WASHINGTON, April 28 (Reuters) - The U.S. Education Department's watchdog is probing a rule-making process aimed at reining in for-profit trade schools and colleges amid charges of inappropriate contacts with short-sellers, a source familiar with the probe said on Thursday.
Senators Richard Burr and Tom Coburn had pressed Inspector General Kathleen Tighe in November for an investigation, saying that there was a failure to comply with the usual protocols in making the rules.
'Publicly available documents indicate the department may have leaked the proposed regulations to parties supporting the administration's position and investors who stand to benefit from the failure of the proprietary school sector,' Burr and Coburn wrote in their letter.
The Education Department did not respond to requests for comment on the probe.
The department and for-profit schools have been in a pitched battle for over a year on the rules that aim to lift education standards and curb student loan abuses.
For-profit schools say the rules risk cutting off education opportunities to underserved populations.
One of the schools' top critics has been Steven Eisman, a portfolio manager at FrontPoint Financial Services Fund LP who shorted their share prices while also calling them 'as socially destructive as the subprime mortgage industry.' Eisman had also, famously, shorted that arm of the home lending industry.
The department has issued rules banning the practice of basing recruiters' pay on how many students they enroll and others require disclosure of graduation rates and job placement rates to new students.
One particularly controversial rule, that is yet to be finalized, would make a school program ineligible to accept students paying with federal loans if fewer than 35 percent of former students are paying back loans after three years. An exception would be made for programs where students are able to pay back loans but fail to do so.
Losing access to federal loans could put some schools out of business.
Some schools have already tightened their enrollment standards in a move to push down their loan default rates and increase graduation rates.
Apollo Group, the biggest company in the sector and owner of Phoenix brand schools, said it saw a 45 percent drop in new enrollments in its fiscal second quarter that ended Feb. 28.
With enrollments down, Apollo, Career Education Corp and Washington Post's education unit, Kaplan Higher Education, have all cut jobs.
The Standard & Poor education index closed 1.5 percent lower on Thursday.
(Reporting by Diane Bartz; Editing by Tim Dobbyn) Keywords: EDUCATION/FORPROFIT (diane.bartz@thomsonreuters.com +1 202 898 8313; Reuters Messaging: diane.bartz.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Senators Richard Burr and Tom Coburn had pressed Inspector General Kathleen Tighe in November for an investigation, saying that there was a failure to comply with the usual protocols in making the rules.
'Publicly available documents indicate the department may have leaked the proposed regulations to parties supporting the administration's position and investors who stand to benefit from the failure of the proprietary school sector,' Burr and Coburn wrote in their letter.
The Education Department did not respond to requests for comment on the probe.
The department and for-profit schools have been in a pitched battle for over a year on the rules that aim to lift education standards and curb student loan abuses.
For-profit schools say the rules risk cutting off education opportunities to underserved populations.
One of the schools' top critics has been Steven Eisman, a portfolio manager at FrontPoint Financial Services Fund LP who shorted their share prices while also calling them 'as socially destructive as the subprime mortgage industry.' Eisman had also, famously, shorted that arm of the home lending industry.
The department has issued rules banning the practice of basing recruiters' pay on how many students they enroll and others require disclosure of graduation rates and job placement rates to new students.
One particularly controversial rule, that is yet to be finalized, would make a school program ineligible to accept students paying with federal loans if fewer than 35 percent of former students are paying back loans after three years. An exception would be made for programs where students are able to pay back loans but fail to do so.
Losing access to federal loans could put some schools out of business.
Some schools have already tightened their enrollment standards in a move to push down their loan default rates and increase graduation rates.
Apollo Group, the biggest company in the sector and owner of Phoenix brand schools, said it saw a 45 percent drop in new enrollments in its fiscal second quarter that ended Feb. 28.
With enrollments down, Apollo, Career Education Corp and Washington Post's education unit, Kaplan Higher Education, have all cut jobs.
The Standard & Poor education index closed 1.5 percent lower on Thursday.
(Reporting by Diane Bartz; Editing by Tim Dobbyn) Keywords: EDUCATION/FORPROFIT (diane.bartz@thomsonreuters.com +1 202 898 8313; Reuters Messaging: diane.bartz.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.