Education Department delays new 'gainful employment' rule governing for-profit schools

The Obama administration on Friday said it will delay a controversial rule designed to prevent students at for-profit colleges from defaulting on their federal loans.

The Department of Education had initially set a Nov. 1 deadline for finalizing its so-called "gainful employment" rule — which would hinge eligibility for federal financial aid on the debt-to-earnings ratio of recent graduates. Instead, the agency will push the timeline to "early 2011" — a response to the tens-of-thousands of public comments the proposal attracted.

The effective date of the provision remains unchanged: July of 2012.

"We want to be as thoughtful as possible as we move forward," DOE Secretary Arne Duncan said in a statement.

"We're taking additional time to analyze all the feedback we've received to help us strike the right balance between holding these programs accountable to protect students and taxpayers from abuse and making sure we keep whole those programs that are doing a good job." 

The decision will come as welcome news to scores of Capitol Hill lawmakers, who had registered their opposition to the gainful employment proposal in letters to Duncan earlier this month. 

Even some lawmakers fully behind of the controversial rule said they're supportive of the delayed finalization. Sen. Tom Harkin (D-Iowa), chairman of the Senate education panel, said he's "encouraged" by the agency's "commitment to the implementation of a strong gainful employment regulation." 

Proposed last July, the gainful employment rule would require for-profit programs to demonstrate that graduates' annual loan payments don't exceed 8 percent of their starting salaries. The idea is to ensure that professional students can make enough money in their fields to pay back the debt they accrue during training — an issue of importance to taxpayers, who provided about $24 billion in federal loans and grants to career college students last year. 

Under the proposal, those programs failing to meet the standard could lose access to the federal aid.

The proposal is largely a response to the rising default rate among students receiving certificates and degrees from the nation's exploding career college industry. But it also follows a series of reports suggesting that aggressive recruiting, shady marketing practices, and even fraud are common tactics within the industry.

The gainful employment proposal is the most controversial of 14 rule changes put forth by the DOE this summer in response to those reports. The agency said it still intends to finalize the other 13 guidelines by Nov. 1, allowing them to take effect July 1, 2011. 

Moreover, DOE is pushing to finalize some elements of the gainful employment rule by the original Nov. 1 deadline.

One element of that rule the agency hopes to have in effect next summer would require for-profit schools to reveal each program's graduation and job placement rates to prospective students.

This post was updated at 3:01 pm and 3:50 pm.