Obama Offers New Rules to Bring For-Profit Colleges into Line

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White House Domestic Policy Council Deputy Director James Kvaal said on Thursday that the administration has revised the gainful employment rules that had been blocked in court in 2012. Ostensibly, the new rules have taken care of the loopholes that led a federal court judge to strike it down.

The gainful employment rules links student debt loads and incomes of education companies to their eligibility for receiving federal grants and loans. While some believe the gainful employment rules would force for-profit colleges to be more transparent and make education reasonably priced, others believe that the rules would lead to the demise of a large number of for-profit colleges leading to fewer opportunities to higher education for the middle class.

  

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The rule would come into effect from June 2015 and would be applicable to about 8000 career-training programs at for profit colleges and schools that offer certificate training. Education Secretary Arne Duncan said, “Protecting students is at the core of this rule … we want to ensure that students have the information they need to make choices on what career training program is best for them.”

According to the Education Department, while students at for-profit colleges represent only 13 percent of the total population of students engaged in higher education, they bear 31 percent of all student loans, and half of all loan defaults.

White house officials also said that while the average debt for the graduate of a for-profit program was over $23,500, almost three quarters of the graduates of such programs earned less than high school dropouts. Duncan said, “Students in these low-performing programs often end up worse off than before they enrolled.”

The Association of Private Sector Colleges and Universities described the new regulations as discriminatory and punitive. The group said in a statement, “If the regulation were applied to all of higher education, programs like a bachelor’s degree in journalism from Northwestern University, a law degree from George Washington University Law School and a bachelor’s degree in social work from Virginia Commonwealth University, they would all be penalized.”

Under the new rules for-profit colleges will need to prove that the debt load of their graduates on average is equal to or less than 20% of their discretionary earnings or does not exceed 8% of their total earnings. The institutions will also need to demonstrate that the default rate of student loans of their former students is not greater than 30%.

The Department believes the new rules would make it difficult for “predatory, poor performing” schools to receive federal funds.