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Feds’ For-Profit Rule Gets Mixed Feedback

After a year of spirited debate on accountability of for-profit colleges, new federal regulations designed to curb abuses in the sector are getting a lukewarm response from many educators.

The rules on “gainful employment” would determine the criteria through which for-profit colleges, many of them focused on trade and technical programs, can continue to have access to Pell Grants and other financial aid programs. The regulations unveiled by the Obama administration followed more than 90,000 comments on proposed rules that had the strong support of reformers but faced vehement opposition from the for-profit sector.

“While the final rule is a step in the right direction, it is substantially weaker than the draft rule and it will take longer to protect students and taxpayers from the worst of the worst programs,” said Pauline Abernathy, vice president of The Institute for College Access and Success.

Under the regulation, for-profit colleges must meet several criteria so their students can remain eligible for financial aid programs. At least 35 percent of a college’s former students must be paying down their student loans, while students must show proof that their training has translated into moderate to high-paying jobs. As a result, former students’ average loan payments must be less than 30 percent of their discretionary income and less than 12 percent of the average salary in their field of study.

Colleges would have to miss targets for three years to lose eligibility to participate in financial aid programs, and the earliest an institution would face penalties is 2015.

Since the U.S. Education Department began considering tougher rules, Abernathy said 11 state attorneys general have launched a joint investigation of the industry amid evidence of “rampant fraud and abuse,” she said.

Abernathy said that taxpayers are providing $9 billion in Pell Grants and $30 billion in federal loans for for-profit colleges in 2011 and that the sector has high loan default rates. “The evidence is clear that many of these programs are fleecing both taxpayers and students,” she said.

But the for-profit sector, which had pledged to sue the federal government over the earlier proposed rules, also has problems with the final rule.

The Association of Private Sector Colleges and Universities said that, while the Education Department has listened to the sector and made some changes, “Our concern is that the regulation will still penalize programs with great outcomes while allowing under-performing programs to continue.”

APSCU says its chief concern is with “the same ill-advised metric” of using the income of former students to measure success. It notes that the federal government, in making the proposal, is acting “outside of its statutory authority.”

In a recent appearance on Capitol Hill, a senior Education Department official defended the rule. “The department is committed to striking a balance that will draw upon the strengths of the for-profit sector while avoiding its pitfalls, protecting students and ensuring that federal dollars are well spent,” said Dr. Martha Kanter, undersecretary of the Education Department.

The rule met with a tepid response from Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee. Harkin has led the committee’s review of the issue, holding hearings during the past year to highlight what he termed as abuses in the sector.

Harkin called the final rule “an important but modest first step” to address his criticisms. He voiced particular concern about for-profit colleges charging more than $40,000 in tuition for a two-year degree when a similar degree can be obtained from a community college for less than $9,000.

At Harkin’s latest hearing in June, other witnesses focused on the high cost of for-profit college programs compared with similar programs at community colleges. More than 60 percent of students who earn associate degrees at public colleges graduate without any debt, said Sandy Baum, an independent higher education analyst. Yet only 2 percent of those earning such degrees at for-profit institutions can make this claim, and 42 percent of these graduates have debt of as much as $20,000, he said.

Many civil rights organizations have called for tighter monitoring of the for-profit sector, and one leader said the final rule makes some important changes even though it falls short of earlier goals.

“While the rule does not include many important protections urged by civil rights, student, women’s, labor and consumer organizations, it sends a strong message to many for-profit programs to start putting students first,” said Wade Henderson, president of the Leadership Conference on Civil and Human Rights.

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