WEST ORANGE, N.J., Dec 09, 2009 /PRNewswire-FirstCall via COMTEX/ -- Lincoln Educational Services Corporation (Nasdaq: LINC) ("Lincoln") today reported that it has obtained from the Department of Education (DOE) its unofficial trial three-year cohort default rates (CDRs) for the fiscal years ending September 30, 2005, 2006 and 2007. The three-year CDRs will replace the current two-year CDRs for purposes of determining a school's eligibility to participate in Title IV programs beginning with the 2009, 2010, and 2011 three-year CDRs.
The unofficial three-year CDRs are for informational purposes only and are intended to provide schools with an indication of the three-year CDR calculation that the DOE will first use for 2009 CDRs released in 2012. Under the three-year 2009 CDR calculation, the student loan default rate measurement period will increase from two years to three years for students who entered repayment on their federal student loans between October 1, 2008 and September 30, 2009. The DOE will not impose sanctions based on the new three-year CDRs until 2014, when default rates for three consecutive fiscal years will have been calculated under the new methodology. Until that time, the DOE will continue to calculate and publish two-year CDRs and to base sanctions on those two-year CDRs.
A school may lose its eligibility to receive federal financial aid under certain Title IV programs if its CDRs exceed specified percentages. Currently, a school's two-year CDRs are calculated annually based on the number of current and former students who are scheduled to begin repaying their federal student loans in one fiscal year and who default in that fiscal year or in the next fiscal year. A school loses eligibility to participate in certain Title IV programs if its two-year CDRs are 25% or above for each of the three most recent fiscal years or greater than 40% in a single fiscal year.
Under the new regulations, three-year CDRs will be calculated based on the number of current and former students who are scheduled to begin repaying their federal student loans in one fiscal year and who default in that fiscal year or in either of the next two fiscal years, effectively extending the measurement period from two fiscal years to three fiscal years. In addition, the current 25% threshold for losing certain Title IV eligibility based on three consecutive fiscal year CDRs will increase to 30% for three-year CDRs for fiscal year 2009 or later. However, sanctions will not be imposed based on three-year CDRs under the 30% threshold until the DOE has issued three-year CDRs for the 2009, 2010, and 2011 fiscal years. A school with a single three-year CDR for fiscal year 2011 or later that exceeds the 40% threshold in any single fiscal year is subject to loss of its eligibility to participate in certain Title IV programs.
The final 2005, 2006 and 2007 weighted-average, two-year CDRs for our 21 DOE institutions were 8.69%, 12.30% and 13.42%, respectively. During these periods, none of our 21 DOE institutions exceeded the 25% eligibility threshold. Our draft 2008 two-year CDRs will be released in February 2010. As previously disclosed, based upon preliminary data, we expect that our 2008 weighted-average, two-year CDR will increase to approximately 14.5%, with one institution possibly near, or in excess of, the 25% threshold.
We expect that the three-year CDRs across the for-profit education industry generally will be higher than the current two-year rates. The unofficial weighted-average, three-year CDRs that the DOE has made available to us for the 2005, 2006 and 2007 fiscal years (the last three fiscal years ending on September 30th for which data is available to support a calculation) were 21.07%, 24.41% and 25.72%, respectively. Based on the information provided, in 2005 one of our 21 DOE institutions would have exceeded the revised 30% threshold; in 2006 two of those institutions would have exceeded this threshold; and in 2007 three of those institutions would have exceeded this threshold, with one of those three exceeding the 40% threshold.
Although our unofficial three-year CDRs are an important indication of longer-term student loan repayment trends, we do not believe they are indicative of what our actual CDRs would have been had we operated our company under these new regulations. Our personnel actively work with all of our former students in danger of defaulting during the applicable measurement period in order to help them manage their outstanding loan commitments. The new regulations will give us the opportunity to remain engaged with our former students for one additional year and continue to counsel them on alternatives to meet their financial obligations. We believe that such constructive engagement will have a positive impact on results as it has in the past.
Our three schools with the highest default rates are all focused on providing technical programs. The mission of these schools is to provide technical skills and an educational foundation for students so they can differentiate themselves as they enter the job market, in most cases for the first time. The programs at these schools typically range from 10 to 15 months and specifically serve a non-traditional, economically disadvantaged student body. In the event that one of our schools is at risk of failing to meet the new standards, we will seek to improve our cohort default rates by increasing the creditworthiness of the students we enroll at that school.
While we seek to continuously refine and enhance our internal practices in order to maintain compliance with regulatory requirements, we do not believe any changes required to comply with the new regulations will impact our ability to effectively pursue our long-term strategy.
About Lincoln Educational Services Corporation
Lincoln Educational Services Corporation is a leading and diversified for-profit provider of career-oriented post-secondary education. Lincoln offers recent high school graduates and working adults degree and diploma programs in five principal areas of study: automotive technology, health sciences, skilled trades, business and information technology and hospitality services. Lincoln has provided the workforce with skilled technicians since its inception in 1946. Lincoln currently operates 43 campuses in 17 states under 11 brands: Lincoln College of Technology, Lincoln Technical Institute, Nashville Auto-Diesel College, Southwestern College, Euphoria Institute of Beauty Arts and Sciences, Connecticut Culinary Institute, Americare School of Nursing, Baran Institute of Technology, Engine City Technical Institute, Briarwood College and Clemens College. Lincoln had a combined average enrollment of approximately 31,500 students as of September 30, 2009.
Statements in this press release regarding Lincoln's business which are not historical facts may be "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in Lincoln's Form 10-K for the year ended December 31, 2008, our periodic reports on Form 10-Q and other filings with the SEC. All forward-looking statements are qualified in their entirety by this cautionary statement, and Lincoln undertakes no obligation to revise or update this news release to reflect events or circumstances after the date hereof.
SOURCE Lincoln Educational Services Corporation