For-profit colleges would be cut off from federal aid if their students’ debt climbs too high under new rules the Education Department has announced.
The move essentially forces the colleges, which have been under attack for high student loan default rates and poor graduation rates, to ensure that their students get good-paying jobs and small student loans.
Advocates for the schools called the regulations unfair, noting that same rules will not apply to public and nonprofit higher education institutions.
Specifically, the rules would stop federal aid to schools if a typical graduate’s annual loan repayment exceeds 20 percent of his discretionary income, or 8 percent of total earnings.
“These regulations are a necessary step to ensure that colleges accepting federal funds protect students, cut costs and improve outcomes. We will continue to take action as needed,” said U.S. Secretary of Education Arne Duncan.
The regulations would become effective July 1. The department will track students’ success by monitoring their Social Security payments, according to the Los Angeles Times.
The department justified the regulations by saying that for-profit schools were “particularly troubling” when it came to student debt, reporting that while those institutions produced only 11 percent of all higher education graduates, that same group represented 44 percent of all federal student loan defaults.
Nationally, student loan debt has tripled since 2004 and now tops $1 trillion.
Steve Gunderson, president and CEO of Association of Private Sector Colleges and Universities, argued the regulations are unfair because they do not “consider a student’s finances or demographics.” Ultimately the rules will force schools to reject many of those students, he said.
“If this regulation were applied evenly across all of higher education, students seeking a law degree from George Washington University Law School, a bachelor’s in Hospitality Administration from Stephen F. Austin State University and a bachelor’s in Social Work from University of Texas would lose access as well.”
According to the Education Department’s National Center for Educational Statistics, the average graduate of a four-year for-profit school pays 13 percent of his monthly earnings in debt service one year after graduation. By contrast, graduates of private non-profit institutions pay an average of 16 percent, while graduates of public colleges pay an average of 12 percent.
The targeted institutions cater to non-traditional students such as former dropouts, minority students from disadvantaged backgrounds, military veterans, and other people well into adulthood. “Many of them have jobs and need to support kids. There’s no way they are going to a private university,” said RiShawn Biddle, editor of droppoutnation.com, a blog that focuses on education reform.
The regulations drew bipartisan criticism. “If the administration wants to weed out bad actors among the 6,000 public and private colleges and universities, this is not the way to do it,” said Sen. Lamar Alexander, R-Tenn., ranking Republican on the Health, Education, Pensions and Labor Committee.
Sen. Tom Harkin, D-Iowa, chairman of the committee, on the other hand, said the rules do not go far enough. He warned that they do “little to ensure that colleges stop offering poor quality programs where most of the students drop out.” Harkin was joined in the statement by Sen. Dick Durbin, D-Ill., and Reps. Chris Murphy, D-Conn., and Elijah Cummings, D-Md.
Randi Weingarten, president of the American Federation of Teachers, agreed that the rules should have been tougher. “While the regulations released today do address accreditation and licensing, which are important, these regulations don’t fix the core problem of helping students” with their default rates, she said. AFT is heavily involved in attempts to unionize for-profit schools.
President Obama’s administration has increased scrutiny of the institutions in the wake of skyrocketing levels of student debt. Last month, the Consumer Financial Protection Bureau announced it was suing Corinthian Colleges Inc., saying that its education services were little more than a scam to bilk unsuspecting would-be students.
