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Future Of For-Profit College Regulations Now In Obama Administration's Hands

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The Obama administration, under U.S. Secretary of Education Arne Duncan, sought to rein in abuses by for-profit colleges through a series of regulations. A federal judge struck down central provisions of the rules on Saturday.
The Obama administration, under U.S. Secretary of Education Arne Duncan, sought to rein in abuses by for-profit colleges through a series of regulations. A federal judge struck down central provisions of the rules on Saturday.

After a federal judge struck down key parts of new regulations on for-profit colleges last weekend, it's undecided whether the Department of Education will appeal the case or start again with a new set of regulations.

But observers said that although the rules were invalidated on technical grounds, the judge's decision supports the department's right to hold for-profit colleges accountable for leaving students with unsustainable debts.

"The key victory for the department is that they do have the authority to set these standards," said Amy Laitinen, who served as a policy adviser in the DOE and now works as a deputy education policy director at the New America Foundation. "In my mind the question is going to be one of political will. How much is the department going to want to take on this fight again?"

The department was attempting to rein in abuses by for-profit colleges, which were taking in disproportionate amounts of federal student aid dollars while their students defaulted on loans at much higher rates than in other higher education sectors. It issued the so-called gainful employment regulations in 2011 to gauge whether for-profit schools and other vocational programs were setting up students with careers that allowed them to repay student loans. The for-profit college industry countered with a lobbying battle in Washington aimed at blocking any new rules.

When the department issued the rules in June 2011, the industry's trade group filed a lawsuit a month later seeking to undo the regulations. U.S. District Judge Rudolph Contreras on Saturday struck down several key provisions, ruling that the department "failed to provide a reasoned explanation" for creating a rule mandating that at least 35 percent of students are repaying loans.

But the decision also provided a pathway for re-crafting and concluded that the department could create rules that tested whether programs prepared students for "gainful employment."

"The department has set out to address a serious policy problem, regulating pursuant to a reasonable interpretation of its statutory authority," Contreras wrote.

The regulations were intended to evaluate for-profit and vocational college programs based on several measurements, including whether a graduate has an excessive debt burden when compared with his or her income (based on total income and discretionary income) and whether a student is able to repay at least a portion of his or her loan debt each year.

Groups that supported the regulations said Monday the administration should not delay in crafting new rules to prevent abuses.

"Now that it has been reinforced that the department can regulate these programs, the ball is back in their court," said Mamie Lynch, a higher education research and policy analyst with the Education Trust, a student advocacy group. "They need to take actions to protect students and make sure that students aren't going into too much debt and being victimized by these programs."

The head of the Association of Private Sector Colleges and Universities, the for-profit college trade group that brought suit against the department, said in a statement Sunday that he hoped the "era of litigation was over" following the judge's decision. The group did not respond to questions about the department's authority to regulate for-profit colleges.

Going forward, the politics of the next few months could be tricky for the president; the industry's relentless lobbying campaign pitted many Democrats in Congress against the Obama administration.

"It's in the middle of the election year," said Laitinen, the former administration official who works at the New America Foundation. "This has taken a lot of political capital, but the lobbyists are strong and the pushbacks are strong."

It took nearly two years for the department to issue the first set of rules, resulting in more than 90,000 public comments -- many of them identical form letters distributed to students by for-profit college trade groups.

Jarrel Price, an analyst who follows the for-profit education industry at Height Analytics in Washington, said he expected the industry would be "far more organized and more vocal" if the department started the process again. But he expected that a new push for regulation could provide a rallying cry for younger voters.

"I doubt that Democrats would want to shy away from gainful employment, which is designed to make sure that students are getting trained for an occupation and are in a position to repay their loans," Price said. "Especially given the labor market and the continued economic problems – these have been priorities for Democratic campaigns throughout the spring and summer, and I think this is an important way for them to reinvigorate their student base."

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