Critics, Supporters Express Concerns on Proposed Rules Targeting For-profit Colleges

Supporters and opponents of the controversial “gainful employment” rule being directed at for-profit colleges voiced their concerns Thursday at one of a series of public hearings conducted by the U.S. Department of Education this week as it mulls modifying the rule before it takes effect.

Speaking in an auditorium at the department headquarters, members of the for-profit college sector criticized the proposed rule as a flawed measure that would effectively shut down programs that serve large numbers of low-income and minority students.

Several opponents also complained that the rule would retroactively punish for-profit colleges.

“It will be based on events that took place before the rule was published or took effect,” Nancy Broff, a D.C.-based attorney who represents the for-profit college sector, said of the proposed rule, which seeks to cut off federal aid to for-profit colleges whose graduates carry high debt loads and have low repayment rates.

Since the rule is set to take effect on July 1, 2012, schools would be held accountable for debt loads and repayment rates of students who started college before the rule went into effect, Broff and others complained as they urged the department to withdraw the rule altogether or at least postpone its effective date to 2014.

Supporters of the rule, however, urged Department of Education officials to hold fast to the rule as proposed and make it even more stringent.

” Right now, the current regulation sends the wrong message,” said Angela Peoples, policy and advocacy manager for Campus Progress, a national organization affiliated with the Center for American Progress, a self-described “progressive” policy organization started by former President Bill Clinton adviser John Podesta.

That wrong message, Peoples said, is that the proposed rules allows for “more than half of students to not be paying down their loans.” She called on the threshold to be increased by 10 percent.

As proposed, programs with former students who have loan repayment rates of at least 45 percent will continue to be eligible for federal aid. Buy programs whose former students have loan repayment rates below 45 percent but at least 35 percent may be placed on restricted status, and programs whose former students have loan repayment rates below 35 percent may become ineligible.

Additionally, federal aid for the colleges would be contingent on program completers typically having annual debt service payments that are 8 percent or less of average annual earnings or 20 percent or less of discretionary income. Programs whose completers typically face annual debt service payments that exceed 12 percent of average annual earnings and 30 percent of discretionary income may be deemed ineligible.

he for-profit college sector is besieged by infamously low repayment rates. For instance, only 57.8 percent of for-profit four-year institutions are above the 35 percent repay rate, versus 89.15 percent of public four-year institutions and 88.84 percent of nonprofit four-year institutions. Similar distributions exist at the two-year college level.

Members of the for-profit college sector say the proposed gainful employment rule fails to take into account a series of complex factors that affect a graduate’s starting salary or ability to repay their loans.

“A student defaults for many reasons,” said Sheryl Moody, vice president, general counsel and chief compliance officer at Anthem Education Group, an organization of schools that offers a variety of career training programs.

“A common predictor is those who are Pell eligible, meaning they don’t have the financial resources to carry them through major life events that could derail plans after they complete a program,” Moody said.

Moody and others also criticized the repayment measurement because it doesn’t count students as payers if they have sought a forbearance or deferment on their student loans.

“If they’re not counted in repayment rates, they should not be offered those repayment plans,” said Lincoln Frank, managing partner at Quad Partners, an investment firm that invests in career colleges and other businesses in what it describes as the “education industry.”

Frank also criticized the Department of Education for basing its proposed rule on the assumption that students should be paying off their student loan debts in ten years.

“More often it’s 19 years,” Frank said.

Getachew Kassa, legislative director at the United States Student Association, raised an altogether different issue regarding student loan payoffs.

If students take out federal loans at programs that are deemed ineligible to utilize federal student aid under the proposed rule, Kassa said, students should not be held responsible for paying off those loans.

” I would hope that the Department (of Education) would discharge those loans and forgive me for those loans because programs were found to be ineligible,” Kassa said.