Corinthian College's shares tumble in response to default rates

Corinthian College's technical college subsidiary, Everest College, will open its new Milwaukee campus in October one block north of the Milwaukee Area Technical College's flagship downtown campus.

This should be good news for Corinthian's stockholders. But last week, shares of Corinthian fell precipitously after Corinthian Colleges Inc. said its already low student loan repayment rates were deteriorating, putting it at risk of losing access to federal financial aid for some programs, its main revenue source.

The Department of Education (DOE) can suspend a school's access to federal financial aid if the default rate is 25 percent or greater for three years in a row. That aid makes up the bulk of Corinthian and other for-profit education companies' revenue.

The DOE study released last Friday showed Corinthian students repay loans at one of the lowest rates among those who attend publicly traded companies' schools. Everest College students had a repayment rate of only 19.2%. The proposed federal regulation would establish a repayment rate standard of 45%.

None of Corinthian's 88 Everest campuses met that standard and eight were below 10%

Corinthian offered a first-quarter forecast Friday that fell below analyst expectations and said it was unable to forecast its fiscal 2011 performance because of uncertainty about the impacts of regulatory changes and its decision to limit student enrollments to improve graduation and loan repayment rates.

Its shares tumbled 86 cents, or 16 percent, to $4.54 in Friday afternoon trading. The stock, which has lost two-thirds of its value in 2010, had not traded below $5 between August 2000 and this week.

Corinthian's bad news pulled down other stock in other for-profit education companies, many of which have made changes to accommodate new regulation and lawmakers' concerns.

For-profit education companies' shares have fallen this year as regulators and lawmakers, led by Senator Tom Harkin, address soaring student loan defaults, aggressive and often fraudulent recruiting by enrollment counselors and concerns about the quality of education the companies provide.

Corinthian expects that the number of its schools with student loan default rates above 25 percent will be "substantially higher" for students beginning to pay in 2009 fiscal year than for the 2008 group. Up to three of the company's schools could become ineligible with the 2009 data, joining 49 already ineligible, Corinthian said.

The company also said it is stopping enrollment of students more likely to default on loans and drop out, who make up 15 percent of its student population. Corinthian expects this change to result in flat new student growth for the year, down substantially from the double-digit growth of the last few years.

Several companies have cut their outlooks when reporting quarterly results recently, saying regulatory changes and efforts to improve the school experience for students will slow enrollments.

The sector's biggest decliners were Education Management Corp. which is also opening a Milwaukee campus, The Arts Institute in the Third Ward, and Lincoln Educational Services, which both tumbled 5 percent.

DeVry Inc., ITT Educational Services Inc. and Career Education Corp. slid about 4 percent.Bridgepoint Education Inc. fell 3 percent, while Strayer Education Inc., Capella Education Co. and Grand Canyon Education Inc. all shed about 1 percent.

Apollo Group Inc., which owns the largest school chain in the country, the University of Phoenix, fell 18 cents to $40.41.