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Acquisitions Ahead for the For-Profit Education Firms?

For-profit schools are struggling to fill their classrooms.

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It has been a difficult year for the majority of the publicly traded for-profit education firms. The industry as a whole has faced widespread criticism regarding program costs, debt levels, default rates, questionable recruiting practices, reliance on government funding, and the overall quality of education. On the plus side, the marquee "gainful employment" ruling handed down earlier this summer was less onerous than originally feared, as the Department of Education took a less aggressive regulatory stance as its review of proprietary institutions wore on. Still, the new rules will undoubtedly pressure the "bad actors" in the space; the Department of Education projects that 18% of programs at for-profit schools will fail the new rules at least once and that 5% will ultimately lose eligibility.

Meanwhile, as if the shifting regulatory environment wasn't enough of a challenge, prospective student inquiries and new enrollments have begun to drop precipitously (coincidence?). Three months after the resolution of the gainful employment debate, new student enrollment (through the second quarter of 2011) is still down an average of more than 15% year over year (see table).

Peter Wahlstrom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.