Rule Aims To Hold For-Profit Schools Accountable For Grads’ Success, But May Fall Short

The Dept. of Education has been trying for years to craft a “gainful employment” rule that would penalize schools — mostly for-profit career training programs — by taking away access to federal funds if they fail to provide the adequate tools for their students to find work. Two years after failing to enact a heavily compromised version of these rules, the Ed. Dept. folks have unveiled the latest version with stricter guidelines, but which some consumer groups say don’t do enough to protect students at these schools.

The finalized regulations [PDF] create an oversight group and set standards for career colleges – those schools that offer specialized training programs in recognized occupations – to do a better job of preparing students for gainful employment, or risk losing access to taxpayer-funded federal student aid.

Under the new rules, for-profit colleges will be at risk of losing their federal aid should a typical graduate’s annual loan repayments exceed 20% of their discretionary income, or 8% of their total earnings.

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Discretionary income is defined as above 150% of the poverty line and applies to what can be put towards non-necessities.

So for example, say the typical recent graduate of a career education program earns $25,000. That student would need to average annual student loan payments less than $2,000, or the school would be at risk for losing federal financial aid.

Currently, schools risk losing financial aid if a students’ annual loan repayment exceeds 30% of their discretionary income, or 12% of total earnings.

The Dept. says that based on available data, about 1,400 programs serving more than 840,000 students would not pass the new accountability standards set forth in the finalized rules.

For-profit colleges, which receive about 90% of their funding from student aid, have continually come under scrutiny for failing to demonstrate that students could find gainful employment in the fields in which they had been trained.

The schools have been criticized for failing to provide sufficient education and guidance to students who are then stuck without jobs and without the ability to pay back student loans. In fact, a 2012 Dept. of Education report found that more than 1-in-5 for-profit college graduates default on their student loans.

The rule also requires higher education institutions to provide information to prospective students about their programs, such as what former students are earning, the success rates at graduation, and the amount of debt accumulated.

Programs that do not currently meet the new standards will have the opportunity to make immediate changes to avoid sanctions, officials with the Dept. of Education say in a statement.

To ensure that colleges are held accountable under the new regulations, the Dept. of Education will lead an effort to formalize an interagency task force.

To do so, the Department and other federal and state agencies will coordinate their activities and promote information sharing to protect students from unfair, deceptive, and abusive policies and practices.

A similar watchdog group was proposed by a group of senators earlier this year. That group, which would be established through legislation, improve the coordination between federal agencies that oversee the industry, while providing student with a list of unsavory schools.

U.S. Secretary of Education Arne Duncan says in a statement that the finalized rules are “a necessary step to ensure that colleges accepting federal funds protect students, cut costs and improve outcomes.”

When the rules go into effect next July, it will being an end to a nearly five-year battle to rein in for-profit education institutions.

In 2011, Dept. of Education issued a similar rule that required colleges to show they actually prepares students for gainful employment or risk losing money. However, just a year later, a federal judge blocked major provisions of that rule, forcing the department to start over.

While the finalized rule strengthens previous standards, some consumer groups say they don’t go far enough in ensuring students are protected.

Pauline Abernathy, vice president of The Institute for College Access & Success, says in a statement [PDF] that the new rules fail to address programs where 99% of students drop out with heavy debts that they can’t pay down could still pass the proposed standards, and schools could still enroll students in programs that lack the accreditation needed for employment in the state where the students reside.

And while the Dept. of Education deserves praise for their work, it’s job is far from over.

“It can and must do much more to protect students and taxpayers from well-documented abuses,” she says.

Future Dept. work should include: curbing the manipulation of college cohort default rates and ‘90-10’ rates; stopping colleges from misrepresenting their job placement rates and other key information; enforcing statutory financial responsibility requirements; warning the public when colleges appear to be violating federal law; and ensuring that states and accreditors fulfill their responsibilities under the Higher Education Act.

Obama Administration Announces Final Rules to Protect Students from Poor-Performing Career College Programs [Department of Education]