The Obama administration on Thursday took an aggressive step to crack down on for-profit career training colleges, proposing a regulatory regimen that could shut down hundreds of degree programs — enrolling a million students in fields ranging from accounting to air-conditioning repair — for failing to place graduates in well-paying jobs
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The administration framed the move as a bold step to protect Americans from predatory institutions that leave students with high debt and few marketable skills. For-profit colleges, however, rejected the regulation as an unacceptable — and possibly illegal — federal intrusion into the private sector. Some Republicans in Congress weren’t happy, either.
In fact, the administration has been working on the rule, known as the “gainful employment” regulation, for five years. A previous version was blocked by the courts. Analysts who have been tracking the issue closely said another lawsuit over the latest draft is all but inevitable.
Education Secretary Arne Duncan said the complex regulation has a simple goal: “We want to protect students from enrolling in poorly performing programs that leave them with debt they cannot pay and a degree they cannot use.”
Duncan noted that most of the programs in question receive nearly all their revenue from the public treasury, in the form of federal loans and grants that students use to pay tuition. The colleges, he said, are therefore are “failing both students and taxpayers.”
The regulation would apply to about 8,000 career training programs at all types of institutions — community colleges, state universities, and for-profit colleges. But for-profit colleges would bear the brunt of the sanctions because they offer the vast majority of the degree programs that would be rated as poor-performing under the administration’s formula. The federal government annually extends about $22 billion in federal loans and $7 billion in grants to students attending those programs.
The for-profit industry includes giants such as the University of Phoenix, DeVry University, Corinthian Colleges and Education Management Corporation. Their programs, offered both online and in-person, train students for a wide range of careers, including crime-scene investigator, graphic artist, physician’s assistant, IT specialist, business administrator, hair stylist and many more.
The Senate Committee on Health, Education, Labor, & Pensions spent two years investigating the industry and released a scathing report in 2012 that concluded taxpayers were wasting tens of billions annually because so many students took out huge loans through federal aid programs, yet failed to earn degrees. The investigation, spearheaded by Sen. Tom Harkin (D-Iowa), found that the schools spent millions on marketing and employed armies of recruiters, yet had few support staff to help students stay in school; many who enrolled left after just a few months.
The administration claims authority to regulate for-profit universities based on a line in the 846-page Higher Education Act of 1965. It permits the federal government to extend financial aid to students attending post-secondary programs that “lead to gainful employment in a recognized occupation.”
Shortly after Obama took office, the Education Department decided it was high time to define the term “gainful employment.”
The department has rewritten its formula to eliminate the element the judge found questionable — the rate at which program graduates repaid their loans. Instead, the department will be rating programs based on the “cohort default rate,” or the percentage of students in any given entering class who default on their student loans. That metric has been around for two decades and Congress has used it in statutes addressing other elements of higher education.
The administration, however, says special attention to the industry is justified. Though students at for-profit colleges make up only 13 percent of the total higher education population, they account for nearly half of all loan defaults, according to the Education Department. The department calculates that 98 percent of federal loan recipients who are enrolled in low-performing career training programs attend for-profit schools.
To help students make informed decisions, the regulation requires institutions to publicly disclose tuition and fees, graduation rates, student debt and graduates’ earnings. It also stipulates that programs must be accredited and meet state and federal licensing standards to continue receiving federal funds.
The gainful employment regulation, which will be open to public comment for 60 days, is just one of several controversial initiatives the administration is pressing in higher education.
The Education Department is also working on a plan to rate colleges and universities according to metrics that might include how well they serve low-income students; how many incoming freshmen end up earning degrees; and how well their graduates fare in the job market. That proposal has kicked up a its own firestorm of protest from college presidents.
