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Budget Deal Allows Regulations To Move Forward On For-Profit Colleges

College Graduates

First Posted: 04/09/11 09:50 PM ET Updated: 06/09/11 06:12 AM ET

Much of Friday's last-minute budget gridlock centered on policy disputes over funding for Planned Parenthood and environmental regulations.

But another largely unnoticed provision at play in last week's negotiations involved rules that would regulate billions of dollars of federal student loan and grant money allotted to college programs with a track record of poor student outcomes. A spokesman for Senate Majority Leader Harry Reid (D-Nev.) confirmed on Saturday that the final deal will not include a measure that would have prevented the Obama administration from cracking down on certain schools.

Last week, a bipartisan group of House members pushed for a rider in the spending bill that would block the Department of Education from implementing rules that would punish certain for-profit college and community college programs for saddling students with debts they cannot repay.

Designed as a consumer protection measure, the Department of Education's proposed "gainful employment" rules would limit federal student aid for programs with a track record of leaving students with high debt burdens. The for-profit college industry, which relies on such funds for the vast majority of its revenues, has viciously fought the regulations over the past year.

"It is imperative that the final (budget bill) retain this important funding limitation," lawmakers backing the rider, including House Education and Workforce Committee Chairman John Kline (R-Minn.), wrote in a letter to House leaders earlier this week. "These regulations are a clear example of federal overreach into the affairs of American institutions of higher education,"

On the other side of the debate, more than 40 civil rights and consumer advocacy groups urged Reid to block the rider from any budget compromise.

Their letter to the Senate Majority Leader said the provision would prevent the Department of Education from doing what was needed "to protect students and taxpayers from the most toxic choices."

"The Department of Education's proposed gainful employment regulation recognizes that some current career education programs are so toxic that they doom students to a lifetime of debt burden and waste millions of precious taxpayer dollars," the letter read.

The House voted on a similar amendment to block the Obama administration from implementing gainful employment rules in its February budget bill, a measure that received overwhelming support from Republicans and more than 50 Democrats.

Gainful employment rules would apply to career-focused programs at both for-profit and non-profit colleges, but the for-profit college industry has mounted an unprecedented lobbying campaign against the regulations. As drafted, the rules would track students after they leave college and evaluate them in two ways: whether they are paying down the principal on their student loans and whether they have attained an income that allows them to manage debts.

Far from sweeping, a draft version of the regulations would allow degree programs for-profit colleges and other vocational schools to remain fully eligible for federal aid money even if less than half of their students are repaying the principal on their loans. Some could remain eligible even if only a third of students are in repayment. Programs that fail to meet certain requirements could lose access to federal student loan and grant money -- crucial revenues for the for-profit sector.

Data released by the Department of Education earlier this year showed that a quarter of all students enrolled at for-profit schools defaulted on federal student loans within three years -- more than double the rate of those who attend non-profit institutions. For-profit college students make up less than 15 percent of enrollment nationwide but comprise nearly half of all student loan default rates.

The Department of Education has not yet released a final version of the gainful employment rules, but is expected to do so within months.

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