* Shares in sector broadly higher (Recasts)

By Diane Bartz

WASHINGTON, (Reuters) - More former students offor-profit colleges are defaulting on student loans, the U.S. Department of Education said Monday, but not as many asanalysts had expected.

Education Secretary Arne Duncan said the default rate atfor-profit schools rose to 11.6 percent for students who weredue to begin repaying loans in the 2008 fiscal year, startedOctober 1, 2007. The rate was 11 percent the previous year.

Those who were in default as of September 2009 were countedin the data, the most recent available.

Shares of Corinthian Colleges closed up 7.37percent at $5.83; shares of Apollo Group closed up 0.67 percentat $47.88; shares of DeVry Inc closed up 3.2 percent at$44.02; shares of Strayer Education closed up 3.2percent at $155.37.

Student loan default rates at public institutions rose to 6percent from 5.9 percent and to 4 percent from 3.7 percent forformer students of private, non-profit schools.

Duncan said student loan default rates illustrated the needfor regulations that could stop the federal government fromlending to students at for-profit institutions. Lack of suchfunding could put some of those schools out of business.

"Far too many for-profit schools are saddling students withdebt they cannot afford in exchange for degrees andcertificates they cannot use," Duncan said in a statement.

"This is a disservice to students and taxpayers, andundermines the valuable work being done by the for-profiteducation industry as a whole."

The Career College Association (CCA), a trade grouprepresenting for-profit schools, blamed the recession for therise in defaults.

"In a climate marked by near double-digit unemployment, itis not surprising that former students continue to find it moredifficult to repay their student loans than they might inbetter economic times," CCA's President Harris Miller in astatement.

Recently released data released from the Apollo Group Inc, which owns schools including the University ofPhoenix, had led analysts to expect more negative figures fromthe Department of Education, said Arvind Bhatia, an analyst atSterne Agee.

"What we're seeing today is a little bit of a reliefrally," he said. "We see that most of these colleges are seeingtheir default rates go up but not by that much." (Reporting by Diane Bartz)