Career Education declines on 'issue' at accreditor

Career Education Corp. led declines among for-profit colleges in New York trading after the U.S. Department of Education said it found a "serious issue" at the agency that carries out the accreditation of its American InterContinental University unit.

"During the course of our inspection work on regional accrediting agencies' standards for program length and credit hours, we identified a serious issue that requires your immediate attention," Wanda Scott, an assistant inspector general at the Education Department, wrote in a letter posted on its Web site. Her letter was sent to Daniel Madzelan at the department.

The department's office of the inspector general redacted the explanation of what the problem was. The accreditation agency referred to in the document is the Higher Learning Commission of the North Central Association of Colleges and Schools.

"We believe this OIG alert is significant insofar as it suggests that the OIG is looking to pressure accreditors to apply more rigorous quality control standards," Kelly Flynn, an analyst at Credit Suisse Group AG, wrote in a report sent to clients today. "We continue to worry that regulatory changes, more oversight and rising student loan default rates could eventually hurt for-profit education sector enrollment/margin prospects significantly."

Career Education tumbled 19 percent to $22.88 at 4 p.m. in New York, falling for the first time in 10 days.

HLC also accredits universities run by Apollo Group Inc., American Public Education Inc., Capella Education Co., DeVry Inc. and Grand Canyon Education Inc.

Apollo slumped 5.1 percent to $57.38. American Public Education fell 2.1 percent to $33.53. Capella retreated 2.1 percent to $74.87. DeVry lost 3.9 percent to $56.67. Grand Canyon decreased 4.2 percent to $18.72.

Corinthian Colleges Inc. retreated 5.5 percent to $13.13. ITT Educational Services Inc. lost 5.5 percent to $90.53. Strayer Education Inc. decreased 2.5 percent to $213.61.