Obama Administration releases "Gainful Employment" proposal to regulate for-profit colleges

"Colleges should open up doors for opportunity, but students in these failing programs often end up worse off than before they enrolled. That's simply unacceptable."
By JC Sevcik   |  March 14, 2014 at 6:24 PM
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The Obama administration released a proposal to regulate for-profit colleges Friday in an attempt to limit student debt.

The “Gainful Employment Rule,” issued today by the Department of Education via the federal register, would use two metrics to gauge whether for-profit institutions and career-training programs are deserving of federal aid:

1. What percentage of students default on federal loans, and

2. Graduates’ debt to income ratio after college.

Programs in which graduates’ loan payments exceed 30 percent of their discretionary income or 12 percent of their total annual income would fail, and those whose graduates’ loan payments fall in the 20-to-30 percent of discretionary income or 8-to-12 percent of total income ranges would be in a “warning zone.”

Colleges that fail to meet the standards set forth by the Gainful Employment Rule two-three years in a row would become ineligible for federal financial aid.

This rule is the second attempt to regulate higher education made by the Obama administration, the first being shot down by a judge back in 2012 because the metric was too arbitrary.

The proposal is an effort on the part of the administration to prevent students being saddled with insurmountable debt and an education that leaves them uncompetitive in the job market, unable to earn enough to pay off their loans.

According to a report from the Department of Education, private for-profit institutions account for 13 percent of the country’s students but nearly half of all loan defaults. For-profit colleges are typically more expensive, and critics accuse the institutions of luring students in with the promise of a new career but failing to provide realistic training and job placement.

The Obama administration determined that nearly 75 percent of the institutions subject to the Gainful Employment Rule produced graduates that made less money on average than high-school dropouts and 24 percent of students graduating from these schools defaulted on their loans within the first three years.

Arne Duncan, the Education Secretary, said, "Colleges should open up doors for opportunity, but students in these failing programs often end up worse off than before they enrolled," Duncan said. "That's simply unacceptable."

Steve Gunderson, president and chief executive of the Association of Private Sector Colleges and Universities, criticized the proposal, saying, “The gainful employment regulation would deny millions of students the opportunity for higher earnings. The government should be in the business of protecting opportunity not restricting it.”

But Duncan’s feeling is that “Too many of these programs fail to provide students with the training they need.”

Speaking about how for-profit colleges rely on federal aid for a large portion of their earnings, Duncan said, “These institutions are basically taxpayer-funded.”

The proposal now enters a 60-day period during which the public can comment on the rule, after which the department has another two months to revise the proposal before the regulations take effect.

James Kvaal, deputy director of the White House’s Domestic Policy Council, said the rule is part of Obama’s attempt to make higher education affordable while ensuring it has value. “College is something the middle class needs,” he said. “It shouldn’t be a luxury for the few.”

[Department of Education]

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