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DoE Moves Forward With Gainful Employment Rule for For-Profit Colleges

The Department of Education advanced their gainful employment rule that targets for-profit colleges and vocational programs who have successfully used public money through grants and student loans to increase their business, while delivering little of value to students.

The rule effectively would shut down for-profit programs that repeatedly fail to show, through certain measures, that graduates are earning enough to pay down the loans taken out to attend those programs. Advocates say it addresses the chief complaint against for-profit schools, that students emerge from them with too much debt and too little earning power.

“The quality here has been very uneven,” Education Secretary Arne Duncan said of the industry Wednesday in a conference call with reporters. “There have been some absolute superstars. And there have been some players whose intentions, quite frankly, we doubt.”

The 3 million students in for-profit schools have already felt an impact. In anticipation of the rule, large for-profit providers have slowed enrollment, tightened entry standards and warned students against excessive debt.

Students at for-profit colleges make up 12% of the total college population, but commit half of the student loan defaults. Something had to change here.

For-profit colleges must now pass three tests in order for their qualified students to become eligible for federal grants and student loans, which is how the bulk of students at these colleges get the money to enroll. At least 35% of former students must be actively paying down their loans. Graduates must be spending less than 30% of their discretionary income on loan payments. And they must spend less than 12% of total income on loan payments.

The main concession to the industry in the rule is a multi-year grace period for the colleges before they lose access to federal funding through loans and grants. Previously, the for-profits would have lost this power immediately after failing the three tests; now they get until 2015 to improve their programs, and could only lose funding after that if they fail the test three times in four years.

I don’t think they need a grace period. But at the root, this is about an industry propped up with government money (90% of their profits come from federal aid) preying on a vulnerable population: poor and minority students who trust that they will benefit from matriculating. They mainly end up with a lot of debt, financed by the government, funneled from them into the bank accounts of the for-profit colleges. The Administration faced a lot of pressure from Congress – members of both parties – not to promulgate this rule, and they had to put up with a lot of silly scandalmongering from allegedly liberal activists bought off by the indudstry. I’m glad they stood relatively strong and protected students who were getting ripped off.

The New York Times has more.

UPDATE: Maybe I have diminished expectations, in that I thought this was at least a step in the right direction. Pat Garofalo says that these regulations are significantly watered down, and without swift punishment in the form of caps on enrollments, for-profit colleges can basically rip off their customers for another four years with impunity. There is also an Attorney General investigation that could yield some fruit in this area.

UPDATE II: Just a side note. Harris Miller, the lead lobbyist for the for-profit college industry, was a Democratic candidate for Senate in Virginia in 2006, when he lost the primary to Jim Webb. He was the main guy for the DSCC that year.

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David Dayen

David Dayen