For-profit college shares dropping as ED rules approach

For-profit schools take in billions in federal financial aid every year.

A proposal for tougher standards in the for-profit college sector has sent shares of the predominantly-online institutions tumbling, and for-profit school officials are lobbying the U.S. Education Department (ED) to reconsider a new set of regulations that could kick into effect soon.

Several analysts have sounded warnings in recent weeks, concerned about for-profit colleges’ ability to sign up new students and access government-backed financial aid due to increased scrutiny.

Apollo Group Inc., which owns the University of Phoenix, the country’s largest for-profit higher education chain, said that ED is launching a review of how Phoenix administers federal financial aid.

The announcement comes not even five months after the conclusion of another review that cost the school $1.8 million in repayments. The new review will cover the period from the 2009-2010 aid year up to the present.

Program reviews are fairly common, and the launch of a review doesn’t mean a school has violated financial aid rules. Yet back-to-back reviews in the past are unusual, said UBS analyst Ariel Sokol.

ED Secretary Arne Duncan has reassured for-profit college leaders that their institutions will play an important role in President Obama’s goal for the U.S. to have the highest proportion of college graduates in the world by 2020.

Duncan, who spoke at last spring’s DeVry Inc. public policy forum, has also said the sector has “bad apples” that are using misleading and aggressive recruiting practices that burden students with loans they can’t pay.

“The perception perhaps has been that ED has been asleep at the wheel” regarding oversight of the schools, he said. “In that context, it’s not surprising.”

A Government Accountability Office (GAO) report in August found misleading recruitment practices at 15 schools, which ED said it could use to act upon.

Such reviews could result in fines or restricted access to government-backed financial aid, which makes up the bulk of the schools’ revenues.

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