Bloomberg: For-Profit Colleges Aim to Relax Draft Student Debt Rules

For-profit colleges will join talks today in Washington as they try to soften an Education Department proposal that sets limits on student debt levels.

The regulations, rewritten after a court challenge, threaten the colleges with losing eligibility for U.S. financial aid within two years of going into effect, according to the department’s draft proposal. An earlier version would have given education companies an additional year to comply.

The Education Department revised the regulations, called gainful employment, after a U.S. District Court struck down much of the rules last year. For-profit college negotiators will work to extend timelines for the rules that may go into effect in 2015 and potentially begin cutting off funds to noncompliant programs by 2017, said Jarrel Price, an analyst with Height Analytics in Washington who follows education policy.

“The real job of the industry’s negotiators will be to soften the initial blow,” Price said in a telephone interview. “This is a much more onerous version of the gainful employment regulations than was initially proposed.”

The Education Department, Congress and state and federal prosecutors have investigated for-profit colleges for recruiting students with little chance of academic success and leaving them with excessive debt. Some schools have also been probed for exaggerating the number of students who get jobs after graduating from training programs.

Industry Resistance 

The investigations, combined with slumping enrollment and competition from traditional colleges, have eroded the shares of for-profit college operators. The Bloomberg U.S. For-Profit Education Index of 13 companies has declined 59 percent since reaching a record high in April 2010.

Written to ensure that for-profit college graduates aren’t burdened with debt they can’t repay, the gainful employment rules have been stalled by the legal challenge filed by the Association of Private Sector Colleges and Universities, an industry group. Apollo Group Inc. (APOL), owner of the University of Phoenix, and Education Management Corp. (EDMC), which owns the Art Institutes chain, also fought the rules with lobbying and a letter-writing campaign.

While the industry lawsuit forced the Education Department to remove some features of gainful employment, the agency stiffened other provisions. Under the former rules, schools would lose eligibility for federal student financial aid if they failed to comply with the debt restrictions in three out of four years. Under the revisions, schools that fail to comply in two out of three years would lose eligibility.

Poor Indicator 

The new rules threaten to close programs that serve more than 200,000 students looking for advanced training, said Steve Gunderson, president of the Washington-based APSCU trade group. By pushing the regulations, the Obama administration would close off opportunities for low-income people to gain job skills, he said.

Debt levels, the department’s metric for student-aid eligibility, are a poor indicator of program quality, said Sally Stroup, a former Education Department assistant secretary during the George W. Bush administration who now serves as APSCU’s general counsel.

“Quality is a measure that’s determined through the accreditation process,” she said in a telephone interview. “The department has taken it away from accreditors and made it their decision.”
Along with industry and department officials, the talks will include representatives from student and consumer advocacy groups, state attorneys general offices, and legal aid organizations.

Dropout Measure 

Consumer groups will call for the debt measurements to include data on students who drop out of for-profit colleges before getting a degree, said Pauline Abernathy, a vice president at the Institute for College Access and Success, which is based in Oakland, California.

“Under the current rule, 99 percent of students in a program could drop out with high debt, and the college would still pass the gainful employment test with flying colors,” Abernathy said in a telephone interview. “That’s an omission that we and a coalition of student, civil rights and veterans associations think has to be corrected.”

More regulatory battles may be forthcoming later this year, said Price at Height Analytics. A group of for-profit college industry critics are pushing the Education Department to put tighter limits on the proportion of revenue that those colleges receive from federal sources and the percentage of their former students who default on loans, Price said.

Those limits could be addressed this year in the planned reauthorization of the Higher Education Act, according to Stephen Spector, an Education Department spokesman.

To contact the reporter on this story: John Lauerman in Boston at
To contact the editor responsible for this story: Lisa Wolfson at

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