For-Profit Ed Rises on Defunding of Gainful Employment Rule

By Avi Salzman

A rule tying funding for for-profit colleges to their students’ incomes and loan repayment rates was dealt a blow in the House of Representatives today, sending shares of for-profit education companies up sharply.

In a 289-136-1 vote the House passed an amendment that would disallow the Department of Education from using its funds to enforce the “Gainful Employment” rule, which is part of the Obama administration’s attempts to curb abuses by the for-profit education industry. Shares of companies like Apollo Group (APOL), Strayer Education (STRA), and Career Education Corp. (CECO) all rose on the news. Apollo was up 5%.

Critics say the colleges gobble up federal grant money while doing little to ensure that students are actually prepared to join the workforce. But supporters of the schools say they offer opportunities for poor students who are looking for alternative ways to get an education. The schools have been lobbying Congress to blunt the administration’s attempts to regulate them and an organization representing them even sued the Education Department.

The Senate, however, will probably not pass the House’s amendment, and even if supporters can find 60 votes, President Obama could veto it. Still, some analysts considered the vote significant.

“Nevertheless, we believe the passage of this amendment is a victory for the sector and provides further ammunition to show it has garnered a wide range of support in its attempt to stop this proposal from being implemented in its current form,” wrote BMO Capital Markets analyst Jeffrey Silber.

“The prospect of pushing out GE until a later date, or even scrapping it altogether would certainly be a relief to many high priced programs, and so the move today reflects a potential sentiment change,” wrote Citi analyst James Samford.