×

New Government Rules Too Tough: Devry CEO

diploma_money_2_140.jpg

As the US Department of Education weighs new rules for so-called for-profit colleges, the president and CEO of Devry Inc., a major player in that arena, told CNBC Thursday that half the loans for higher education would fail under the government's proposed changes.

“It’s a new definition of repayment,” said Daniel Hamburger of Devry , whose market cap is $3 billion. “It sounds like repayment, but it’s not. By this definition, half of all colleges in the country would fail the test. Harvard Medical School has a 24 percent repayment rate.”

The education department has estimated that Devry has a 34 percent default rate. And according to the department, for-profit students represent 26 percent of borrowers and 43 percent of those who default. It favors tying student loan repayments to federal aid eligibility.

If the proposed rules go into effect, the impact on the for-profit business models will be significant. That’s because these colleges rely on government student loans and grants for most of their revenue. The goal of the new rules is to determine if students attending those schools should be eligible for government loans.

For-profit colleges, unlike a state university or such private institutions as Cornell or Stanford, are businesses and are often trade schools. In many cases, the ability to pay tuition is the only entrance requirement.

The five largest schools receive 77 percent of its revenue from the federal government.

At the same time, business is booming in that sector, where enrollment has grown 225 percent in the last decade ending in 2008.