Travails continue at for-profit colleges

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For-profit colleges like ITT Educational Inc. in Indianapolis continue taking it on the chin over low graduation rates, high student debt loads and default rates, and allegations of heavy-handed recruiting.

Just this week, ITT and such competitors as the Apollo Group (University of Phoenix), Corinthian Colleges Inc. (Everest Colleges) and Bridgepoint Education Inc. (Ashford University) saw their shares dive in anticipation of a negative documentary on PBS. However, after “College Inc.” aired May 4, analysts opined that while the segment wasn’t exactly flattering, it fell short of a hatchet job. So the stocks rebounded.

Another example this week was a Philadelphia Inquirer look into the for-profit Art Institute of Philadelphia, which is owned by Education Management Corp. The article pointed out how some students rack up crushing debts, partly because the colleges are more expensive than community colleges and state universities, but also, students say, because the college seemed all too glad to let them run up big debts. The Art Institute, of course, responded that it discourages excessive debt.

Carmel-based ITT wasn’t mentioned in either piece, but the stock fell from $104 to $100 per share prior to the PBS documentary. So whether or not ITT is contributing to the problems, it moves with the broader market.

The colleges and their stock prices boomed as people went back to school during the recession, and now their shares are being whipsawed as investors try to anticipate whether the Obama administration will tighten rules on for-profit colleges.

ITT shares have traded near $100 for much of the past year, and the company turned in strong profits in the first quarter. However, RBC Capital Markets downgraded the stock in March. Credit Suisse upgraded ITT shortly before the earnings report and then issued a downgrade a couple of days later. Thus ITT is “neutral” again in the eyes of Credit Suisse.

How do you feel about for-profit colleges, and about ITT Educational in particular? What do they do well, and where do they fall short?

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