Corinthian shares fall as Sallie Mae halts loans

Shares of Corinthian Colleges Inc. plunged Tuesday after the operator of career training schools said Sallie Mae and two other lenders halted private loans for students with higher credit risks.

High risk, or sub-prime, loans accounted for about 75% of Corinthian’s student loan portfolio in the fiscal year ended June 30, the Santa Ana-based company said in a regulatory filing.

Corinthian’s stock suffered its biggest drop in more than three years on the news, falling $3.34, or almost 31%, to $7.55. Shares of ITT Educational Services Inc. and Career Education Corp., two other companies whose students have gotten Sallie Mae loans, also plunged.

Corinthian, which has 65,000 students in 94 schools, ITT and Career Education all may face slower enrollment growth and increases in bad debt as Sallie Mae, or SLM Corp., tightens guidelines for loans. Sallie Mae provided 90% of private loans for Corinthian’s students in the U.S., the company said.

“While the student loan crisis has implications across the for-profit education space, we see it as most damaging” for Corinthian and Career Education, Morgan Stanley analyst Suzanne Stein said in a report Tuesday. She cited “their relatively high default rates, which are likely to be the key component for lenders in determining potential credit risk of student loans.”

Corinthian “is exploring several alternatives that would allow it to reduce its reliance on third-party lenders,” the company said in its filing.

Corinthian said its early estimate was that earnings would be cut as much as 4 cents a share. The company had previously estimated earnings of as much as 45 cents a share in fiscal 2008, but it now expects net income to be closer to 40 cents a share.

“We are confident that we can arrange financing for the vast majority of incoming students through Title IV, our internal lending program and other resources,” Corinthian said. Current students will continue to receive previously approved financing, according to the statement.

Sallie Mae sent a letter to Corinthian on Friday “indicating that it was exiting the sub-prime lending business for private student loans,” Corinthian said, starting March 1.