Tough For-profit Education Loan Rules Cause Party Rift

The White House’s push to rein in student loan defaults at for-profit schools has divided Democrats and generated a new roster of clients for some of Washington’s top lobbying firms.

Breaking with a number of their Democratic colleagues, critics of the effort — including an odd mix of liberals, Blue Dogs, Congressional Black Caucus members and committee chairmen — are urging the Obama administration to delay the changes pending further study. They say the reforms would cripple college enrollment among lower-income students, who disproportionately attend for-profit schools.

At issue is a new rule proposed by the Department of Education (DOE) that would require for-profit schools to show that their graduates’ annual loan payments are less than 8 percent of their starting salaries. The intent is to ensure that professional students are entering jobs lucrative enough that they can pay off the loans they accrue during training.

Programs that fail to meet the mark could lose access to federal financial aid — a potentially enormous blow to for-profit schools, which benefited from $24 billion in federal tuition subsidies last year.

The for-profit education industry is working with prominent Democrats and Democrat-heavy lobbying firms to battle the rule change. The Podesta Group and Heather Podesta + Partners are lobbying for the industry, as is Brian Moran, former candidate for governor of Virginia and the brother of Rep. Jim Moran (D-Va.).

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

A dozen industry schools — including the University of Phoenix and Kaplan Inc. — and the main industry organization, the Career College Association (CCA), have spent roughly $2.25 million on lobbying in the first half of this year, a total nearly equal to all of 2009. Investors and other industry interests are also turning to K Street for reinforcements.

DOE Secretary Arne Duncan says the guidelines will prevent schools from “saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.”

But many Democrats disagree, warning instead that the changes “would dramatically limit the programs available to minority and other at-risk students.”

“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.

No fewer than 47 other Democrats filed similar conclusions, including Sen. Bill Nelson (Fla.) and Reps. John Spratt (S.C.) and Debbie Wasserman Schultz (Fla.).

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

Later this month, CCA is inviting career college faculty and students — both current and former — to storm Capitol Hill to lobby members to repeal the proposed reforms.

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.

Such reports have spurred some powerful Democrats to throw their weight behind the DOE reforms. Last week, several top Senate Democrats — including Majority Whip Dick Durbin (Ill.) and Tom Harkin (Iowa), who chairs the Education Committee — urged the White House to 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. “[W]e 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.

The DOE, which did not return requests for comment Wednesday, is expected to finalize the rules by the start of November.


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