Proposed Rules Aimed at For-profit Colleges Explored During Policy Discussion

WASHINGTON— The for-profit college sector was portrayed as both villain and victim Friday at a panel discussion on the proposed rules that seek to make the sector more accountable for how often its graduates find jobs that enable them to pay back their student loans.

The most biting criticism came from panelist Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, who accused the sector of preying on the poor by selling bogus degrees that don’t lead to jobs.

“Contrary to what the advocates for this sector and their proxies constantly repeat, this is now a sector in which the vast majority of participants are actually engaged in what I view as counterfeiting of degrees and consumer fraud,” Nassirian said at a panel discussion at the New America Foundation titled “Reining in For-Profit Higher Education.”

Nassirian’s co-panelist questioned the wisdom of targeting for-profit colleges for heavier regulation.

“Why is it precisely that we’re singling out these for-profit, vocational and career programs when a lot of the arguments apply perfectly well to all kinds of education?” asked co-panelist Katherine Mangu-Ward, senior editor of Reason magazine.

Featured speaker James Kvaal, deputy under secretary at the U.S. Department of Education, explained that if colleges get federal money, federal law gives the U.S. Secretary of Education the responsibility to set minimum standards for those institutions.

“There are good reasons for that,” Kvaal said, explaining that the federal government has the right to make sure that students educated with federal dollars get training that enables them to get a job that enables them to repay their student loans.

Among other things, the proposed set of rules, released by the Education Department in late July, would seek gauge the effectiveness of for-profit colleges by subjecting the colleges to two “tests.”

The first test is based on the debt-to-income ratios of the students and the other test is based on repayment rates.

Colleges that pass both tests have nothing to worry about. Those that pass only one test can have limits placed on their growth. Those that fail both tests could be made ineligible for federal student aid unless they have a high repayment rate. The rules may also force colleges to let prospective students know that they may have a hard time repaying their student loans.

Under the debt-to-income test, colleges with graduates who typically have annual debt service payments that are 8 percent or less of their average annual earnings, or 20 percent or less of their discretionary income, would continue to qualify for federal student aid. However, programs whose graduates typically face annual debt service payments that are more than 12 percent of average annual earnings or 30 percent of discretionary income could be made ineligible for federal aid.

Programs whose former students have a repayment rate of at least 45 percent will be eligible for federal aid, those between 35 and 45 percent will be placed on restricted status, and those with loan repayment rates below 35 percent may become ineligible.

The Education Department’s thinking is that debt-to-income ratios are closely tied to repayment rates. Kvaal cited a statistic that showed 18 out of every 100 graduates from the for-profit sector default on their loans, which he said is three to four times more than the default rate in the public and nonprofit sector.

The Career College Association — soon to be formally known as the Association of Private Sector Colleges and Universities — rejects the idea that borrowed amounts determine how much students can pay back. The association has condemned the Education Department’s proposal, saying it is “unwise, unnecessary, unproven and is likely to harm students, employers, institutions and taxpayers.”

“Amounts borrowed today do not indicate what you will be able to repay in five years, 10 years or over a working lifetime,” the association’s president, Harris Miller, said in a statement released in late July in response to the proposed rules. The statement also said the Education Department’s so-called “gainful employment” ratio could eliminate programs serving 300,000 students and consequently harm female and minority students.

Nassirian said the 45 percent repayment threshold was too low.

“Forty-five percent repayment makes you golden,” Nassirian said. “In what line of work would 45 percent of repayment be a reasonable measure of market success?”

Diverse asked Kvaal whether the Department of Education had examined the characteristics of subgroups of graduates within the for-profit sector in order to gain more insight into which kinds of students at for-profit colleges, older or younger, minority or White, are finding gainful employment and which students are not.

Kvaal said the Education Department had not examined the data to that extent but suggested, as he did to several others who asked similar questions throughout the discussion, to use the department’s public comment process to raise the issue.

“I should have brought a sign that said, ‘Make public comments,’” Kvaal said.