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U.S. Education Department Delays Rule Opposed by For-profit Colleges

The U.S. Education Department said Friday it will take more time to finalize new regulations targeting for-profit college job-training programs, but emphasized it was intent on moving forward and holding the sector accountable.

For-profit colleges have campaigned hard against the “gainful employment” rule, which would cut off federal aid to college vocational programs with high student debt levels and poor loan repayment rates. They’ve lobbied Congress, purchased newspaper ads and helped students and others register complaints with the Education Department.

The government was to publish the final rule by Nov. 1, but department officials announced a new timeline Friday, saying sections of it would be ready by Nov. 1 and the remaining portions will be published in early 2011.

The department said it was taking more time to consider comments it received about 91,000 during a 90-day comment period, a record for a proposed higher education regulation and hold several meetings and public hearings in the coming weeks. The department said the schedule allows it to stick to its plan for the rules to go into effect around July 1, 2012.

“Let me be clear: We’re moving forward on gainful employment regulations,” Education Secretary Arne Duncan said in a statement. “While a majority of career colleges play a vital role in training our workforce to be globally competitive, some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.”

Duncan said additional feedback would help the department strike “the right balance” between holding the programs accountable to protect students and taxpayers and “making sure we keep whole those programs that are doing a good job.”

Shares of for-profit education companies, beaten down earlier this year, had moved higher in the past few weeks. Rumors of a delay in the gainful employment rule’s publication had raised investor hopes that the government was considering a softer approach, said Sterne Agee analyst Arvind Bhatia. Those investors were disappointed by the Education Department’s statement Friday, he said. Shares mostly turned lower or trimmed their gains after the announcement.

The gainful employment rule is the most contentious of several new regulations meant to bring greater oversight of for-profit colleges, which rely heavily on federal loans and grants to operate.

In recent months, for-profit colleges have been subjected to tough questioning from Democratic lawmakers in Congressional hearings, an undercover government investigation that alleged misleading and fraudulent tactics in recruiting and admissions, and new data that showed their students are more likely to default on their loans.

Federal law already requires that vocational programs of less than two years “prepare students for gainful employment in a recognized occupation” to be eligible for federal aid. The Education Department proposed measuring that through a complicated formula that would weigh both the debt-to-income ratio of recent graduates and whether all enrolled students repay their loans on time.

For-profit education companies have argued the rule would disproportionately hurt low-income and minority students and undermine the Obama administration’s college completion goals. The industry has also questioned the methodology behind the rule.

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