-profit education sector has come under intense government scrutiny that's sent shock waves through the sector -- with fallout especially noticeable this past week.
Federal regulators believe the problem goes beyond a few badly managed schools. And in a recent S&P report on the sector, analyst Christopher Thompson warned that because many for-profit schools are publically traded, their financial struggles are transparent. Thompson said, "This can lead to more instances of weekly capitalized for-profits succumbing to the concurrent pressures of a declining stock price and limited access to government funding."
One of the most spectacular failures was the recent demise of Corinthian College (COCO), which recently shuttered the last of its college campuses and declared bankruptcy, ending a 20-year run as one of the country's largest for-profit centers for higher education.
The death knell for Corinthian sounded last fall when the Consumer Financial Protection Bureau sued the company, claiming that it lured thousands of students to take out private loans to cover expensive tuition costs by convincing them that lucrative job opportunities awaited them after graduation.
The CFPB claimed that Corinthian used job-placement agencies to temporarily hire graduates, some for as short a stretch as one day, in order to inflate placement rates. Corinthian also was alleged to have used illegal debt-collection tactics, barred delinquent students from access to classes or education services and refused to give graduates their diploma if they were late on their payments. Hit by multiple government suits, Corinthian lost its pipeline to government funds, according to The Washington Post.
With little to no revenue and its future looking bleaker by the day, Corinthian found its share price plummeting from $1.76 at the start of 2014 to just a fraction of a cent at the beginning of this month.
After the recent closure and bankruptcy of Corinthian College, two more for-profit colleges headed for the exits this week. Education Management Corp. (EDMC) said it will gradually close 15 of its 52 Art Institute campuses. And Career Education Corp. (CECO) announced a restructuring plan that includes selling all but two of its university holdings.
The CFPB also filed a lawsuit, in July, against ITT Education Services (ESI) for misrepresenting its employment statistics and pushing students into high-cost private student loans. Since then, shares of ITT Educational Services have lost 74% of their value.