Career Education drops as accreditor questioned

AP News
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Posted: Dec 18, 2009 5:53 PM

Shares of for-profit education company Career Education Corp. fell for a second day Friday after new government scrutiny raised concern that the accreditation of one of its schools may be in jeopardy, potentially making it ineligible for federal student loans.

The Department of Education Office of the Inspector General on Thursday recommended the government investigate whether a large accreditation agency was inappropriately certifying for-profit schools after saying Career Education's American Intercontinental University may have been incorrectly accredited.

If the accreditor, the Higher Learning Commission of the North Central Association of Colleges and Schools, is suspended, then the schools it certified, including American Continental, could lose their accreditation, leaving them potentially unable to receive federal student loans, analysts said. Most for-profit schools count on federal student loans for the bulk of their revenue.

"This report introduces a new challenge to (for-profit education companies) and suggests a whole new level of hostility on the part of OIG to what and how the for-profit schools operate, particularly online," Signal Hill education analyst Trace Urdan said in a note to clients.

The Department of Education's OIG criticized the Higher Learning Commission's accreditation of AIU because of issues related to the school's assignment of credit hours in its programs, it said in a memo. The version reviewed by The Associated Press had specific allegations blacked out. American Intercontinental received accreditation in May 2009.

Career Education spokesman Jeff Leshay said the HLC will visit American Intercontinental in early 2010 for a review. The company believes the assessment will be focused on credit equivalents _ or how the school applies course credits when a student transfers from another institution _ and the allocation of credit hours for its online courses for adults.

"I'm not going to speculate on what the impact on the stock will be, but what I can tell you is that AIU is prepared to address any issue that HLC may raise and clearly demonstrate that when HLC accredited AIU for five years, it was fully justified," Leshay said.

The inspector general said its concerns about American Intercontinental makes it question the commission's judgment regarding other schools, as well. But while investors sold off shares of Career Education and other for-profit educators this week, analysts aren't convinced that HLC's accreditation powers are at risk or that for-profit schools are at risk of losing access to federal student loan money.

"We find it unlikely that the DOE would actually consider the suspension or termination of accreditation for HLC. Industry contacts that we communicated with last night seemed flabbergasted that the OIG could call into question whether the HLC is 'a reliable authority regarding the quality of education or training' based on the contested accreditation process of but one institution," Wedbush analyst Ariel Sokol wrote in a note to clients. "Our interpretation is that the OIG's memorandum is an attempt to intimidate the HLC and all accrediting bodies to follow the edicts of the DOE."

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The HLC accredits a range of institutions including Apollo Group Inc.'s University of Phoenix, DeVry Corp. schools, Capella Education Co., American Public Education Inc., Education Management Corp.'s Argosy schools, as well as traditional schools such as the University of Chicago and the University of Michigan, said R.W. Baird analyst Amy Junker in a note to investors.

Friday, Career Education's stock dropped 58 cents, or 2.5 percent, to $22.30 after losing 19 percent Thursday. Shares of online education companies also fell. Bridgepoint Education Inc. shed 42 cents, or 2.8 percent, to $14.83, while American Public fell 74 cents, or 2.2 percent, to $32.79.

Shares of Apollo rose 1.8 percent and DeVry dipped 19 cents after dropping 5 percent and 4 percent, respectively, on Thursday.

The HLC said that it objected to the memo, and that the government inspector's allegations had "mischaracterized" its actions.

American International is undergoing a review of one area of "marked concern" that was identified in an independent assessment of the school's practices. The HLC granted the school an initial accreditation and is requiring it to remedy the concern, the HLC said in a press release.

"The HLC strenuously objects to both the second-guessing of its decision with respect to AIU and to the proposed administrative action against HLC." HLC said.