Shares of Corinthian Colleges Stock Take Nosedive Over Student Loan Defaults

Student Loan Girl — Fri, 29 Aug 2008 01:56:00 GMT

Despite an 11.5-percent boost in student enrollment and an 18.3-percent growth in revenue over the last quarter, Corinthian Colleges saw its shares tumble in afternoon NASDAQ trading on Tuesday, as investor fears persist of rising defaults on the school network’s student loans (“Defaults Drown Corinthian,” Forbes, Aug. 26, 2008).

Corinthian’s stock value plummeted 19.3 percent, with investors selling off shares even as the company posted a smaller-than-expected fourth-quarter loss, thanks to higher revenues spurred by the increase in enrollment.

Second-Worst Stock Downslide Since Being Dropped by Main Student Loan Provider

Corinthian, a for-profit operator of more than 100 colleges and trade schools in the United States and Canada, has been struggling to maintain a source of financing for its 72,000 students ever since three of its largest student loan providers — Sallie Mae, College Loan Corp., and Student Loan Express — informed the company that, effective March 1, they would no longer be able to offer “serial” private student loans to the schools’ subprime borrowers. These serial transactions provided current subprime student borrowers — those who have weaker or limited credit histories — with subsequent student loans for ongoing studies.

In 2007, over 75 percent of Corinthian’s private student loan portfolio consisted of subprime student loans, and 90 percent of Corinthian’s private student loans in the United States were provided by Sallie Mae.

In fact, the 19-percent drop in Corinthian shares on Tuesday was the biggest percentage decline only since Sallie Mae made its announcement, on January 22, that it would stop issuing subprime private loans to Corinthian’s students. In the last 12 months, up until Tuesday, reports Bloomberg, Corinthian shares had risen 20 percent (“Corinthian Falls After Increases in Student Lending,” Aug. 26, 2008).

Taking Student Loans Into Its Own Hands: Inviting Risk With Revenue

To offset its loss of student loan lenders, Corinthian established a new company-sponsored student loan program in the fourth quarter called ACCESS and, according to Chief Executive Officer Jack Massimino, was able to provide funding for “the vast majority of students.”

But with a greater volume of student loans comes increased exposure to potential student loan defaults, and Corinthian’s defaults in the fourth quarter rose to 9.1 percent of its revenue, compared to 6.2 percent a year ago.

Corinthian’s chief financial officer, Kenneth Ord, said that for the 2009 fiscal year, Corinthian will spend all available cash on student loans that isn’t already earmarked for capital expenditures; however, investors are still uneasy, worried that Corinthian will fall short of its projected earnings for 2009 and may need to write off some of its student loans to stay afloat.

The company’s student loan program — and the higher rate of borrower defaults that investors fear is coming with it — “adds risk to the forecast,” said Jeffrey Silber, an analyst with BMO Capital Markets. “People were expecting sizable margin expansion, and this is going to put a damper on that. People are not giving [Corinthian] the benefit of the doubt.”

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Trade Schools Are Better Than Community Colleges, Say Americans in Poll

Student Loan Girl — Thu, 12 Jun 2008 01:38:00 GMT

Results of a recent public opinion poll point to a strong belief among Americans that career and technical schools may be better than community colleges at preparing students for today’s competitive workforce, reports The Chronicle of Higher Education (“Americans Favor Career and Technical Colleges Over Community Colleges, Report Says,” June 4, 2008).

The poll results, released by the Career College Association, reveal 40 percent of the 830 respondents choosing career colleges as the best alternative to four-year institutions, versus the 17 percent who favored community colleges.

Community college officials have taken issue with the survey’s findings, pointing out that the growth in enrollment at community colleges has dwarfed increases in enrollment at career schools in the for-profit sector — a fact administrators consider to be a vote of confidence in the community college system.

“I don’t deny some [technical school] programs are good programs, but to draw a comparison like that and write a survey on it seems to me to be a curious way to use their resources,” said David Baime, vice president for government relations at the American Association of Community Colleges.

Survey Reveals Shift Away From ‘Education for Education’s Sake’

Instead of indicating the superiority of one type of institution over another, the survey results may indicate a subtle shift in education values, say CCA executives, with a greater number of students each year choosing the skills-based training at career or technical colleges over the traditional “book-learning” education found at other two- and four-year colleges.

“Spending four years cloistered on campus is growing increasingly unlikely for a growing number of Americans — Americans still in need of the skills and abilities delivered through higher education,” the report’s authors concluded.

The growing trend among college students has been toward viewing higher education as a pathway to a specific job or career, notes Harris Miller, CCA president. “Apparently, today they’re not convinced that traditional higher education, for all of its important strengths, really serves that purpose very well.”

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Shares of Corinthian Colleges Stock Take Nosedive Over Student Loan Defaults

Trade Schools Are Better Than Community Colleges, Say Americans in Poll