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Kaplan Could Be Hurt By For-Profit College Regs

ANDREW VANACORE   08/16/10 06:17 PM ET   AP

Kaplan

NEW YORK — Shares of The Washington Post Co. fell Monday after government data showed its biggest and most profitable division could run up against proposed federal regulations governing for-profit colleges.

The Post Co. warned earlier this month that changes in federal education policy could hurt results at its Kaplan Higher Education unit. Lawmakers have been scrutinizing the type of for-profit colleges that Kaplan runs, concerned that students are being loaded up with debt without being adequately prepared to find jobs.

New rules could be a blow to the Post Co. because Kaplan has emerged over the past few years as the company's main source of growth. It now accounts for roughly two-thirds of the Post Co.'s revenue and operating income, while the flagship newspaper has shrunk in the face of advertising declines.

Since warning on the proposed rules, Post Co. shares have lost about a quarter of their value. That includes a decline of $27.83, or more than 8 percent, to close at $315.65 Monday. Earlier in the session, the stock fell to a fresh low of $295.56.

Post Co. shares declined Monday along with those of other for-profit education companies likely to be hurt by the changes. After the market closed Friday, the government released specific benchmarks that for-profit colleges would have to meet.

The rules call for at least 45 percent of graduates repaying the principal on their federal student loans, or graduates on average having a level of debt that is less than 20 percent of their discretionary income or 8 percent of their total income. Schools such as Kaplan University could be subject to restrictions on enrollment and government financial aid if they cannot meet either of those tests.

Schools could lose federal funding altogether if they cannot meet at least one of the following: At least 35 percent of graduates are repaying their federal loans, or graduates have a debt load of less than 30 percent of discretionary income or 12 percent of total income.

The Post Co. said government data that have been made available don't provide a complete picture of how Kaplan would fare under the new standards.

The company said Education Department figures show Kaplan University has only about 28 percent of its graduates repaying principal on their federal loans, short of the 35 percent threshold. But standards would apply to specific degree programs rather than the school as a whole, and those breakdowns weren't provided. The company also said the government did not provide data on debt-to-income levels.

In any case, if Kaplan programs do fall short, the new restrictions could have a "materially adverse effect" on Kaplan's results, the company said.

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Filed by Leah Finnegan  |