Senate Dems, for-profit educators joust over proposed restrictions

A group of top Senate Democrats urged the Obama administration this week to quickly install a new rule designed to prevent students at career colleges from defaulting on their federal loans.

"High student loan debt coupled with low repayment rates signal a questionable investment for students and taxpayers," the Democrats wrote Thursday in a letter to Education Secretary Arne Duncan. "We encourage swift implementation of the gainful employment regulation and would be concerned with any efforts to weaken the proposal."

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The position puts the lawmakers at sharp odds with for-profit educators, who are lobbying hard to dilute the rule in the name of preserving access to education for professional-school students, many of whom are low-income minorities.

"When you look at the actual metrics, many, many good programs will lose eligibility [for federal aid], and hundreds of thousands of students — literally — would lose access," said Randy Proto, CEO of the American Institute, a New York-based company that runs professional schools in Florida, New Jersey and Connecticut.

At issue is a Department of Education (DOE) proposal, dubbed the "gainful employment" rule, which aims to ensure that professional students graduate into fields lucrative enough to justify the debt they accrue during training. 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 aren't uncommon tactics of the industry.

For policymakers, the issue is particularly significant because for-profit schools benefited from $24 billion in federal grants and loans last year, meaning taxpayers are on the hook when defaults occur. 

For the healthcare sector, it's consequential because an enormous number of the nation's medical professionals are trained by for-profit institutions. Indeed, 42 percent of those receiving health degrees and certificates requiring two years of schooling or less came out of for-profit institutions, according to the latest survey from the National Center for Education Statistics.

Floated in July, the DOE proposal would require for-profit programs to demonstrate that graduates' annual loan payments don't exceed 8 percent of their starting salaries. Programs failing to meet that debt-to-income ratio would be at risk of losing access to federal financial aid. 

Although for-profits have been required for more than four decades "to prepare students for gainful employment," the recent proposal marks the first time the term has been quantified. 

Many Democrats are cheering the changes. The gainful employment proposal, the senators wrote Thursday to Duncan, "is a significant tool to ensure students do not just have more options to get their education, but better options." 

The lawmakers — including Sens. Tom Harkin (Iowa), Richard Durbin (Ill.), Frank Lautenberg (N.J.), Bernie Sanders (Vt.), Russell Feingold (Wis.) and Al Franken (Minn.) — noted that for-profit colleges make up roughly 10 percent of college students but 44 percent of student loan defaults.

The industry is fighting back, arguing that the 8 percent threshold is an arbitrary figure that will force schools to reject applicants — many of them low-income folks — to ensure compliance. And those students, the industry adds, have few other options.

"Anytime this many taxpayer dollars are at stake, you need to make sure you're overseeing the people who are offering the programs. But we're not seeing nonprofits clamoring to serve our students — that's why we've had the growth that we have," said John McKernan, former governor of Maine and now chairman of the Education Management Corporation (EDMC), a Pittsburgh-based career college company. 

"If we want to increase the standard of living in this country, we need to have more people with degrees and with college education," he added. "But somebody's got to do that for them."

McKernan said the higher default rates among career college students come as little surprise among a lower-income student population with few resources to fall back on — particularly in an economy where unemployment is tickling 10 percent.

"It has all to do with demographics," McKernan said.

For-profit educators have another complaint: the rules are being applied to them but not to traditional, non-profit institutions. 

"Whatever metrics are being applied should apply to students at all institutions," said Proto. "If the test really works … why wouldn't you apply it everywhere?"

The DOE is hoping to finalize the gainful employment rule — along with 13 other less controversial guidelines — by early November.