Bloomberg News
The Obama administration released final rules governing for-profit colleges' eligibility for federal funds that the industry has battled for more than four years.
Some 1,400 programs serving 840,000 students, almost all at for-profit colleges, wouldn't meet standards set forth in the rules, the Education Department said today in a statement. Before losing access to the funds, programs would have an opportunity to bring themselves in line with the limits on student debt-to-income ratios.
Federal student grants and loans account for as much as 90 percent of for-profit colleges' annual revenue. The final rules, which take effect July 1, come four months after the collapse of , which is in the process of selling or shutting down its 107 campuses. Congress, state attorneys general and federal regulators have scrutinized the industry's loan and marketing practices for years.
'Too many of these programs fail to provide students with the training they need while burying them in debt they cannot repay,' Education Secretary Arne Duncan said late yesterday in a conference call with reporters. The rules will 'eliminate the worst-performing programs that are poorly serving students and taking advantage of taxpayers,' he said.
The final regulations focus on the proportion of graduates' annual earnings that go to pay debt accrued for education. Programs fail when their graduates' payments are more than 30 percent of discretionary earnings and more than 12 percent of total income. Those whose graduates' payments are 20 percent to 30 percent of discretionary earnings or between 8 percent and 12 percent of total income are considered borderline.
'Misguided Proposal'
Programs become ineligible for federal student-aid dollars if they fail in two out of any three consecutive years or are borderline for four straight years.
For-profit companies and their trade group, the Association of Private Sector Colleges and Universities, have fought the regulations, saying its members serve poorer students who don't have access to traditional educational institutions.
'The latest version of the gainful employment regulation has done nothing to fix this fundamentally flawed and misguided proposal,' said Steve Gunderson, APSCU's president and chief executive officer. 'The regulation will hurt the very students it is intended to help.'
Proposed in 2010, the administration's 'gainful employment' package originally set standards for student-loan repayment and for debt-to-earnings ratios. APSCU successfully challenged the rules in court, leading to the revision released today.
Gunderson said the group would 'vigorously contest' the issues.
Default Rate
A two-year program at a for-profit college costs on average about four times as much as it would at a community college, the department said. More than 80 percent of students at for-profit schools borrow, compared with less than 50 percent at public colleges. Those attending for-profit programs make up 11 percent of all higher-education students, yet they account for 44 percent of federal student-loan defaults.
The department said that after reviewing public feedback, it removed a benchmark that had been in its proposed rules released in March -- that schools with cohort default rates higher than 30 percent for three straight years would risk losing access to federal funds. Once the rules take effect, failing schools will have a transition period of several years in which to improve their outcomes and metrics, the department said.
'Fleecing' Students
Student-debt advocates also criticized the rules, calling them inadequate and weaker than previous drafts. The standards judge the outcomes of graduates while ignoring the plight of dropouts.
The 'regulation does not do enough to stop the fleecing of students and taxpayers,' said Pauline Abernathy, vice president of the Institute for College Access & Success, a nonprofit group that focuses on access and affordability. It also fails to provide financial relief to students in programs that lose eligibility, she said.
Corinthian's downfall accelerated earlier this year after it was late in producing required documents related to job placement and the department put a three-week hold on tuition payments that it typically makes within three days. Corinthian, already mired in more than $100 million of debt, agreed in July to sell and close its schools, which served more than 70,000 students.
Corinthian shares have tumbled 90 percent this year. Over the past five years, a Bloomberg index of 13 for-profit colleges has slid 40 percent.
Six Democratic U.S. senators -- including Tom Harkin of Iowa, chairman of the Committee on Health, Education, Labor & Pensions, and Majority Whip Dick Durbin of Illinois -- wrote the Obama administration on Aug. 5 demanding better protection for students at for-profit schools, saying Corinthian's predicament revealed a 'startling lack of liquidity and an unacceptable reliance on federal financial-aid dollars for day-to-day operations.'
To contact the reporters on this story: John Lauerman in Boston at jlauerman@bloomberg.net; Lisa Wolfson in Boston at lwolfson@bloomberg.net
To contact the editors responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net Stephen West
Posted by Unknown on Wednesday, October 29, 2014 - Rating: 4.5
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