Career Education (NASDAQ:CECO)
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The U.S. Department of Education on Wednesday will propose sweeping reforms to a number of issues governing higher education, including attempting to define a credit hour, penalizing schools for misrepresenting their qualifications or offerings and tightening rules governing recruiter compensation.
Most notable about the recommendations, known as a Notice of Proposed Rulemaking, is what's absent, as the Education Department chose not to tackle a hotly debated measure that would punish schools for graduating students with high debt-to-income ratios in an attempt to measure how well they prepare students for gainful employment in a recognized occupation. For-profit schools have warned they may need to cut tuition or shut programs if that proposal were pushed through.
The Education Department will return to the measure later this summer, the agency said. "Some key issues around gainful employment are complicated and we want to get it right so we will be coming back with that shortly," Education Secretary Arne Duncan said in a statement.
The Education Department said it is still developing metrics to hold programs accountable for their ability to prepare students for gainful employment. For now, it is recommending schools disclose graduation and job-placement rates and their students' median debt levels.
For months, shares of schooling companies have sighed and swooned with every rumor of what would or wouldn't be included in the draft proposal. Investors have remained anxious since the final of three discussions ended without resolution on a handful of issues, and analysts say continued uncertainty could mean more volatility.
Even without the meatiest gainful-employment measure included in the proposal, a number of schools may face fundamental operational changes. For example, the department recommends tightening oversight of "Ability to Benefit" tests, exams on which many institutions rely to enroll students who don't have high school diplomas. The tests came under scrutiny last year when a Government Accountability Office found proctors willing to help students cheat.
The department also recommends strengthening the metrics by which students must show academic progress so schools can't receive federal-aid funds, from students who continue to post near-failing grades.
In addition, the Education Department proposes to eliminate 12 "safe harbors" from a ban on incentive compensation, which an agency official referred to as "loopholes" to the original 1992 rule. A number of for-profit schools have been the subject of lawsuits alleging overzealous recruiting tactics.
The draft also proposes a new definition of a credit hour, the fundamental measure of a program's rigor. Students are assigned part- or full-time status based on how many credits they take, and some schools have been accused of inflating their credits in order to receive more federal funds. A major accrediting agency was recently slammed by the Education Department's Office of Inspector General for accrediting Career Education Corp.'s (CECO) American Intercontinental University despite having concerns about its credit-hour structure. The House Committee on Education and Labor will hold a hearing Thursday on accreditation and credit hours.
The Education Department's draft rules will be open to public comment for 45 days, and the Education Department plans to issue a final rule by Nov. 1. Any changes will take effect beginning July 1, 2011.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271; firstname.lastname@example.org