Key US rule on for-profit schools expected soon

* Education Dept to brief congressional aides

* Final gainful employment rule seen issued soon

* Year-long fight over federal rules on for-profits

* Ed Dept fighting high default rates at schools

* Shares of for-profit educators rise

(Adds analyst comment, share movement, byline)

By Diane Bartz

WASHINGTON (Reuters) – U.S. Education Department officials will brief congressional staffers later Wednesday about the final version of a rule designed to stop federal aid going to poor-quality for-profit colleges, two sources familiar with the plan said.

The original version of the “gainful employment” rule would have refused federal loans to students if too many former students in the same programs fail to repay loans. An exception would be made for programs where students are able to pay back loans, but fail to do so.

Shares of for-profit education companies rose in afternoon trading, with the S&P education index up 2.6 percent as a year-long battle between the industry and federal officials neared a conclusion.

The removal of uncertainty when the rule is released would help the companies’ share prices recover, said Bob Wetenhall, analyst with RBC Capital Markets.

“Investors can now look at companies based on their fundamentals instead of the regulatory outlook,” he said.

At issue is whether students at certain colleges and trade schools should continue to receive federal loans despite disproportionately high and rising default rates.

The Education Department blames the default rate at some schools on poor quality teaching while schools say their students come from poorer backgrounds with less resources to repay loans in a sluggish economy.

The “gainful employment” regulation is the last of many rules introduced by the Education Department to be finalized.

Other new rules require schools to disclose graduation rates and job placement rates to new students, and strengthen the Education Department’s power to act against deceptive advertising.

Some schools have already tightened their enrollment standards in a move to reduce loan defaults and increase graduation rates.

With enrollments down, Apollo Group, Career Education Corp and Washington Post’s education unit, Kaplan Higher Education, have all cut their payrolls.

Students who attended for-profit schools defaulted on their school loans at considerably higher rates than students who went to private or publicly funded colleges and universities, according to draft U.S. Education Department data issued last month. [ID:nN20288208]

Losing access to federal loans could put some schools out of business.

It is not known what the final rule looks like, although rules are often modified in response to industry input.

For-profit colleges have been lobbying heavily to get the gainful employment rule scrapped or weakened.