For-Profit College Investors Cheer Education Dept Proposals
NEW YORK (Dow Jones)--For-profit college investors applauded the U.S. Department of Education's announcement Wednesday of a number of proposed reforms covering higher education, though analysts warn stocks could see pressure down the line as one issue remains unresolved.
The government-proposed reforms cover 13 major shortcomings in higher education, but the department said it will hold its recommendations on the 14th--a measure that would penalize schools for graduating students with high debt loads--until later this summer. Investors were excited to see the government take a more studied approach after industry lobbyists warned the proposal could "crush" the for-profit school sector.
Shares of DeVry Inc. (DV), a school some analysts say would be hit hard by the delayed proposal, were recently trading up 2% to $57.48, while Apollo Group Inc. (APOL) gained 2% to $49.27. American Public Education Inc. (APEI) was up 1.2% to $46.81 and Capella Education Co. (CPLA) climbed 1.2% to $86.62.
The delayed proposal, intended to judge schools on how well they prepare students for gainful employment in a recognized occupation, was expected to force many programs to cut tuition or even shut down entirely. The Education Department has recommended that programs disclose job placement and graduation rates, as well as student debt loads, by June 2013, but said it will continue to study possible metrics by which to judge school success and will release another proposal on that subject later this summer.
"Some key issues around gainful employment are complicated and we want to get it right so we will be coming back with that shortly," Education Secretary Arne Duncan said in a statement.
While stocks are expected to react positively to the delay, analysts warn that the schools aren't in the clear yet. The House Committee on Education and Labor will hold a hearing Thursday on higher education accreditation, convened after the Education Department's Office of Inspector General blasted an accrediting group for giving clearance to a Career Education Corp. (CECO) school despite expressing concerns over its credit hour structure. And the Senate Health, Education, Labor and Pensions Committee will hold a series of hearing beginning next week on federal education spending at for-profit schools.
Career Education was off 1.5% to $26.50 in recent trading.
Amy Junker of Robert W. Baird & Co. said that while pushing out a decision on gainful employment may help stocks for now, "We remain cautious unless the topic is eventually removed or significantly watered down."
Not all the government's proposals were seen as positives. The administration recommended eliminating 12 "safe harbors" from a ban on incentive compensation,