Court Ruling Propels Some For-Profit Education Stocks

Atlanta, GA 7/2/12 (StreetBeat) -- A federal judge ruled on Saturday that the Education Department failed to adequately justify its rule demanding that 35% of students at for-profit colleges be paying back their loans.

Judge Rudolph Contreras said the government hadn’t presented evidence showing that 35% was the appropriate rate for the department to choose, Bloomberg reported.

The decision means that the rule, meant to keep companies from taking federal cash while failing to prepare students for the job market, will have to be rewritten.

For-profit education stocks, which have fallen on increased regulation by the federal government, got a boost from the ruling. This morning some of the stocks are trading higher. Corinthian Colleges (COCO), which has lagged other schools on some Education Department metrics, was up 12%; Apollo Group (APOL) was up 2.1%. Others, however, were showing some weakness. Devry (DV) fell 0.5%. (Presumably, schools that were meeting loan-payback requirements would have been helped as weaker companies were weeded out.)

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K12's (NYSE:LRN) Shares Dropped: What You Need to Know

Palm Beach, FL 12/13/11 (StreetBeat) --Shares of e-learning specialist K12 (NYSE: LRN) dropped as much as 13% overnight on extremely high volume.

So what: The New York Times today contains a front-page story on online charter schools, specifically centered on schools run by K12. The multimonth investigation paints K12 in a very harsh light: "A portrait emerges of a company that tries to squeeze profits from public school dollars by raising enrollment, increasing teacher workload and lowering standards."

Now what: The Times hints at a coming collapse of the whole online learning industry unless these profit-grabbing practices are curbed. "These folks are fundamentally trying to do to public education what the banks did with home mortgages," says one expert in the story.

Negative sentiment has not spilled over into rival stocks DeVry (NYSE: DV) or Apollo Group (Nasdaq: APOL) , even though the Times could just as easily have focused its damning analysis on them. This stock is an official Rule Breakers recommendation, but I wouldn't touch the e-learning industry with a 10-foot network cable.

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