Pell-Grant Cuts Could Threaten For-profit Ed

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Bridgepoint Education (BPI), Lincoln Educational Services (LINC), Strayer Education (STRA) and Corinthian Colleges (COCO) have the highest revenue exposure among for-profit educators to government Pell Grants, which could be under threat in the current budget negotiations, according to a report by Height Analytics.

Each of the four schools gets more than 25% of revenue from the grants.

While 2011-2012 Pell Grants will likely be preserved, subsequent award years are in peril in the budget negotiations, wrote analyst Jarrel Price.

Price says that it's too difficult to determine the exact impact to individual schools and enrollments, but he argues, the market isn't likely to look at it that way, at least initially.

“We believe the market will first conclude that cuts to Pell Grants will most impact schools that receive high percentages of revenue from the program because, not only would there be a direct reduction in the revenue stream, but the lost funding could result in a decline in enrollments,” Price wrote.

“However, there is some debate about the extent to which enrollments are inelastic and for-profit students will replace the lost grant funding with loans.”

Apollo Group (APOL) and Universal Technical Institute (UTI) both have more than 20% of revenue exposure to Pell Grants.

For the most part, stocks in the sector have shown little movement during the trading session today.

BARRONS

Sources: 
Barron's