United Education’s Stock Tumbles 35% After Report

United Education & Software’s stock, which has been battered recently because of questions about the Encino company’s student loan operations, plunged again Monday after a published report said auditors discovered inadequate, and even false, documentation in the company’s files.

The stock dropped $2.25 a share, or 35%, to $4.125, in national over-the-counter trading as 595,400 shares changed hands. Since hitting $16.25 a share April 21 (adjusted for a 3-for-2 split April 14), United Education’s stock has tumbled 75%, and the market value of all the company’s stock has plummeted to $27 million from $106 million.

United Education operates 33 trade schools and, for a fee, services about $1 billion worth of student loans on behalf of California Student Loan Finance Corp., a private, nonprofit corporation that buys student loans from banks. As part of United Education’s agreement to service the loans, if a student defaults and refuses to repay the loan after being contacted by letter or telephone, United Education files a claim for reimbursement on behalf of CSLFC.

But in a story published Monday, Barron’s financial magazine said government and private auditors have found mistakes in how United Education documented those claims.

The article, quoting unidentified sources “familiar with the UES audit,” said the auditors suspect that some letters appearing in the United Education loan files as being sent to students in default actually were never sent, and that some phone calls purportedly placed to students were never made.

United Education officials declined comment on the article. However, on Aug. 2, United Education itself disclosed that problems were found in its student loan processing activities, but it blamed the problems on changes in its computer software.

The company also said its business was being reviewed by officials of the U.S. Department of Education; the California Student Aid Commission, a state agency that guarantees student loans initially funded by banks and other financial institutions, and the Higher Education Assistance Foundation, a Minnesota firm that also guarantees student loans.