New For-profit Education Loan Rule Brought About Party Conflict

The Government’s drive to mediate student loan defaults and for-profit schools has brought about contradicting stands from the Democrats and spawn a new list of clientele for Washington’s top firms.

An unusual mix of Liberals, Blue Dogs, members of the Congressional Black Caucus and committee chairmen, all critics of the new rule are now urging the Obama administration to postpone changes to give way to further studies. They postulated that changes with the ruling would affect college enrollment among low-income students attending for-profit institutions.

The issue at hand is the new rule that would entail for-profit schools show their graduates’ annual loan payments to be less than 8% of their starting salaries. The reason behind this is the ballooning loan debts of for-profit graduates. Also, this is to ensure that students enter a well paying job for them to be able to pay their off their loans.

For-profit school programs who fail to meet the standards is at the risk of losing the financial aid they receive from the government. This is a colossal hit to for-profit schools since they were receiving billions of dollars from government aid- $24 billion federal tuition subsidies to be exact was given to them last year.

The Podesta Group, Heather Podesta + Partners and Brian Moran, former gubernatorial candidate of Virginia and brother of Representative Jim Moran (D-Va.) are working hand in hand with for-profit institutions to lobby the delay of the new ruling.

Meanwhile, former special counsel to President Bill Clinton (and columnist for The Hill), Lanny Davis, is advising the Coalition for Educational Success, which represents for –profit institutions.

Industry schools like the University of Phoenix, Kaplan Inc. and the Career College Association (CCA), the main industry organization have exhausted a rough estimate of $2.25 million in order to lobby for the first half of the year. Other investors and industries are also turning to K Street for back up.

Anne Duncan, DOE Secretary said that the purpose of this ruling is to prevent schools from burdening students with debts they can’t pay in exchange for a degree and some certificates they cannot purely utilize. But many Democrats are not in favor of this, warning that instead of helping students, this “would dramatically limit the programs available to minority and other at-risk students.” 47 other Democrats agreed to similar conclusions including Sen. Bill Nelson and Rep. John Spart and Debbie Wasserman Schultz.

“These programs are vital to educational achievement of students who would otherwise consider postsecondary education out of reach,” wrote one group of lawmakers, led by Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight Committee.

Change “could end up closing down hundreds of programs and leave hundreds of thousands of students without options” said Harris Miller, CEO and President of CCA.

Stirring the debate, a series of recent reports have suggested that the industry is plagued by aggressive recruiting and even fraud, which puts taxpayers on the hook when students can’t pay back their federal loans.

Last month, for instance, the Government Accountability Office (GAO) detailed cases where for-profit recruiters obscured the true costs to attend institutions; exaggerated post-graduation salaries and employability in the fields students were entering; and encouraged applicants to lie on submission forms to tap federal loans for which they weren’t eligible.

Top Senate Democrats including Dick Durbin and Tom Harkin, who chairs the Education Committee, recommended that the Government adopt the new gainful employment rule as written

“High student loan debt coupled with low repayment rates signal a questionable investment for students and taxpayers,” the senators wrote. “We encourage swift implementation of the gainful employment regulation and would be concerned with any efforts to weaken the proposal.”

Harris argued Wednesday that many of the industry criticisms — particularly the charge of fraud — target practices that are already illegal.

“You don’t need new rules for that,” he said. “That’s just plain-old against the law.”

Meanwhile, some of the Democratic strategists lobbying against the reforms are defending their break from the White House.

“If you’re a well-connected person or well-connected Democrat and you don’t have a client, you might want to rethink your line of work,” said one such lobbyist.

By the start of November, the Department of Education is expected to finalize the rules. They did not return requests for comment.


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