The Obama administration on Thursday released its controversial proposed regulations to end federal student aid to for-profit colleges whose graduates do not earn enough to repay their loans.
Since most for-profit programs get the vast majority of their revenues from federal student aid, the regulations could effectively shut down the programs whose students have the most debt and the least likelihood of finding good jobs.
The for-profit colleges have lobbied strongly against the new "gainful employment" regulations. And in a statement Thursday evening, the Career College Association, which represents the colleges, called the proposed regulations "unwise, unnecessary, unproven" and said they were likely to harm students, employers, institutions and taxpayers. The Department of Education estimates that the rules would cut off federal aid to about 5 percent of for-profit college programs, representing about 8 percent of students, and that about 55 percent of the programs would be required to warn applicants and students that they may have trouble repaying their loans.
The coalition of education groups, student groups and consumer groups that have pushed for stronger regulations said they were glad to have regulations proposed in time to go into effect next year — but not impressed with their toughness.
“We are particularly concerned that programs could continue to profit from federal student aid when half their students with loans can’t afford to pay the principal,” said Pauline Abernathy, vice president of the Institute for College Access and Success.
Barmak Nassirian of the American Association of Collegiate Registrars and Admissions Officers said the new regulations were a step in the right direction. But like Ms. Abernathy, Mr. Nassirian was particularly unhappy about the standard allowing aid to colleges where 45 percent of the graduates are repaying their principal on their loans.
“You’re kidding me, 45 percent and you’re golden?” he said.
The for-profit sector has mushroomed in the last decade. While overall postsecondary enrollment increased 31 percent from 1998 to 2008, the for-profits’ enrollment grew by 225 percent. Although for-profit colleges, which can get up to 90 percent of the revenues from federal student aid, enroll less than 10 percent of the nation’s higher-education students, they get almost a quarter of the federal aid. In 2008-9, for-profit colleges got $4.3 billion in Pell grants and $19.6 billion in Stafford loans.
The new regulations essentially create green, yellow and red zones, based on students’ debt levels and repayment records.
To be in the green zone, fully eligible for federal aid, programs would either have to have at least 45 percent of their former students paying down the principal on their federal loans or graduates with debt-to-earnings ratios of less than 8 percent of their total income, or 20 percent of their discretionary income.
Programs in the red zone, ineligible for federal aid for new students, would have less than 35 percent of their former students paying down the principal, with graduates carrying a debt-to-earnings ratio above 12 percent of their total income and 30 percent of discretionary income.
Those in between would be subject to limits on enrollment growth, and required to warn applicants and students that they may have difficulty repaying their loans.
The proposed regulation will be published Friday for a 45-day comment period, with final rules issued in November.