Politically Agnostic

Gainful Employment Ruling Favorable

The website www.thestreet.com has a good summary and follow-up of the latest favorable ruling on the for-profit school sector.

"Education regulations proposed last summer cover everything from restricting incentive-based recruiting practices, the need for new job-training courses, taking action against schools which fail to advertise honestly, to requiring schools to notify students of graduation and job placement rates. Institutions would also be required to limit student enrollment to those who have high school diplomas or can readily demonstrate their readiness for university-level education. Schools must also comply with what is called the 90:10 rule in fiscal 2012, a rule stipulating that no more than 90% of a for-profit education provider's revenue may be generated from the DOE's federal student aid program."

"The DOE expects 18% of for-profit school programs to fail its compliance regulations, with 5% losing eligibility for federal funding under the finalized new law."

Businessweek.com  puts [it] in plain English:

If a school fails all three measures, it must inform potential students. 
If a school fails three times within four years, it loses access to federal student aid for at least three years. 
Under the new rule, the soonest that a delinquent program would lose eligibility for federal student aid is 2015" 

Enthusiast
www.thestreet.com continues:

"Analysts at Credit Suisse said the final gainful employment regulations eased more than expected, but the firm maintained that significant earnings risks in 2012 and 2013 persist. Piper Jaffray analysts said the final ruling was less threatening than originally expected, and generally positive for stocks in the sector.

The firm tapped Bridgepoint Education(BPI_) and Grand Canyon(LOPE_) as its top sector stock picks.

Motley Fool website has an audio podcast about the for-profit sector, starting at the 3:14 minute mark.
Hot Stocks in a Cool Market - June 2, 2011


Detractors
The New York Attorney General issued a subpoena for Bridgepoint Education, on May 19th. They are reviewing consumer protection, securities and finance laws. However, I don't think there are any charges pending. Other state AG have joined the fray.

www.thestreet.com continues:

"Sen. Tom Harkin, a Democrat from Iowa who has been a vocal critic of the for-profit education sector, said "the Department of Education's gainful employment rule is a modest and important first step to protect students and taxpayers from subprime academic programs that have a demonstrated track record of failure."

Senator Tom Harkin Statements
Statement by Senator Tom Harkin On the Targeting of Veterans and Active-Duty Members of the Military By For-Profit Colleges and Universities.

Conclusion
In Senator Harkin's latest statement(May 19th,2011) on the floor, I heard something very interesting. I heard him say that we should focus our attention on the accrediting system. Accreditation is not done by the Federal Government and a need for more regulation and enforcement is required. Sound like he has shifted his attention and that could be the next target.

While I usually stay politically agnostic, I have notice two instances where the political cliche of "companies are not planning because of uncertainty over taxes and regulations" has not held. Companies have to plan for the future. True, they fear/hate uncertainty, but they must plan for growth or lose market share. There is a disconnect between political realities and business realities. Maybe that perception could be exploited.