Prov Equity investment vulnerable to tougher agency enforcement

For four years, the U.S. Education Department has threatened to rein in for-profit colleges and their soaring student debt. Now it has found a way. More

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Prov Equity investment vulnerable to tougher agency enforcement

Posted 7/7/14

BOSTON - For four years, the U.S. Education Department has threatened to rein in for-profit colleges and their soaring student debt. Now it has found a way.

The department has taken its toughest regulatory action ever against a for-profit college: putting Corinthian Colleges Inc., with more than 70,000 students, on the path to going out of business. At least two other large players - ITT Educational Services Inc. and Education Management Corp. (which is partially owned by Providence Equity Partners LLC), are also at some risk of stricter enforcement, analysts said.

“It’s a big deal, and people who want to isolate it and say that it only applies to Corinthian are kidding themselves,” said Trace Urdan, an analyst with Wells Fargo Securities Inc. in San Francisco who follows the education industry. “Everyone has to be more careful with their cash and take their interactions with the department more seriously.”

In June 2010, the Obama administration released a package of proposed rules that the Association of Private Sector Colleges and Universities, an industry group, said would force hundreds of programs to close, eliminating skill-building opportunities for thousands of students. While that proposal, which would limit government funding for schools whose students struggle to repay loans, resurfaced after a court challenge from APSCU, it still awaits approval and would take years, perhaps until 2017, to be used to close any programs.

ITT Educational said Thursday it’s in discussions with the department. Education Management said Thursday it’s in talk with lenders to resolve any issues related to its debt.

More rules

While many for-profit colleges have been able to make changes in order to withstand increased scrutiny and regulation, others haven’t, said Carl Salas, a vice president at Moody’s Investors Service in New York. The concern now is that there are more regulations coming, he said.

“You have a situation where the best it can be is neutral while it’s more likely it’s going to be more stringent,” Salas said regarding so-called gainful employment rules that the education department is revising. “That’s the unknown but that’s the concern.”

Now, simply by enforcing existing rules more strictly, the department has found a way to quickly force the dissolution of a for-profit college, Urdan said. The agency had demanded documents related to job placement, and Corinthian was late in producing them. Rather than negotiating, the department put a three-week hold on tuition payments that normally take a maximum of three days to fulfill.

Debt tripled

Like many for-profit colleges, Santa Ana, Calif.-based Corinthian’s student enrollments and finances have suffered under the scrutiny of state attorneys general, Congress and the Consumer Financial Protection Bureau.

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