Apollo Stock Falls after U.S. Investigation of Financial Aid Process

Apollo Group Inc. is the largest education company out there when you are speaking in enrollment numbers. Unfortunately for Apollo, their stock has hit its lowest point in four years once word was released that the U.S. Department of Education will review financial aid practices at the University of Phoenix which is an Apollo school.
Apollo’s stock price fell 3.8 percent when the announcement was made. The review will start on December 6 and is set to cover the 2009-10 and 2010-11 school years. This is not the first time this type of review has taken place where the University of Phoenix is concerned. There was a similar investigation in February of 2009.
The for-profit education companies that are headed by Apollo are being scrutinized on the federal level because close to 90 percent of revenues come from the Title IV federal aid program. The University of Phoenix students receive more Title IV aid than any other institution. There has been a lot of talk around the practices of for-profit university recruiters and how that ties into students being able to pay back their student loans. Recruiters have been paid according to how many students they enroll, which has resulted in some unrealistic expectations given to students about their job prospects after graduation. Many students have found their income potential to be much lower than described by recruiters and they are unable to pay back their loans.
There is a 90-10 federal law which states that a school’s dependence on federal student aid should not exceed 90 percent. It is possible that the University of Phoenix will exceed this in the fiscal 2012 year. If a for-profit school doesn’t abide by this law for two consecutive years, the school looses eligibility to receive federal aid for at least two years.
The safe harbor guidelines allowing recruiters to be paid according to their enrollment numbers has been done away with, so Apollo will have to figure out another way to pay their recruiters. It appears that with the possible violation of the 90-10 law and the recruiter compensation issues, falling stock prices are just another problem on a list of many for Apollo.
Via Bloomberg