WRAPUP 2-Corinthian warns of fee hike, drop in student starts

* Corinthian Q1 EPS $0.38 vs est $0.39

* Corinthian sees Q2 EPS $0.20-$0.23 vs est $0.35

* Bridgepoint Q3 EPS $0.61 vs est $0.53

* Bridgepoint sees 2010 student starts up at least 34 pct

* COCO shares down 8 pct, BPI shares up 17 pct
(Rewrites; adds details, background, analyst quotes)

By Megha Mandavia

BANGALORE, Nov 2 (BestGrowthStock) – Post-secondary education
provider Corinthian Colleges (COCO.O: ) posted weak quarterly
results, forecast a big drop in student starts and said it was
considering raising tuition fees from the third quarter to
comply with a tough upcoming rule.

For-profit education colleges, facing criticism for
saddling students with big debts and not fully preparing them
for jobs, are overhauling their enrollment practices to comply
with new rules due to take effect mid-next year.

Corinthian, which offers diploma and associate degree
programs in fields such as healthcare and business, is
evaluating the fee hike to comply with the 90/10 rule proposed
by the Department of Education, which is set to take effect in
2012.

Violation of the rule, which requires that federal aid
programs should not account for more than 90 percent of a
for-profit education provider’s revenue, could cut off schools’
access to aid.

In October, industry bellwether Apollo Group (APOL.O: ) also
warned of violating the 90/10 rule, and said it might increase
tuition fees.

For a TAKE A LOOK on the sector: [ID:nSGE67G0IH]

Corinthian’s bigger rival Bridgepoint Education (BPI.N: ),
which should be less impacted by the new rules as its
ex-students have a better record of repaying their debt, beat
market estimates with its quarterly results, helped by strong
student enrollment numbers. [ID:nASA00YBE]

Corinthian, whose student repayment rates are among the
lowest in the industry, has already stopped taking in
ability-to-benefit (ATB) students — those who lack high school
diplomas — as they tend to have higher loan default rates.

“The lack of ATB enrollments has negatively affected growth
in the Everest ground schools, created marketing
inefficiencies, and pressured operating margins,” said CEO
Peter Waller.

Schools run by Apollo and Capella Education (CPLA.O: ) have
also taken measures to restrict themselves to higher quality
students.

Pro forma new student starts growth at Corinthian, which
has been cited as a takeover target, slowed to 0.5 percent in
its most recent quarter. The full impact of the change will be
felt from the December quarter, it said.

“We believe that the company needs a Republican victory in
House and Senate for political leverage for legislative
relief,” said UBS analyst Ariel Sokol.

For a Factbox on impact of U.S. elections, see
[ID:nN29137264]

A good showing by the Republicans in the U.S. mid-term
election on Tuesday could reduce scrutiny of the for-profit
education sector, and might even kill off the expected
legislation.

BRIDGEPOINT BUCKS TREND

Bridgepoint is the first education company this quarter to
see a big jump in enrollments and student starts, although
growth slowed from the year-ago period.

In the year-ago third quarter, total student enrollment had
risen 79.7 percent while student starts were up 55 percent.

“We like the slower start growth, given the perception
that fast growth was going to drive execution or policy risk
higher,” said William Blair analyst Brandon Dobell.

Bridgepoint forecast a strong 2010 with an earnings
expectation of $2.02-$2.05 per share on revenue of
$700.3-$702.8 million, which is above analyst estimates.

San Diego-based Bridgepoint expects student starts to grow
by at least 34 percent in 2010. In its recent quarter, starts
rose 23 percent.

Bridgepoint, which boasts of a repayment rate higher than
the industry average, forecast 2010 enrollment growth of at
least 34 percent.

Santa Ana, California-based Corinthian expects new student
enrollment for its October-December second quarter to fall
15-17 percent on a pro forma basis. [ID:nWNAB8936]

Corinthian, which in the past two months bought $25 million
worth of shares, said it would stop the buy back for the near
term due to the current uncertainty.

Bridgepoint shares, which went up as much as 17 percent,
were trading up 13 percent at $15.75 in midday trade on the New
York Stock Exchange. The sector index (.15GSPEDUS: ) has lost 45
percent since touching a life high in January.

Corinthian shares were down 6 percent at $4.84 on Nasdaq.
They have slumped 73 percent since a year-high in April.
(Reporting by Megha Mandavia in Bangalore, Editing by Ian
Geoghegan, Unnikrishnan Nair)

WRAPUP 2-Corinthian warns of fee hike, drop in student starts