Apollo Education Group, Inc.
) recently revealed that the Department of Education (DoE) intends
to review the administration of student financial aid by its
flagship subsidiary, University of Phoenix (UOP).
The DoE administered federal student financial aid programs -
also referred to as the Title IV programs - contribute a
significant portion of Apollo Group's revenues. Moreover, UOP is
the biggest unit of the for-profit education company and accounts
for almost 90% of its revenues.
The review is expected to begin on Aug 4 and will initially
cover federal financial aid years 2012-2013 and 2013-2014.
In order to remain eligible to participate in the Title IV
funds, for-profit education companies have to follow certain
extensive DoE rules/regulations. These include maximum student loan
default rates, maximum debt-to-earnings ratios of its graduates,
limitations on the proportion of its revenues that can be derived
from federal student aid programs, elimination of incentive
compensation to admissions advisors, standards of financial
responsibility and administrative capabilities. If the companies
fail to comply with these rules, their institutions may lose
eligibility to participate in Title IV funds.
Educational institutions are being brought under the scanner due
to widespread misuse of the Title IV funds. For example, the DoE
has proposed that an educational program can only qualify for Title
IV funds if it helps students achieve gainful employment in a
recognized organization. Educational institutions are now being
asked to furnish information to prospective students relating to
recruitment procedures and the use of student grants.
Further, to remain eligible to participate in the Title IV
programs, educational institutions must maintain student loan
cohort default rates below specified levels. Institutions may lose
their eligibility to participate in Title IV programs if their
student loan default rates are higher than the DoE's standard.
Other for-profit education companies like
Corinthian Colleges, Inc.
ITT Educational Company
), are also facing strict enforcement of the DoE rules.
Earlier this month, Corinthian Colleges announced a transition
plan to put up 85 of its campuses for sale and eventually shut down
operations at another 12 under an operating agreement with the DoE.
ITT Educational could face restriction of student financial aid
funding as it has delayed the filing of key financial reports.
Other Stocks to Consider
Apollo Education carries a Zacks Rank #3 (Hold). A better-ranked
education stock worth considering is
DeVry Education Group Inc.
), which sports a Zacks Rank #1 (Strong Buy).
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