Education Management Corp. (OTCMKTS: EDMC) And Peers Learn A Tough lesson

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Education Management Corp (OTCMKTS: EDMC) and peers in the for-profit education industry are no longer at ease. Increased government scrutiny of the sector has pushed players and investors into a state of anxiety.

The U.S. for-profit education industry is worth more than $20 billion. However, a growing number of providers in the industry have comes under government fire in the recent years. Because of that, Education Management Corp (OTCMKTS: EDMC) is in the process of shutting the majority of its campuses across the country.

Of the company’s 26 Brown Mackie campuses, 22 have been earmarked for closing. Education Management Corp. (OTCMKTS: EDMC) said the campuses facing the axe had stopped enrolling students. Some of the campuses may continue to operate until existing lot of students have completed their courses.

The company said that its West Akron campus will shut on Oct. 31. The reason for the shutdown is that EDMC didn’t manage to renew the lease for the block it occupies at 755 White Pond Drive.

$95 million penalty – Education Management Corp. (OTCMKTS: EDMC)

Not only is government crackdown in the for-profit education sector forcing players such as EDMC to scale down, but there have also been painful penalties for those players. Back in November, EDMC was forced to pay $95.5 million to settle charges that related to misleading students through so-called high-pressure marketing techniques.

The heightened regulatory scrutiny and the penalties have combined to complicate the operating environment for EDMC and its peers in the for-profit education business.

ITT Educational Services

ITT Educational Services, Inc. (NYSE: ESI) service has become the latest victim of government crackdown in for-profit education sector as the company is shutting all its campuses. The move follows a decision by the Department of Education to deny the company access to federal funding for new students joining the college. On top of that, DoE asked the company to increase its cash reserve, thus greatly crippling its operations.

At least 8,000 employees and tens of thousands of students will be affected by ITT Educational Services shutdown.

Education Management Corp. (OTCMKTS: EDMC), ITT Educational Services and their peers are learning tough lessons of investing in for-profit education. But exit of competitors could prove beneficial for players that survive the purge.

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