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
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Richard Durbin
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Russell Feingold (Wis.) and Al Franken
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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.