3 Arizona For-profit Schools Fare Well

The University of Phoenix, Grand Canyon University and Universal Technical Institute fared relatively well in a government report on student-loan repayment rates, shielding their stocks from the beating many of their competitors took Monday.

The three publicly traded Phoenix-based schools nearly met or exceeded the minimum 45 percent loan-repayment rate that is a centerpiece of proposed new regulations determining a for-profit school’s eligibility for federal financial aid.

University of Phoenix, the nation’s largest private university and the pioneer in for-profit education, came in at 44 percent for 2009, better than most analysts expected. Grand Canyon University’s rate was 52 percent, Universal Technical Institute’s 54 percent.

Other publicly traded education companies had rates as low as 24 percent. Overall, 40 percent of the more than 1,700 for-profit schools in the report had an average repayment rate below 35 percent, according to Barclays Capital analyst Gary Bisbee.

That made for a rough day on Wall Street for the industry. The four biggest losers on Nasdaq were education companies, led by a nearly 22 percent decline at Corinthian Colleges and a 20 percent drop at Education Management Corp.

In contrast, Universal Technical Institute’s stock jumped 10 percent and shares of University of Phoenix parent Apollo Group rose more than 5 percent. Grand Canyon Education Inc., parent of Grand Canyon University, was up most of the day and closed down 1.5 percent.

The U.S. Department of Education on Friday released the repayment rates in advance of proposed new "gainful employment" rules for for-profit schools. The new regulations, announced last month and due to go into effect in November, are designed to help protect students from taking on too much debt without the prospect of a job that will enable them to pay it back.

The rules will apply only to for-profit schools, not traditional universities like Arizona State University and the University of Arizona, because for-profit schools rely so heavily on student federal financial aid for their revenue. At some schools, including the University of Phoenix, the figure is nearing 90 percent of total revenue – the maximum allowed.

The gainful-employment provision ties a school’s eligibility for federal financial aid to one of two factors: the student-loan repayment rate or the relationship between a graduate’s total student-loan debt and average earnings. For a program to be fully eligible for financial aid, at least 45 percent of former students must be paying down the principal on their loans or the graduates must have a debt-to-earnings ratio of less than 20 percent of discretionary income or 8 percent of total income.

To give for-profit schools an idea of where they stand, the department released student-loan repayment rates for 2009. The rates are for the overall school, not individual programs of study, which is what the rules will be based on.

The education department did not publish any debt ratios.

Some schools and analysts criticized the data.

Trace Urdan, who follows education companies for the investment bank Signal Hill, called the data "squirrelly" in a report. He and others said it excludes, for example, student loans that were consolidated but are still being repaid.

Urdan also suggested it is unfair to base only for-profit schools’ financial-aid eligibility on the repayment rate, noting that Harvard Medical School would be ineligible based on its 24 percent repayment rate for 2009.The overall repayment rates for Arizona’s three state universities: 47 percent at Northern Arizona University, 55 percent at Arizona State University and 58 percent at the University of Arizona, according to the education department.

A Department of Education spokeswoman said officials have heard some of the concerns about the data and are looking into it but have yet to find problems.


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