The Obama administration took new steps Friday to hold for-profit colleges and other career-training programs accountable for producing graduates who can earn enough money to pay back student loans.
The proposed “gainful employment” regulations would take away a program’s eligibility for federal student aid if too many of its students defaulted on student loans or had debts too high relative to earnings.
“For too long, some of these programs have measured success by how many students they enroll – and that needs to change,” Secretary of Education Arne Duncan said in a statement. “Success in career education should be measured by how many students graduate prepared for a good job with sufficient earnings.”
Students at for-profit colleges represent about 13 percent of those enrolled in higher education programs but account for about 31 percent of student loans and nearly half of loan defaults, the Department of Education reports. About 22 percent of borrowers who attend for-profits default within 3 years, compared with 13 percent at public institutions and about 8 percent at private non-profits.
The administration estimates that about 1 million students attend schools that would either fail to meet the proposed “gainful employment” standards or fall into a “zone of improvement,” which starts the clock ticking for losing aid if they don’t do better.
The for-profit education industry has fought such regulations for years, and its representatives criticized the administration Friday for unfairly targeting their institutions.
“Millions of prospective students, particularly working adults, minorities, and people with scarce financial resources, will see their access to higher education and prospects for better employment dramatically reduced” if these regulations are implemented, said Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities (APSCU) in Washington, in a call with reporters.
If such regulations are needed to protect students, why are they not applied across the board to nonprofit and public four-year institutions where students earning a bachelor’s degree in journalism, for instance, may struggle to pay back loans as well, Mr. Gunderson said.
Other critics say the regulations don’t go far enough to protect against programs they consider predatory.
More than 50 student and consumer advocacy organizations sent a letter to the administration requesting that schools that fail the gainful employment test be required to reimburse students for loans that get them nowhere, says Pauline Abernathy, vice president of the Institute for College Access & Success in Oakland, Calif. And online schools that are only accredited to prepare students for professional credentials in one state should not be allowed to enroll students who are hoping to get the same job but live across the country, she said.
A previous gainful employment proposal was blocked in 2012 by a federal judge who said a required minimum loan repayment rate was arbitrary. That has now been replaced by the loan default rate, a much more established measure, Inside Higher Ed reports.
The regulations would remove aid eligibility if programs fail to keep default rates below 30 percent for three consecutive years. Programs would also fail if graduates had to spend more than 12 percent of annual earnings or more than 30 percent of their discretionary income on student debt, for any two out of three years.
The new rules are subject to potential changes following a 60-day public comment period.
Secretary Duncan estimated that 16 percent of all programs covered by the new regulations and 20 percent of for-profit programs would fail under the proposed gainful employment metrics, Inside Higher Ed reports.
The burden falls more heavily on for-profit colleges partly because they tend to have more students borrowing. At for-profits, 85 percent of undergraduates in 2012 had taken out loans, both federal and private, compared with 37 percent at community colleges, says Judith Scott-Clayton, an economics professor and a researcher at the Community College Research Center at Columbia University’s Teachers College in New York.
Programs can appeal failing the default rate measure if the portion of students taking out loans is low. The Department estimates that a very small number of community college programs would fail under the new regulations. But the burden of appealing could prompt some community colleges to close programs or decline federal aid, Ms. Abernathy says.
The new rules require career-training programs to meet accreditation standards or state or federal licensure standards. And they create more transparency, requiring programs to report key outcomes such as average debt levels, earnings, and loan repayment rates.
With such information in hand, the hope is students might make choices that lead to a better return on their investment. A recent study by the Community College Research Center found that students who transferred from community colleges to for-profit colleges had significantly lower earnings gains over time than students who transferred to public or non-profit institutions. Over the course of 10 years (including their time in college), the net earnings gain among for-profit students was $5,400; at publics the net gain was $12,300, and at non-profit privates it was $26,700.