The Eight Percent Solution

Reflecting growing concern about the manner in which for-profit colleges operate, the Obama administration is moving forward with plans for new rules governing them. According to an article by John Hechinger, Daniel Golden, and John Lauerman in Businessweek:

The Obama Administration is gearing up to produce tougher regulations that may reduce the amount of federal financial aid flowing to for-profit colleges, cutting the companies’ annual revenue growth by as much as a third.

The tougher rules, which are expected to be released for public comment in the next several weeks, would require ITT Educational Services Inc., Career Education Corp. and Apollo Group Inc.’s University of Phoenix to show that their graduates earn enough money to pay off their student loans. If for-profit colleges can’t meet the standard, they could lose federal financial aid, which typically makes up three-quarters of their revenue.

Schools wouldn’t be eligible for federal financial aid, under rules proposed, if average graduates would need to spend more than 8 percent of starting salaries to pay off student loans. The Career College Association objects to this new standard, complaining that under the new rule,

Roughly 300,000 students in many high-demand fields such as healthcare, education, and information technology would see their programs disappear. Over the next ten years, 5.4 million potential students would be hurt. This is at a time when increasing skilled workers is a government priority and when alternatives, such as state colleges and universities and community colleges, are facing severe capacity issues because of state funding cutbacks.

That’s an interesting point. Of course, maybe those students would be better served but not assuming that huge debt at all. In addition, the point of this reform is not necessarily to close for-profit schools (5.4 million students! Won’t somebody think of the children?), but to force their reform.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer