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Rules Would CUT Federal Aid To For-Profit Colleges

ERIC GORSKI   05/20/10 06:10 PM ET   AP

Forprofit Colleges

The federal government is expected to get tougher soon on the nation's booming for-profit colleges by proposing that aid be cut to programs if most of their students don't earn enough to repay their loans.

Consumer advocates say students and the taxpayers underwriting their educations must be protected from costly programs whose graduates end up with dead-end jobs or none at all. Career colleges and their backers, however, say the proposal would shutter job-training programs at a critical time while doing nothing to fix the debt problem.

The U.S. Department of Education is expected to issue new proposed regulations in the coming weeks, working off an earlier blueprint released in January.

For vocational programs of less than two years to qualify for aid, federal law already requires that they "prepare students for gainful employment in a recognized occupation." But how to make that determination has always been an open question.

In January, the Education Department suggested one answer: for a program to be eligible, a majority of its graduates' annual student loan payments under a 10-year repayment plan must be no more than 8 percent of the incomes of those in the lowest quarter of their respective professions. The earnings data would come from the Bureau of Labor Statistics.

Programs that fall short could still remain eligible if they meet targets on completion and job placement rates.

The proposal comes at a sensitive time for the for-profit college sector, which has come under scrutiny for questionable recruiting tactics at some schools, high loan default rates, and low graduation and job placement rates.

For-profit schools are attracting large numbers of low-income students who bring federal Pell Grant dollars and other federal loans to local career colleges as well as giant chains like the University of Phoenix, DeVry and Kaplan.

A study in April by the College Board found that 53 percent of for-profit-college students finish with more than $30,500 in debt, compared to 12 percent of students at four-year public schools.

And for-profit students are much more likely than other students to default on student loans. According to federal data released in December, about 21 percent of for-profit-school students defaulted within three years on loans they began repaying in fiscal year 2007; the figure for all student borrowers was just 12 percent.

Supporters and opponents of the proposed regulations already are waging a fierce lobbying campaign. A public comment period opens after they are announced and the rules would be finalized by Nov. 1.

"We think it is a really good but modest proposal," said Pauline Abernathy, vice president of the Institute for College Access & Success.

But Harris Miller, president of an industry trade group, said the proposal is a "sledgehammer" that is trying to solve a problem that "does not exist."

Miller's group, the Career College Association, commissioned a study that estimates 2,000 programs and more than 300,000 students would be displaced by the regulations proposed earlier this year.

Miller said research also found that students in programs that would fail the department's proposed debt-to-income ratio tests have a lower loan default rate – almost 7 percent – than those in programs that don't fail the test – about 12 percent.

Sara Jones, a spokeswoman for Apollo Group, Inc., which runs the for-profit giant University of Phoenix, cautioned against policies that "could restrict educational access, limit career choice or unfairly disadvantage historically underserved student populations," among other things.

The for-profit sector has been lobbying Congress, including trying to persuade minority legislators that minority students would be harmed. For-profit college leaders are pushing for fuller financial disclosure to students as an alternative, but most observers anticipate something close to what the government already has proposed.

"If a student is seeking to gain nothing but a livelihood and your program doesn't purport to be anything but a vocational program, it seems fair to think of it in purely economic terms," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

Stephen Burd, editor of Higher Ed Watch, a blog published by the New America Foundation, a nonprofit policy think tank, said dramatic steps are necessary because too many bad for-profit colleges have been raking in huge amounts of federal dollars while leaving students poorly trained and over their head in debt.

"The amazing thing to me is that their arguments are, 'We'll have to either lower our prices or cut programs that don't provide students with the training they need to get good jobs,'" Burd said. "It seems to me this would be a very good outcome for their students. But this is more about protecting their shareholders and bottom lines than their students."

The Education Department has tried to walk a fine line with for-profit colleges, highlighting their role in training workers and achieving the Obama administration's education goals while raising concerns about a few "bad actors."

Department officials have said the proposed regulations would help assure students that job-training programs and career colleges will lead to real jobs. A department spokesman declined to comment further this week.

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Filed by Leah Finnegan  |