Concessions or a Cave-In?

In softening rules requiring for-profit and vocational programs to prepare students for "gainful employment," Education Dept. disappoints supporters and fails to mollify critics.
June 2, 2011

WASHINGTON -- After 10 months, more than 100 meetings with for-profit colleges and other stakeholders and 90,000 written comments, the Education Department today formally unveiled its second attempt to craft a new system for determining whether vocational programs prepare their graduates for "gainful employment."

Like the highly controversial draft rules that the department proposed last July, the final rules focus on the amount of debt that students in for-profit and certificate programs take on, and on their prospects for paying it off. The final regulations offer colleges significantly more leeway, lowering the required debt-to-income ratios and giving institutions more chances to improve before they lose eligibility for federal financial aid.

Many of the changes address concerns that for-profit institutions (and their allies in Congress) have raised, and over which they have threatened to sue. But Education Department officials (and a leading White House aide) tried to make clear in describing the new rules to reporters on Wednesday that colleges were not "off the hook." Education Secretary Arne Duncan called the new set of regulations “more thoughtful and more sophisticated” than the previous version, but added that the for-profit sector’s success “should not come at the expense of taxpayers and students.”

In refining the measures, the department landed between critics and supporters of for-profit institutions -- and failed to please either group. For-profit colleges wanted nothing more than for the matter to disappear entirely, arguing that the Education Department had overstepped its bounds by issuing the regulations at all and continuing to hold out the prospect of a lawsuit, even as their advocates conceded that the department had moved significantly in their direction.

Supporters of tougher regulations felt disappointed or even betrayed by the new measures, which they said had been watered down to the point where they could no longer protect students. The real test will come in Congress, where a bipartisan group of representatives approved an amendment in February that would block the regulation. The changes the department has made seemed in many ways aimed at winning them over.

Round Two

Compared to the original proposed regulations, the new rules will kick in later, give colleges more chances to fix problems and loosen several requirements on measuring debt and repayment. The first year that programs could lose eligibility is now 2015, three years later than previously proposed, and data collection will not begin until 2012, after the new measures take effect.

The rules require programs at for-profit universities and certificate and vocational programs at nonprofit institutions to show that at least 35 percent of their students are repaying their loans or that the annual loan payment does not exceed 30 percent of a typical graduate’s discretionary income or 12 percent of total income. An institution need meet only one of the three requirements to stay eligible for federal aid.

In the proposed rule, those benchmarks were considered the minimum that colleges had to meet to retain aid eligibility. The preferred standards were a 45 percent repayment rate, a debt-to-discretionary-income ratio of 20 percent or a debt-to-income ratio of 8 percent. Colleges falling in between the two levels would have been placed on “restricted” status, which would cap enrollment and require the institutions to warn students they might not be able to pay off their debt, among other measures. Colleges that could not meet the minimum would have lost eligibility immediately.

In the final regulations, the restricted status has been eliminated and replaced with the “three strikes” rule, which department officials say is closer to its policies in other areas, such as on student loan default rates. Colleges would have to fail to meet each of the criteria for three years out of four. In the meantime, they would not face enrollment caps, though they would still have to tell students the first year that they missed the target and warn them about the program’s status after the second.

“We’re asking companies that get up to 90 percent of their profits and their revenue from taxpayer dollars to be at least 35 percent effective,” Duncan said, referring to the federal financial aid on which many for-profit colleges depend almost entirely. It is only reasonable, said Duncan and Gene B. Sperling, who heads the White House economic council and helped craft the new rules, to hold such institutions accountable.

The administration made several other concessions as well. Students have been allotted a longer time to pay off loans, so that the annual debt burden is lower: a 10-year term remains in place for certificate or associate degree programs, but bachelor’s and master’s degree candidates would have 15 years to pay off their loans, and other graduates would have 20. And colleges can cap their measurements of student debt at the amount necessary to pay tuition, fees, textbooks and other college expenses -- to avoid counting debt amassed by students who borrow more than that amount and use some of it to pay living expenses while enrolled.

The methods for measuring debt repayment have also been adjusted. Students will now be evaluated in their third and fourth years out of college, rather than in each of the first four years out, and those enrolled in the government-sponsored income-based repayment plan, or in other government programs that allow them to pay interest rather than repay principal on their loans, will be considered to be successfully repaying.

Administration officials, who have come under intense lobbying pressure from for-profit colleges over the gainful employment and other "program integrity" regulations, emphasized repeatedly during the call with reporters that they had listened to for-profit institutions’ concerns and adjusted the rules, and that they thought the second version was an improvement.

“This rule will increase access for students to get to attend a quality career college education,” said Sperling. “It will only decrease access to very weak programs that leave students with a crushing debt burden and do little to help them achieve gainful employment that was supposed to be the purpose of the education they were receiving.”

Observers pointed out that the department's changes supplied most of the items on for-profit colleges' wish lists -- short of dropping the matter entirely. An industry adviser pointed to the cost-of-living exemption as one of the more significant changes, but said that many would be “helpful” to for-profit colleges.

Some of the most vocal advocates for tighter regulation reacted with dismay to the changes. The Institute for College Access and Success, a nonprofit group that rarely publicly criticizes Duncan, called the new rule a “first step” but said it was ultimately inadequate to protect students.

“More needs to be done to prevent the waste of taxpayer dollars and protect students, including veterans, from programs that swindle them rather than prepare them to succeed in the work force,” Pauline Abernathy, the institute’s vice president, said in a statement.

The colleges themselves reacted cautiously, walking a fine line between reinforcing the complaints (and legal threats) they had already made and acknowledging that the department had made important concessions. The Coalition for Educational Success, a lobbying group made up of for-profit colleges that has challenged other program-integrity regulations in court, maintained that the Education Department, in defining "gainful employment," had stepped into territory that should be controlled by Congress.

The Association of Private-Sector Colleges and Universities will review the new rule to see how many programs it will affect, President Harris Miller said. The Education Department estimates that 18 percent of programs at for-profit colleges will fail to meet at least one of the benchmarks at some point, and 5 percent of for-profit programs will lose eligibility under the “three strikes” rule.

He maintained that the group’s legal position, that the regulations were “a backdoor way of price fixing” outside the department’s authority, still stood, and would be grounds for a lawsuit. But whether one is filed will come down to the colleges' opinion of the revised regulations, regardless of the legal situation.

“The department did make changes,” Miller said. “I can’t say this is a victory or a defeat because it’s all about the students.”

Key players in Congress, including Sen. Tom Harkin, the Iowa Democrat who, as Senate Health, Education, Labor and Pensions Committee chairman, has held a series of high-profile (and highly critical) hearings on for-profit colleges, issued equally guarded statements. Harkin called the regulations a “modest and important first step.”

Other observers noted how much the landscape has changed in the past 10 months. Since the initial regulations were issued, Congress has held hearings on for-profit colleges’ recruiting tactics, state attorneys general have opened investigations into their operations, and scrutiny in the media has grown, said David Halperin, director of Campus Progress, a liberal youth advocacy group.

Some who hoped for a crackdown said they thought the combination of regulations and scrutiny might accomplish what the regulations alone will not: reining in the proprietary institutions, and especially the worst among them. “It ultimately means that the for-profit industry is going to have to be held accountable,” he said.

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