New Obama Administration Proposal To Regulate For-Profit Colleges

Career College Central summary:

  • The Obama administration is proposing to tighten oversight of for-profit colleges through new rules that seek to limit how much debt students can amass in career-training programs. The proposal is the administration’s second try at regulations setting standards for what colleges must do to ensure graduates of career programs obtain “gainful employment.”
  • The first gainful employment initiative, debated from 2009 to 2011, spawned a huge campaign by for-profit colleges to block new regulation. The colleges, supported by many congressional Republicans and some Democrats, said at the time that they had been unfairly targeted and that the initiative would hurt low-income students. Obama administration officials said that they were trying to protect those students from low-quality programs that would saddle them with too much debt.
  • The Education Department issued a rule in 2011 that set standards for loan repayment rates and the ratio of graduates’ debt to income. Programs that failed the tests were in jeopardy of being disqualified from participation in the federal student aid, which would essentially shut them down. But a federal judge in 2012 blocked major provisions of that rule, forcing the department to start over.
  • The new proposal jettisons the repayment-rate metric. Instead, it would require that the estimated annual loan payment of typical graduates not exceed 20 percent of discretionary income or 8 percent of total income. Also, it would require colleges to ensure that the loan default rate for former students does not exceed 30 percent. Like the earlier regulation, the proposal threatens to shut low-performing colleges out of federal student aid programs.
  • The proposal, which now enters a period of public review, would cover thousands of programs at for-profit colleges as well as non-degree programs at public and private nonprofit colleges.
  • “To be clear, we think the majority of gainful employment programs out there would pass these metrics,” Education Secretary Arne Duncan told reporters. But many, he said, particularly at for-profit colleges, would not. He said the proposal in some ways is “possibly a little tougher, and more thoughtful and more accurate,” than the first attempt.
  • “This rule is designed both to identify those programs that are doing a good job and target those that are failing both students and taxpayers,” Duncan said.

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