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Apollo Group Inc. (APOL - Analyst Report) recently announced that the accreditation for its flagship university, University of Phoenix (UOP), was renewed. While the renewal cleared a major overhang for this private education service provider, it also pushed up Apollo’s share price slightly higher. The University accounts for more than 90% of Apollo’s revenues.

In February this year, the Higher Learning Commission’s (HLC) peer review team recommended that UOP be put on probationary status as it had concerns regarding the latter’s administrative and governance structure. However, later in May, an HLC advisory panel, acting on the review team’s report, recommended that UOP’s accreditation be renewed and the University be placed on notice status for two years. The advisory panel’s recommendation was based on the evidence of governance changes and new information submitted by UOP.

Going with the advisory panel’s recommendation, on Jul 9, HLC re-affirmed UOP’s accreditation through the 2022-2023 academic year and also placed the University on notice status for a two-year period. The UOP will now have to submit a Notice Report by fall 2014, providing evidence that it meets all standards for accreditation. Apollo’s another subsidiary, Western International University, also received a similar notice from the HLC.

Losing the HLC accreditation would have hurt UOP’s right to operate in certain states and participate in the Title IV programs, thus hurting its business considerably. A significant percentage of the company’s students rely on the loans included in the Title IV programs as they are offered at below-market interest rates by the Department of Education. Employers, other higher education institutions and governmental entities might not have recognized the degrees and credits earned by UOP students had the university lost the accreditation.

Apollo carries a Zacks Rank #3 (Hold). It reported mixed fiscal third-quarter results last month, beating the Zacks Consensus Estimate for earnings but missing the same for revenues due to persistent weak enrollment growth at the UOP.

Other education companies worth a look are New Oriental Education & Technology Group (EDU - Snapshot Report), ATA, Inc. and K12, Inc. (LRN - Snapshot Report), all carrying a Zacks Rank #1 (Strong Buy).

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