Why For-Profit-Education Stocks Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of for-profit-education stocks received a nice boost this morning following a ruling by a U.S. district judge that struck down a key component to the U.S. Department of Education's series of regulations meant to protect prospective students.

So what: Shares of Education Management (Nasdaq: EDMC  ) and Corinthian Colleges (Nasdaq: COCO  ) benefited the most, with their shares up at one point 15% and 19%, respectively. Larger online educators Apollo Group (Nasdaq: APOL  ) , ITT Educational Services (NYSE: ESI  ) , and DeVry (NYSE: DV  ) popped by mid-single-digits.

The reason behind these moves was the ruling by U.S. District Judge Rudolph Contreras who determined that the figures the U.S. Department of Education had used in determining what level of debt was too high for students to repay their loans to for-profit educators was arbitrary. With this ruling, the entire debt payment clause will be thrown out. This is important as for-profit educators rely on state funding to subsidize their businesses. If they were not in compliance with these regulations, states could withhold funding. Today's ruling is one less worry for educators -- at least for now!

Now what: Sure, a little glimmer of sunlight appears to have found its way through the clouds in the for-profit-education sector, but I doubt this is the last time we've seen attempts at debt regulation control from U.S. regulators. Many of these educators are dealing with tight student spending budgets and lower enrollments -- especially in business degrees which have been their bread and butter for years. Until I see tangible evidence of a rebound I'd consider using any strength in this sector to exit stage left.

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