Reuters announced that The Department of Education new regulations, known as the "gainful employment rules" were sent to the Office of Management & Budget (OMB) on May 3rd. It is the last of many rulings on how to regulate for-profit education schools so that they are more accountable to their students in regards to U.S. government dollars spent on school loans. Already finalized are new rules to regulate recruiting practices, graduation rates & job placement.
According to MSN,
"For-profit colleges are facing scrutiny from regulators and lawmakers who say some universities aren’t adequately preparing students for employment and graduates can’t repay their federally backed loans."
"No additional information regarding the potential timing of a final ruling was made available; however, we note that when the initial draft of the gainful employment rule was submitted to the OMB last October, its review took approximately 10 days."
"Finally, department officials have been silent on the ultimate implementation date in recent months, despite a six-month delay in its ruling. We assume that adoption of the gainful employment proposals will remain at the current July 2012 date."
For-profit schools have been lobbying to get the final ruling deferred or weakened. There is a movement to get the legislation delayed. They have even impuned Steven Eisman lobbying for the passage of this regulation to short this sector. A citizens group has written, "Given the ongoing IG investigation, the potential for an SEC investigation, and the significant congressional concern, why rush the regulation out? What if the IG investigation reveals the regulation was, as it appears, improperly promulgated? Would it then be revoked? Public confidence in Education’s regulatory process has been shaken. The department would do well to wait for the results of the IG investigation before deciding whether and when to publish the gainful employment regulation."
What happens if they succeed in delaying or scratching these rules?
Many schools have already implemented new pilot programs for these regulations. Many have already taken the initial disruptions early and will see improvement throughout the year as things stabilize.
Lincoln Educational Services Corp. (LINC) has the best Benjamin Graham Value number but it's profits fell for this last quarter and guidance was restated downwards. They took the pain early and will see improvement throughout the year as the disruption stabilizes. They have no buyback program & instead offer dividend 6.20% yield.
Bridgepoint Education, Inc. (BPI) bucked the trend. Their last quarter was a beat, although this company is not as good a value play. For-profit colleges are permitted to get as much as 90 percent of their revenue from U.S. student grants and loans.
[Edit: There is a perception floating around that BPI has fewer Title IV students than other for-profits. According to their 10K filing, "In the years ended December 31, 2010, 2009 and 2008, Ashford University derived 85.0%, 85.5% and 86.8%, respectively, and the University of the Rockies derived 85.9%, 84.6% and 80.8%, respectively, of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department regulations) from federal student financial aid programs"
But that doesn't negate the premise, necessarily. ]