A 2010 GAO studied showed that federal aid to students at for-profit colleges had tripled over a five-year period from $8 billion to $24 billion and now accounts for 23% of the total aid given out, even though enrollment at for-profit schools only accounts for 8% of college students. Meanwhile, studies continue to show that an inordinately small number of students at these schools ever graduates. In an effort to cut back on the number of people left with mammoth amounts of student loan debt they can’t pay back, the U.S. Dept. of Education has issued a new edict: Show us your college actually prepares students for gainful employment or risk losing out on that lovely loan money.
From the agency’s statement on the new rules, which will ramp up over the course of the next four years:
To qualify for Federal aid, the law requires that most for-profit programs and certificate programs at nonprofit and public institutions prepare students for gainful employment in a recognized occupation. Under the regulations introduced today, a program would be considered to lead to gainful employment if it meets at least one of the following three metrics: at least 35 percent of former students are repaying their loans (defined as reducing the loan balance by at least $1); the estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income; or the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings. While the regulations apply to occupational training programs at all types of institutions, for-profit programs are most likely to leave their students with unaffordable debts and poor employment prospects.
“These new regulations will help ensure that students at these schools are getting what they pay for: solid preparation for a good job,” Secretary of Education Arne Duncan said. “We’re giving career colleges every opportunity to reform themselves but we’re not letting them off the hook, because too many vulnerable students are being hurt.”
Not surprisingly, a group representing for-profit schools isn’t thrilled. In a statement, the Association of Private Sector Colleges and Universities writes:
We remain very concerned that the gainful employment regulation, while reflecting the fact that the department has listened to the sector and made changes to its initial proposal, is still using the same ill-advised metric approach to this matter and is clearly outside of its statutory authority.
Last summer, the GAO released the results of its undercover investigation into for-profit colleges’ questionable financial aid practices. They found a number of schools where admissions staffers encouraged applicants to lie on their FAFSA forms in order to increase the amount of their student loans.
Students and graduates of several for-profit colleges, have filed lawsuits alleging that they were defrauded into thinking they would be able to find better employment after graduation.