By John Lauerman - Sep 9, 2013 12:01 AM ET
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.
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
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.
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
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
“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
Along with industry and department officials, the talks
will include representatives from student and consumer advocacy
groups, state attorneys general offices, and legal aid
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.
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