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Why For-Profit Schools are Rocketing

Written By Brian Hicks

Posted June 2, 2011

Keep an eye on for-profit education stocks, like ITT Educational (ITT), DeVry (DV), Corinthian Colleges (COCO) and Strayer Education (STRA). 

They’re all rallying higher on the Department of Education’s final “gainful employment” rule, which will protect students from taking on too much debt to attend schools that don’t do a lot for their job prospects.

“Deutsche Bank notes that the effective date where schools lose Title IV eligibility is now really July 2016 and schools now have to fail all 3 tests for 3 years out of 4 to lose eligibility, versus one strike early,” say reports.

Here’s more from The Washington Post:

The Department of Education has finalized its “gainful employment” rule, which will ban for-profit schools like DeVry University or Apollo Group Inc.’s University of Phoenix from accessing federal financial aid dollars if too many of their graduates are unable to find jobs that pay enough to allow them to afford their student loan payments. If graduates owe too much relative to their income, or too few former students are paying back their tuition loans on time, schools stand to lose access to Pell grants and federal student aid. Such a loss would seriously crimp schools’ ability to attract students.

“These new regulations will help ensure that students at these schools are getting what they pay for: Solid preparation for a good job,” Secretary of Education Arne Duncan said Thursday. “We’re giving career colleges every opportunity to reform themselves but we’re not letting them off the hook, because too many vulnerable students are being hurt.”

Most students at career colleges and vocational schools pay tuition with federal financial aid dollars — as much as 90 percent of a school’s revenue can come from government aid. But that leaves taxpayers on the hook if students can’t find good jobs and default on their loans.

And they are defaulting in large numbers.