Orange County Business Journal

Corinthian Surges on Softened Federal Regulations

Michael Lyster Thursday, June 2, 2011

Shares of Santa Ana-based vocational school operator Corinthian Colleges Inc. surged Thursday after Education Department officials issued new regulations that weren’t as harsh as feared.

Shares of Corinthian closed up nearly 30% Thursday to a market value of nearly $430 million.

The stock jumped on word that fewer schools face a cutoff in access to federally backed student loans.

Corinthian and others will have more time to adjust to new federal rules on loan repayment and student debt levels and now have clear guidelines to meet to continue access to government-backed student loans.

Schools can continue to access federal student loans if at least 35% of former students are repaying loans, or if federal loan payments don’t exceed 12% of a former student’s earnings.

Corinthian and others also have until 2015 to meet the requirements, instead of an originally proposed 2012 cutoff date.

Federally backed student loans make up the majority of revenue for Corinthian and other for-profit schools.

Corinthian runs more than 100 campuses in the U.S. and Canada offering degrees in information technology, construction, healthcare and other areas. It has about 105,500 students.

The company and others have lobbied against new federal rules, which take aim at recruiting, heavy debt loads and limited job prospects for graduates of for-profit schools.

Corinthian and others surged during the recession as laid-off workers went back to school to train for new jobs.

Under the new rules, the Education Department expects nearly a fifth of for-profit programs to fail its tests at least once. They then would have several years to get into compliance.

About 5% of schools are expected to lose access to federal financial aid after repeated failures.

That’s down from an earlier estimate of 16% of schools losing access.

Corinthian has been adjusting to the prospect of stepped up regulation by being more selective in accepting students and by raising fees.