The Obama administration is moving to pull federal funding from for-profit colleges that saddle students with steep student loan payments, but fail to prepare them for the job market.
Draft regulations unveiled Friday by the Department of Education would strip programs of their federal backing if they fall short of a proposed set of benchmarks meant to ensure graduates end up with a job — and manageable monthly payments.
The rule, a part of the president’s “year of action” campaign, represents the administration’s second run at so-called “gainful employment” regulations. An initial set, issued in 2011, was tossed out by a federal judge.
The proposed rule’s release starts the clock on a 60-day public comment period, after which the agency will issue a final rule that officials said would take effect by late 2016.
The initiative’s centerpiece is a pair of metrics that colleges must meet to be eligible to participate in federal loan and grant programs.
First, the estimated annual loan payments for graduates must not exceed 20 percent of their discretionary earnings. Second, the default rate on loans taken out by former students must not exceed 30 percent.
Institutions would be required to certify that all gainful employment programs are accredited and have the proper state and federal licenses. And they would be subject to new public disclosures to better inform students about the costs of the programs.
“Higher education should open up doors of opportunity, but students in these low-performing programs often end up worse off than before they enrolled: saddled by debt and with few — if any — options for a career,” Duncan said.
The regulations would apply to thousands of for-profit programs and certificate programs at both nonprofit and public institutions. While students at for-profit colleges represent only about 13 percent of the country’s total higher education population, they are the source of roughly a third of all student loans and almost half of all loan defaulters.
“We really don’t know how many programs will be eliminated going forward,” Duncan said.
Representatives of the for-profit college industry and education activists have flocked to the White House in recent weeks in an effort to influence the language of the regulations, which has been under review at the Office of Management and Budget since January.
The 2011 rule was scrapped after a federal court judge found fault with a provision involving repayment rates.
Advocacy groups have complained that the administration appeared during a series of negotiated rule-making sessions late last year to be willing to water down the proposal.
“Even after the Department made multiple changes requested by the for-profit college industry representatives that dramatically weakened the draft regulation, the for-profit college industry representatives objected to it,” a coalition of more than 50 watchdog and advocacy groups wrote this month in a letter to Obama.
Administration officials maintained the draft language released Friday is just as strong as the 2011 bill, though it had been changed in a manner more likely to pass legal muster.
Private colleges, meanwhile, warn the regulations would go too far.
The Association of Private Sector Colleges and Universities (APSCU) argued during a White House meeting that the regulations would deny as many as 2 million people, including 140,000 veterans; 300,000 Hispanics; and almost 500,000 African-Americans, access to college through the end of the current decade.
“The gainful employment regulation would deny millions of students the opportunity for higher earnings,” APSCU President Steve Gunderson said late Thursday, in advance of the rule’s formal release. “The government should be in the business protecting opportunity not restricting it.”