Career Education slides on disclosure of 'improper' practices

Schaumburg-based Career Education Corp., a for-profit college chain, slid as much as 18 percent following the close of regular trading after the company identified “improper practices” at some campuses and said enrollment and profit fell.

The practices related to the reporting of job-placement rates of graduates at some of its health-care schools, Career Education said yesterday in a filing. Legal counsel for its directors discovered the problem in response to a subpoena from New York Attorney General Eric Schneiderman, who is investigating the for-profit college industry.

Marketing practices and government student-loan defaults by for-profit colleges are under scrutiny by attorneys general, Congress and the U.S. Education Department. The Obama administration has moved to eliminate the payment of sales incentives to recruiters and cut off financial aid to schools whose students have the most trouble paying off their loans. Career Education reports job-placement rates, which customers use to choose programs, to its students and to accreditors.

“The integrity of Career Education and its schools is paramount,” Gary E. McCullough, president and chief executive officer of the Schaumberg, Illinois-based company, said in a statement. “I am greatly disappointed that some people within our organization have acted inappropriately and not lived up to the standards Career Education expects.

We will take all steps necessary to ensure we accurately determine and report placement rates in the future.”

In the filing, the company said it would review its reporting of placement rates at all of its U.S. schools. Career Education, which operates more than 90 campuses, said the investigation could lead to civil or criminal sanctions, including fines, loss of state licenses and the ability to participate in federal financial aid programs.

Career Education dropped as low as $18 in trading after the regular close of U.S. markets. It fell 6 cents to $21.87 at 4 p.m. New York time on the Nasdaq Stock Market.Second-quarter net income fell 14 percent to $55.4 million, or 73 cents a share, from $64.3 million, or 80 cents, a year earlier, the company said. New-student enrollment dropped 14 percent to 24,880.

Lincoln Educational Services Corp., a for-profit college chain that operates 45 campuses, plunged 23 percent to $13.26 yesterday on the Nasdaq, the biggest slide for the West Orange, New Jersey-based company in six years. The company reported a 63 percent drop in net income and a 48 percent decline in student enrollment.

The Obama administration's new rules, along with a weak economy that has made students leery of borrowing, has forced companies to change their business practices, slowing growth more than investors expected, said Ariel Sokol, an analyst with UBS Securities in New York.

Investors were “caught by surprise” by the enrollment declines at for-profit colleges, Sokol said in a telephone interview before the release of Career Education's earnings. “We don't know if we've reached the trough.”