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Obama Urged To Support Regulations On For-Profit Colleges And Student Debt

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As the Department of Education gets closer to finalizing regulations that would hold for-profit colleges accountable for saddling students with debts they cannot repay, a wide array of civil rights, student advocacy and consumer groups wrote a letter to President Barack Obama on Wednesday urging him to immediately move forward with the proposed rule.

The letter comes in the midst of an intense lobbying and advertising campaign run by the for-profit education sector, which is waging an assault on the so-called "gainful employment" regulations being considered by the federal government. The rules are proposed as a consumer protection measure, aimed at cracking down on schools that leave students unable to repay student loan debts given the low-wage jobs they tend to secure after graduation.

The for-profit sector includes a broad swath of schools, from University of Phoenix and DeVry University to more specialized schools such as Le Cordon Bleu College of Culinary Arts.

"Federal financial aid shouldn't go to career education programs that consistently leave students buried in debt they cannot repay," reads the letter, signed by 38 groups, including the National Consumer Law Center, the National Association for the Advancement of Colored People and the National Council of La Raza.

The stakes for the for-profit colleges are huge: Many of the publicly-traded corporations that own such institutions derive more than 85 percent of their revenues from federal student aid dollars. By not meeting the criteria of the new rules, schools could be banned from tapping into federal student aid or be forced to disclose the high average debt burdens to prospective students.

The Coalition for Educational Success, an industry lobbying group, argued on Monday that the proposed rules were "onerous" and contrary to the president's pledge to a government-wide review of federal regulations.

Advertisements put out by the industry in recent months have suggested that the government is trying to prevent low-income students from getting an education.

"The 'gainful employment' rule will deny over two million students the opportunity to go to college," declares one recent ad from the Association of Private Sector Colleges and Universities, another major industry lobbying group.

The for-profit sector has also argued that the rules will prevent access for minority and low-income students who they say are not well-served by traditional schools.

One of the groups signing the letter, the National Council of La Raza, a Latino civil rights organization, disputes the notion that the rules are in any way discriminatory.

"We do think that if these rules are approved by the administration, Latinos will have a place to go," said Raul Gonzalez, the group's legislative director. "One of the issues we're working on is just trying to reduce the amount of debt that Latinos have. There is evidence that some folks are leaving with a lot of debt, and without a marketable skill."

Other civil rights organizations, including the National Urban League, have come down on the side of the for-profit industry.

Supporters of the rule describe it as a rational and relatively lenient measure, after a Government Accountability Office investigation found that recruiters at some for-profit colleges were deceiving new students and overstating the benefits of their programs.

Students enrolled at for-profit colleges make up only 12 percent of college students nationwide, yet the sector takes in nearly a quarter of federal student aid dollars and accounts for 43 percent of student loan defaults, according to a recent analysis from the Education Trust, a student advocacy group. Students at for-profit colleges typically carry an average of $14,000 in debt--almost twice as much as students at non-profit colleges, according to the Department of Education.

Specifically, the proposed rules would hold for-profit schools (and some non-profit career schools of two years or less) accountable for two measures of debt: whether students are able to repay their loans on time, and whether students have an excessive burden of debt compared to their income after graduation.

There are several scenarios that would allow schools to remain fully eligible, meaning full access to federal student aid and no requirement to disclose student debt burdens.

To remain fully eligible for student aid dollars, schools would have to show that at least 35 percent of former students are paying down the principal on their student loans (meaning interest, plus at least $1 per billing cycle) or that student debt is less than 20 percent of a graduate's discretionary income.

In another scenario, a program could remain eligible if at least 45 percent of former students are paying down the principal on student loans, regardless of graduates' debt-to-income ratio.

In order to fully lose out on federal student aid, a program would need to have less than 35 percent of its students paying down student loans, and most graduates would need to be saddled with debt more than 12 percent of their total income and 30 percent of their discretionary income.

Schools would not be subject to penalties until the 2012-13 school year. The Department of Education is expected to finalize the regulations within the next few months. An exact date has not been determined.