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For-profit higher-education providers resist regulatory action

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By Nick Anderson
Washington Post Staff Writer
Tuesday, August 17, 2010

The Washington Post Co. and other for-profit providers of higher education pushed back Monday against a government report last week that found many of their former students are not on track to repay their loans.

Several industry stocks, including The Post Co.'s, fell after the release of the report related to a federal effort to tighten regulation of for-profit colleges. The Post Co. said in a statement Monday that the federal initiative "could have a materially adverse effect" on earnings of its Kaplan higher-education unit.

Late Friday, the Education Department released data on student loan repayment rates that showed 28 percent of Kaplan University's former students are repaying the principal on their federal loans.

That was lower than the 36 percent loan repayment rate posted by the for-profit sector overall and significantly lower than the averages of 54 percent for public colleges and 56 percent for private, nonprofit colleges, according to an analysis by the Institute for College Access and Success, based in Oakland, Calif. Borrowers who are not considered to be repaying, education officials said, include those in default or delinquency or situations in which they are not reducing the principal balance.

Repayment rates are a factor in proposed federal regulations that would under certain circumstances restrict eligibility for colleges to participate in financial aid programs. Under the proposed regulations, colleges would be ineligible for aid if their repayment rate is lower than 35 percent and they fail to meet other criteria. Obama administration officials have said they want to ensure that the graduates of for-profit colleges are on track to find "gainful employment" and are not overloaded with debt.

Kaplan, which offers higher education, test preparation and professional training services, provides 62 percent of the total revenue of The Post Co., according to company documents, far outpacing the contribution of The Washington Post newspaper to company coffers. Kaplan's higher-education unit, which is under government scrutiny, provides 64 percent of Kaplan's total revenue, underscoring the importance of the proposed regulations to The Post Co.'s future bottom line.

In a statement, The Post Co. said that "a significant number of Kaplan schools" could be at risk of new limits on financial aid.

"Thus, these rules, if adopted as presently drafted, could have a materially adverse effect on the future results of the company's higher-education division," the statement said.

The company called the government's definition of repayment "narrow" and said it penalized schools in which many borrowers consolidate loans or participate in federal income-based repayment plans. "Low-income students often rely on these programs," said Kaplan spokeswoman Melissa Mack. "The impact of this proposed metric will be the shifting of the sector en masse to a more affluent population."

James Kvaal, deputy undersecretary of education, said the repayment data were published for informational purposes, not enforcement. "We plan to consider very carefully the comments on the methodology," Kvaal said. "We haven't heard anything yet that has convinced us there are mistakes in the information we've published."

The proposed regulations could become final this fall and take effect in July.

Post Co. shares fell $27.83, or 8.1 percent, to close Monday at $315.65. Post Co. stock has fallen 16.4 percent since the release this month of the company's second-quarter earnings report, which mentioned the proposed rules on for-profit schools.

Strayer Education Inc., based in Arlington County, took issue with the government analysis, which showed that about 25 percent of former students of the for-profit school were repaying loans. Strayer said its own calculations show a repayment rate of at least 55 percent.

"We think there's major problems" with the report, said Robert S. Silberman, Strayer's chairman and chief executive. "This data is clearly wrong to us."

Strayer's shares dropped $36.75, or 18.4 percent, to $163.26.


© 2010 The Washington Post Company

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