Tight credit slows profit at CareerEd

For-profit education company Career Education Corp. said Thursday tighter student lending criteria would hurt profits this year, sending shares down across the sector.

Hoffman Estates-based Career Education, which operates cooking, fashion and photography schools, saw its shares sink to the lowest in more than seven years in Nasdaq trading after reporting a 57-percent decline in fourth-quarter profit.

Career Education's shares fell 10 percent, or $1.79, to $15.71.

"My overall impression of the news from them is negative," said Morningstar Inc. analyst Todd Young, who said he is re-evaluating his company's rating of Career Education after Thursday's announcements.

Its operating income will be cut by $40 million to $60 million this year, the company said, mainly due to higher loan standards by student lender Sallie Mae.

The company also anticipates a revenue loss of $75 million to $100 million.

Career Education said Sallie Mae, whose formal name is SLM Corp., informed it last week the lender will discontinue an entire loan program that targeted students with lower credit scores, and it will tighten lending standards.

Career Education said Sallie Mae's decision will reduce its enrollment numbers and force it to do more lending on its own.

The company will also tighten its own credit criteria, requiring higher credit scores.

"I won't sugarcoat it," said Chief Executive Officer Gary McCullough during the company's earnings conference call Thursday. "The situation for us is challenging and Sallie Mae's recent decisions will have an impact."

On Wednesday, Career Education reported fourth-quarter net income fell to $8.8 million from $20.7 million a year earlier. Revenue rose 0.6 percent to $437.2 million.

Career Education also said a 2007 loss from nine schools it is closing was $36 million.

Following Career Education's statements, education company stocks were down broadly, even though not all of them share Career Education's degree of exposure to private lending.

Career Education, which has about 90,000 students, has campuses in the U.S., Canada, Europe and the Middle East. Its operations include American InterContinental University, Le Cordon Bleu College of Culinary Arts, and Colorado Technical University.