Capella’s Stock Plummets with Other For-Profit Schools

The company's stock dropped nearly 20 percent on Monday as Wall Street displayed concerns about proposed regulations affecting the funding and enrollment of for-profit schools.

Minneapolis-based Capella Education Company saw its stock price plunge on Monday-a trend recently experienced by other for-profit schools from across the country that could be affected by proposed regulations.

Capella, like other for-profit schools, could face new regulations by the U.S. Department of Education that would require it to better prepare students for employment-or risk losing access to federal loan programs for financial aid.

Capella's stock plummeted Monday to close at $53.94-down $13.24, or nearly 20 percent, from Friday's closing price. Shares of the company's stock were trading down about 1 percent to $53.25 on Tuesday morning.

Arlington, Virginia-based Strayer Education, Inc., saw an even larger dive, as its stock fell nearly 23 percent on Monday after it announced that its enrollment for the 2011 winter term increased about 4 percent-but new student enrollments dropped by about 20 percent. The school also said that it expects its overall enrollment to decline by 5 percent during 2011.

Part of the proposed regulations require schools to demonstrate that they ready students for “gainful employment”-a comparison of the debt students incur and their incomes after program completion, and the rate at which all enrollees repay their loans on time.

In August, Capella contested a government report that said that only 40 percent of the school's former students are repaying loans-a statistic that could prevent it from receiving federal funds.

“Capella believes the goals we share with the Department [of Revenue] are best achieved not through the proposed complex gainful employment metrics, but rather through a true focus on outcomes measures related to actual student performance,” Capella said in its response to the proposed regulations.

The Department of Education outlined its proposed rules at the end of October. It said at the time that more than a quarter of for-profit institutions receive 80 percent of their revenues from taxpayer-financed federal student aid. The department also said that it intends to publish the final regulations in early 2011, and the rules are expected to take effect in July 2012.

Capella spokesman Mike Buttry said in a Tuesday phone interview that the company's new enrollee figures will not be released until next month, when the company reports its fourth-quarter results. He declined to comment on why he thinks the company's stock was affected so dramatically on Monday, stating that he “is not going to speculate.”

In Capella's third-quarter earnings release, the company projected that fourth-quarter total enrollment would be up between 16 percent and 17 percent versus the previous year-but the company also said that it expects new enrollments to decline.

Capella Education Company is among Minnesota's 60-largest public companies based on its 2009 revenue, which totaled $334.6 million. It is the parent company of Capella University, Minnesota's third-largest university based on students served, of whom there were roughly 38,600 as of September 30.