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When Disaster Strikes: Corinthian Colleges Loses CEO After President Leaves (COCO, APOL, STRA, EDMC, CECO)

The battering continues among for-profit colleges. Faced with federal rules changes that could affect their ability to secure student loans, the colleges have seen their stock prices tank in the past 12 months. The biggest loser has been Corinthian Colleges Inc. (NASDAQ: COCO), which has watched its share lose more than 70% of their value.  That loss doesn’t look like it will improve any, as the company’s CEO resigned last night, just a month after its president/COO also resigned. The former CEO will take over the CEO’s role, but no replacements are expected to be hired.

Another for-profit player, Apollo Group Inc. (NASDAQ: APOL), which owns the University of Phoenix, has announced that it will lay off 700 employees at its campuses, mostly in its admissions offices. Apollo expects to save about $8 million a quarter in salaries and will take a charge of about $5 million against quarterly earnings in its quarter ending today.

New rules for student loans would link eligibility with loan repayment rates has hit all the for-profit schools hard. DeVry Inc. (NYSE: DV), Strayer Education Inc. (NASDAQ: STRA), Education Management Corp. (NASDAQ: EDMC), and Career Education Corp. (NASDAQ: CECO) have all experienced share declines from -20% to -40%.

Another proposed rule change that is having its impact is a prohibition against paying admissions officers for enrolling more students. These bonus payments led to the for-profit colleges receiving almost 23% of available federal grants and loans in 2008-2009, while enrolling only about 12% of students.

The bleeding could stop, or at least slow down, after the new Congress goes into session next year. Several Republican party senators have objected to the way the Department of Education has handled the unveiling of the new regulations. Senator Enzi of Wyoming has charged the Department with “beating up” the for-profit schools.

Still, schools should not expect a big change because investigations have been started in some states to determine if, in fact, the for-profit schools mislead students. No serious politician wants to stand up for con-men.

Corinthian’s problem is that it exceeds a hard limit of 90% on the amount the federal government will pay in the form of grants and loans for enrolled students. The only way it can meet the federal rules is to enroll fewer students. That will stunt the school’s growth and drive its share price down even more.

Corinthian’s share price is off about -2% so far this morning, and the shares are approaching their 52-week low of $3.91, set less than a month ago.

Paul Ausick

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