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The Associated Press April 29, 2010, 5:14PM ET

Education stocks drop on comments by DOE official

Shares of for-profit schools fell Thursday following a report that a Department of Education official criticized oversight of the industry in a speech Wednesday to state regulators.

Deputy Undersecretary of Education Robert Shireman compared the institutions to the Wall Street firms whose behavior led to the financial meltdown, according to Inside Higher Ed, a trade publication.

The growing for-profit education sector is drawing heavy sums of federal student aid money, and several for-profit schools saw their share of Pell Grant money rise by more than a third this year, Shireman reportedly said.

The publication relied on the reports of people in the audience to produce its coverage of Shireman's speech.

The sector has been criticized as leaving students with overwhelming debt for questionable training. Federal grants cover only a small portion of any student's tuition and other expenses.

Shares of DeVry Inc. dropped $4.09, or 6.1 percent, to $62.61 on Thursday. And stock in Apollo Group Inc. -- which runs the University of Phoenix chain, the nation's largest for-profit school -- slid $3.56, or 5.8 percent, to $57.94.

Shares of Corinthian Colleges Inc. fell 87 cents, or 5.1 percent, to $16.04; Career Education Corp. sank 3.36 cents, or 10.1 percent, to $30.05 and Strayer Education Inc. lost $3.04, or 1.2 percent, to $243.71. ITT Educational Services Inc. shed $7.09, or 6.4 percent, to $103.61.

Signal Hill analyst Trace Urdan called the drops "overdone."

"The challenge in this case would be to show that the academic rigor was inferior to that of comparable institutions which, in our opinion, would be extremely difficult," Urdan wrote in a note to investors.

He was responding to Shireman's reported comment that there is a conflict of interest inherent in the way higher education is regulated.

Noting that accrediting agencies depend on financial contributions from the programs they rate, Shireman questioned whether the tradition of joint oversight by the federal government, state governments and accrediting groups can guarantee school quality, the publication said.

Urdan was among the readers who posted comments about the event and the report on Inside Higher Education's website Thursday.

Several commenters said Shireman's comments included positive statements about for-profit schools -- including that they performed the important function of meeting fast-rising demand for higher education.

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