Wall Street responded favorably to for-profit colleges Thursday after the Obama administration released controversial rules that would cut federal aid to schools where students graduate with too much debt and worthless degrees.
Under the plan, schools will have to show that short-term vocational programs, such as those for careers in the culinary arts or automotive technology, prepare students for "gainful employment in a recognized occupation." Schools would lose access to billions of dollars of federal student aid if they fail to meet minimum requirements three times in a four-year period. The first year that a program could become ineligible would be 2015.
Critics of for-profit colleges raised concerns that the regulations released Thursday were far weaker than a draft version, which would have cut aid the first time a college failed to meet requirements.
On Wall Street, the news triggered a strong rally in publicly traded shares of for-profit college operators. Corinthian Colleges jumped $1.07 (27 percent) to $5.06, Education Management shot up $4.46 (22 percent) to $24.76, Devry climbed $7.87 (15 percent) to $61.86, University of Phoenix parent Apollo gained $4.71 (11 percent) to $46.90 and Washington Post Co., which owns the Kaplan school chain, rose $20.46 (5 percent) to $426.42.
House and Senate education committees have been investigating the potential for waste and fraud by for-profit colleges, which the Education Department said account for 12% of enrollments, represent more than 40 percent of student loan defaulters and receive nearly $9 billion in federal Pell Grants.
"We're giving career colleges every opportunity to reform themselves, but we're not letting them off the hook," Education Secretary Arne Duncan said in a call with reporters. "The plain fact is that millions of low-income students are borrowing heavily to attend for-profit (colleges), and too many of them are dropping out, failing to get a job and leaving taxpayers with the bill."
Release of the gainful employment rule was delayed after the Education Department received an unprecedented 90,000 comments on a draft proposal published last summer. Thirteen other regulations, scheduled to take effect next month, include a ban on compensating admissions officers based on how many students they recruit.
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