Washington Post Co. says proposed rules on college aid may hurt Kaplan Technical Education

Aug 14

Washington Post Co. says proposed rules on college aid may hurt Kaplan

The Washington Post Co. warned Monday that federal efforts to regulate for-profit colleges “could have a materially adverse effect” on earnings of its Kaplan higher-education unit, as Wall Street continued to punish shares of the company’s stock.

Late Friday, the U.S. 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 roughly comparable to the loan repayment rates posted by other colleges in the for-profit sector but lower than the average for nonprofit and public colleges, according to an analysis by the Institute for College Access and Success, based in Oakland, Calif.

Loan repayment rates are a factor in proposed federal regulations that would under certain circumstances limit eligibility for colleges to participate in financial aid programs. The proposed regulations would establish a minimum repayment rate of 35 percent, among other criteria, for colleges to remain eligible. Obama administration officials have said they are seeking to ensure that for-profit college graduates are able to find “gainful employment” and are not overloaded with debt.

Kaplan provides 62 percent of the total revenue of The Post Co., according to company documents, far outpacing the contribution of The Post newspaper to company coffers. Kaplan’s higher-education unit, which finds itself under government scrutiny, provides 64 percent of Kaplan’s total revenue, underscoring the importance of the probe on The Post Co.’s future bottom line.

In a statement, The Post Co., said that the company could not verify the government’s repayment data and that other information pertinent to the proposed regulations remains unavailable. However, the company warned 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 many borrowers who have consolidated loans or participated in federal income-based repayment plans were not counted in Friday’s report as being in good standing.

The proposed regulations could become final in the fall and take effect in July 2011.

Shortly after 3 p.m., Post Co. shares were down 7 percent, at about $318. Post Co. stock already dropped sharply in the days following the company’s second-quarter earnings report earlier this month, which mentioned the proposed rules on for-profit schools.

Strayer Education Inc., another for-profit education provider, said Monday that the government analysis of student loan repayment rates is inconsistent with its own research, the Associated Press reported. The Friday report showed that just 25 percent of former students of the for-profit school, based in Arlington, were repaying loans. On its Web site, Strayer said its own calculations show a repayment rate of 55.4 percent.

“The data and analysis released related to Strayer University are significantly at odds with Strayer University’s own internal analysis, which we conducted in light of the guidance issued by the Department,” the company said in a filing with the Securities and Exchange Commission on Monday. Strayer’s shares in midafternoon were trading down 17 percent, at about $165.

Technical Education