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For-Profit Colleges Owned By Wall Street Companies Fare Worst Under New U.S. Measures

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President Barack Obama, accompanied by Education Secretary Arne Duncan, speaks in February.
President Barack Obama, accompanied by Education Secretary Arne Duncan, speaks in February.

For-profit colleges owned by publicly traded corporations were among the worst in preparing students for jobs that allow them to repay debts, according to U.S. Department of Education data that offers the first glimpse at how career training schools will perform under Obama administration rules that begin this fall.

The administration's "gainful employment" regulations were put in place last year to crack down on unscrupulous career training programs that leave students saddled with unsustainable debt and little earning potential. The rules came amid evidence that for-profit colleges were taking in disproportionate amounts of federal student aid dollars, as their students defaulted on federal loans at much higher rates than in other sectors of higher education.

The rules are designed to track student outcomes at such programs in two ways: whether students are able to repay at least a portion of their loan debt, and whether a graduate has an excessive debt burden compared with total income. If a school's program fails those debt measurements in three out of four years, it will no longer be eligible for federal student aid.

The data released Tuesday show that only 5 percent of the programs subject to the regulations had student debt measurements that could eventually trigger disqualification from federal aid dollars. Many critics argued last year that administration's final rules were too watered-down, letting schools off the hook for leaving students with immense debts and little hope of earning enough to repay.

Tuesday's data is only for informational purposes. Enforcement of the regulations does not begin until fall.

"Career colleges have a responsibility to prepare people for jobs at a price they can afford," Education Secretary Arne Duncan said in a statement. "Schools that canot meet these very reasonable standards are on notice: invest in your students' success, or taxpayers can no longer invest in you."

The numbers show that the programs most at risk of losing access to federal aid are in the areas of security training, medical office assistant and criminal justice training. Programs at schools owned by three publicly traded college corporations -- Corinthian Colleges Inc., Career Education Corp. and Education Management Corp. -– had the most programs that failed all three debt measurements.

Although the gainful employment regulations were expected to have the most impact on for-profit colleges, career training programs at public and private non-profit schools were also subject to the regulations.

All 193 programs that failed to meet the three student debt requirements were at for-profit colleges. Of those, 100 programs were at schools owned by publicly traded companies. Those schools included dozens of programs at Everest College locations (owned by Corinthian Colleges Inc.), several programs at Art Institute campuses (owned by Education Management Corp.), and several programs at Sanford-Brown College locations (owned by Career Education Corp.).

Schools being scrutinized for consumer protection violations by state attorneys general, including Westwood College and National College, also were among those that failed all three student debt thresholds.

Of all programs analyzed, 35 percent are meeting all three student debt tests, 31 percent are meeting at least two, and 29 percent are meeting at least one.

The gainful employment rules were designed as a measure for consumer protection and taxpayer accountability, to protect billions of dollars in federal student aid investments. Many for-profit colleges derive more than 80 percent of their revenues from federal student aid.

The gainful employment regulations that emerged last summer were substantially from an earlier draft of the rules, following a fierce lobbying campaign by the for-profit college industry.

The clock will officially start ticking for career training programs this fall. In order to be disqualified from federal student aid, more than 65 percent of students would have to be delinquent in repaying their loans, and graduates would need to have loan debts that comprise more than 30 percent of their discretionary income, or more than 12 percent of total earnings.

A program would have to fail each of those three tests in three out of four years, meaning 2015 is the first year that a program could be ineligible.

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