Bridgepoint Education Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of for-profit education company Bridgepoint Education (NYS: BPI) were getting schooled by the bears today as they fell as much as 10% in intraday trading on more dour regulatory news.

So what: Bob Dylan's cold black cloud has been coming down on the for-profit education sector for some time now as the U.S. government has started cracking down on abuses of government education funding. Late yesterday, the U.S. House of Representatives proposed a cut in funding for federal Pell Grants, which provide funding for lower-income students. The proposal would stop funding for Pell Grants for students going to school on less than a half-time basis as well as students who don't have a high school diploma.

Now what: That the government was previously funding higher education for students without a high school diploma is, well, interesting. Notably, a proposal is obviously not the final word, so it's quite possible that Pell Grant funding won't actually be cut. However, the proposal does remind investors that the government is serious about cracking down on education-funding issues and that the publicly traded for-profit education companies will have to find their footing in a world where school funding doesn't flow like wine at an Italian wedding.

Does that mean you should rush to sell? I'm not so sure that it does. With shares trading at less than six times trailing earnings, investors have obviously priced in significant risk already.

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