The Obama administration on Friday will release new regulations intended to target for-profit colleges and career training programs that leave students mired in debt and unable to find decent jobs.
It's the second time in three years that the Department of Education has tried to rein in abuses in the for-profit college industry, whose leaders prevailed in a court battle in 2012 that overturned most the administration's previous rules. The new rules are designed to judge the effectiveness of for-profit and some nonprofit career college programs by examining whether students are able to manage their debts after leaving school.
The worst-performing programs may eventually be cut off from federal student aid funding -- the source of nearly 90 percent of revenue for some for-profit colleges.
"Too many of these programs fail to provide students with the training they need, at taxpayer expense and at the cost of these students' futures," Education Secretary Arne Duncan said Thursday evening in a briefing with reporters.
The so-called gainful employment rules would apply to schools that each year take in about $26 billion in federal student loans and about $10 billion in Pell grants for low-income students.
The regulations are likely to fall the hardest on for-profit colleges, which on average cost nearly twice as much as comparable two-year and four-year public colleges and leave students with much more debt. Only about 13 percent of students attend for-profit schools, yet the sector is responsible for nearly half of all student loan defaults.
Such poor outcomes have led to criticism that some companies lure students with promises of new careers, then fail to deliver training and job placement services. The Obama administration determined that nearly three-quarters of for-profit college programs subject to the new regulations produced graduates who made less money on average than high school dropouts.
"Colleges should open up doors for opportunity, but students in these failing programs often end up worse off than before they enrolled," Duncan said. "That's simply unacceptable."
The regulations will judge individual college programs based on two measurements of student debt: What percentage of students default on federal loans, and what are graduates' debts relative to their income after college?
Programs that score low over the course of two or three years could be cut off from federal loan and grant dollars.
The regulations are unlikely to become effective until July 2015, leaving programs unaffected by the strictest federal sanctions until 2017 at the earliest. The Education Department estimated that about 1 million students are currently attending programs that would fail or fall under a "needs improvement" zone, according to the two student debt metrics.
The new regulations come as federal and state enforcement agencies are cracking down on for-profit colleges. The Consumer Financial Protection Bureau last month sued ITT Educational Services, accusing the for-profit chain of forcing students to take on high-cost loans.
California Attorney General Kamala Harris sued another major for-profit college operator, Corinthian Colleges Inc., last fall, accusing the company of artificially boosting job placement rates to attract new students. Attorneys general in more than a dozen other states are investigating marketing techniques at Corinthian and three other major for-profit college operators -- Education Management Corp., ITT Educational Services and Career Education Corp.
The Department of Education's regulations essentially redo rules initially approved in 2011. A for-profit college trade group sued the department that year, and convinced a federal judge to strike down central parts of the rules in 2012.
The department started revisiting the regulations last fall.
Consumer advocates have argued for years that the administration has weakened the rules in the face of vigorous lobbying by for-profit colleges. The industry mounted a $13 million lobbying campaign in 2011 that resulted in regulations that gave schools many more years to comply.
In rule-making sessions last fall, the department removed several provisions that student advocacy groups wanted, but for-profit colleges opposed. Among them: tougher penalties for high student loan default rates, and a standard that could penalize schools if students aren't repaying loans.
The new regulations, which become final after a 60-day comment period, would measure only whether students default on loans.