And we’re not just talking about national zookeepers.
Here’s a Steve Eisman-friendly tidbit from the government shutdown negotiations, courtesy of the Higher Ed Watch blog on Saturday:
Higher Ed Watch has learned that the last-minute budget deal that the White House and Congress reached late last night does not include a controversial provision that would have blocked the U.S. Department of Education from issuing a regulation that aims to prevent for-profit colleges from overloading financially needy students with unmanageable levels of debt. Assuming that this tentative agreement sticks, the Education Department will remain free to finalize its proposed “Gainful Employment” rule.
FT Alphaville has worried about default and delinquency rates amongst ex-students at for-profit college here and here. The Gainful Employment rule is the most disputed of proposed Department of Education regulations on the industry.
As originally proposed, the rule reduces or eliminates federal funding to college programmes that have low overall repayment rates and/or students for whom repayments are a large proportion of income. It also requires colleges to disclose current repayment difficulties to future students.
The DofE is still to submit the final rule to the Office of Management and Budget, so we don’t yet know the details and which firms this could involve. Back in July 2010, the department estimated that 5 per cent of programmes could be ineligible for federal funds and 55 per cent would have to forewarn students of ex-students’ repayment troubles (but it has been through several revisions since then).
There’s still a chance that the rule could yet be blocked, and industry lobbyists are still arguing that it unfairly punishes colleges that take on the hardest to reach students. But at pixel time the share prices of for-profit college companies were down across the board — with Corinthian Colleges down just over 8 per cent.
In a quick report out on Monday Citi analysts rightly note that the news is “Mixed For Schools, But Positive For Students”.
… “un-defunding” GE paves the way for ED to move ahead with its agenda of tying For-Profit programs to debt service limits (a positive for graduating students, but potential growth and margin headwind for schools). We continue to believe that regulation is a necessity in this sector and that high quality programs with low default rates and low tuition, like American Public Education ((APEI.O; US$41.95; 1H), should thrive in this environment. Companies with the most risk to GE include APOL, ESI, CECO, DV and COCO, in our view (though APOL’s relatively high Repayment Rate and efforts to change its student mix may help partially offset the overall risk).
Related links:
The biggish short — subprime student loans - FT Alphaville
Student loans: debt, defaults and delinquents – FT Alphaville