For Profit Schools Getting Crushed (CPLA, ESI)

A U.S. Department of Education report showed that schools such as Capella Education (NASDAQ: CPLA) and ITT Educational Services, Inc. (NYSE: ESI) are showing student loan repayment well below the government mandated 45% mark and it's killing share prices. The report was released Friday.

Share prices of Capella Education are down 11% this morning on more than twenty times its daily volume. Capella is reported to show only a 40% repayment of student loans by the government report. Capella disputes this fact and CEO Kevin Gilligan said the company's own analysis shows it is beating the 45% mark mandated by the federal government.

"We have reached out to the Department of Education, requested a sharing of the underlying data and methodology to understand any inconsistencies and look forward to an expedited, constructive dialogue," he said.

Shares of ITT Educational Services, Inc. are down more than 13% as a result of the same news.

For-profit schools have come under scrutiny lately due to questionable recruiting tactics at some schools, high loan default rates, and low graduation and job placement rates.

Investors may want to take a look at buying these companies for a short term bounce up as the companies should see some buying interest on these huge pullbacks. As a longer term trade and investment, I tend to agree with the Department of Education and would be more apt to short these names as I feel students are not getting anywhere near their value for the prices of tuition at these universities.

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