Department of Education Issues Rules for For-Profit Colleges

After much ado, the Department of Education has finally issued rules about Gainful Employment, which determines which colleges are eligible to receive federal financial aid. Under new rules, for profit schools that saddle students with more debt than students can straightforwardly pay off will not be allowed to operate using federal funds.

By the regulations released today in order to continue to receive federal funding for-profit schools must make sure that at least 35 percent of former students are paying down their loans, former students must not have to pay more than 30 percent of their discretionary income on loan payments, and former students must not spend more than 12 percent of their total income on loan payments.

The rules were actually pretty lenient on for-profit schools. As Kelly Field over at the Chronicle of Higher Education explained:

For-profit colleges, which have spent millions fighting the Education Department’s proposed “gainful employment” regulations, have won some major concessions in the final rule…

The changes, which give colleges more time and ways to meet the rule’s benchmarks, are expected to significantly reduce the number of programs that would be penalized by the department.

Thanks to revisions of the rule, schools that fail to meet the three requirements described above won’t be immediately cut off from federal funds, but will have several years to comply with the rule before the Department institutes sanctions. Field:

[The revised rule] gives colleges time to comply with the rule, disqualifying only programs that fail the debt-to-income and repayment rate tests three times in a four-year period.

The department also made several other changes sought by for-profit colleges, such as including interest-only loans in the repayment calculation and giving colleges a choice of which data to use to calculate debt-to-income ratios. Those changes, and others, will make it easier for colleges to pass the department’s two-part test.

The Education Trust released a statement expressing disapproval. Ed Trust characterized the new rule as “a 436-page a la carte menu of ways for-profit companies can game the system.”

According to Ed Trust Vice President Jose Cruz, “the final, watered-down rule does not do nearly enough to curb [for-profit education companies’] abuses. The Obama administration’s new ‘gainful employment’ regulation is a disappointing stumble on America’s path toward regaining the global lead in college attainment.”

One might not realize that from reading the Washington Post, however. The Post put the gainful employment story under a headline reading “Federal ‘gainful employment’ rule tightens oversight of for-profit colleges.”

This is technically true but it isn’t really the story. The story has to do with the fact that the rules are much more forgiving than many anticipated, or hoped for.

The Washington Post Company owns Kaplan University, a for-profit college.

In 2009 Kaplan accounted for 58 percent of the Post Company’s revenue. Some 87.5 percent of Kaplan’s revenue comes from federal financial aid.

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