Proposal Sets Stage for Gainful Fight

The Obama administration’s unveiling Friday of a proposed set of rules on for-profit colleges tees up several months of contentious debate and lively lobbying. 

March 17, 2014

WASHINGTON -- The Obama administration’s unveiling Friday of a proposed set of rules aimed at clamping down on career education programs, mostly at for-profit colleges, is, in some ways, just the latest flashpoint in a years-long battle with the controversial sector of higher education.  

But the proposed rules also tee up what is expected to be another round of voracious debate and intense lobbying to influence the final regulations that the administration plans to issue by November, so that they will take effect next July.

The 841-page proposal is the Department of Education’s first official attempt at rewriting “gainful employment” regulations that were largely gutted in 2012 by a federal judge, who ruled that some aspects of the rules were illegal because they were arbitrary and capricious.

As soon as the new proposal is published in the Federal Register -- which could happen in the next several days -- it will kick off a 60-day public comment period that will be followed by another White House review of the impact of the regulations.

And in a sign of how contentious and charged the coming months may be, the only thing that all sides agreed on Friday was just how much they didn’t like the administration’s proposal.

Consumer advocates and critics of for-profit colleges blasted the proposal as not going far enough to snuff out what they see as predatory practices in the industry. For-profit college supporters also sharply criticized the rules, but said it was too harsh and would harm the millions of students who rely on their institutions.

Under the proposal, the Education Department would kick vocational programs at for-profit and community colleges out of the federal student aid program if they don’t satisfy two different standards relating to student loan debt.

In order to pass the first metric, a program must produce graduates whose estimated loan payments each year do not consume more than 20 percent of their discretionary income (or 8 percent of their total income). The second standard looks at the share of a program's former students who default on their loans; programs must keep their default rates below 30 percent in order to pass. The goal of the rules, the administration says, is to make sure that the programs are properly preparing students to get jobs where they are earning enough money to pay back their loans. 

Programs would have to fail one of the standards for at least a couple of years before being cut off from federal student aid. But in a one-year snapshot the department provided Thursday, nearly one in five vocational programs would either fail the metrics outright or be in the warning zone, bumping up against the thresholds.

Of the 8,000 programs that would be subject to the rule, department officials said, 16 percent would have failed and another 8 would be in the warning zone. Among only programs at for-profit institutions, 20 percent would fail and 10 percent would be in the warning zone.

Student and consumer advocates said while they are happy the administration is doubling down on regulations of the for-profit education industry, Friday’s proposal falls flat. The proposal does not include a range of features they had sought, such as restrictions on the amount of federal aid flowing to poor-performing programs and a mechanism to return money to students who take out loans to attend programs that end up failing.  

"The department took a really important step today, but the proposal is far too weak," said Debbie Cochrane, research director at the Institute for College Access and Success. "The rule is soft on poorly performing programs, and it doesn't live up to the goal of protecting taxpayers and students."

Cochrane said that the department’s proposal to judge programs based on the rate at which former students default on their debt is an “inadequate replacement” for a loan repayment metric, which was included in the court-blocked 2011 rule and was also floated by the department during negotiating sessions last fall.

“What we really want to know is if students in these programs are able to actually repay their loans,” she said. “Working with default rates is a pitifully low standard, since it measures only how many borrowers are in extreme financial distress.”

Advocates for community colleges, which also have a large share of vocational programs that would be subject to the rule, said they were also unhappy with the program-level default rate measure.

Jee Hang Lee, vice president for public policy and external relations at the Association of Community College Trustees, said his group had concerns with the default rate measure because it does not account for programs that are low-cost or have relatively few borrowers.

For example, if just nine borrowers in the minimum 30-student cohort default on their loans, that could trigger the program’s failure, even if those borrowers represent a fraction of the overall number of students in the program. Because community community colleges, on average, charge students less than do other sectors of higher education, many have low overall borrowing rates.

Lee said that his group’s analysis of department data found that while no community college programs would fail under the debt metrics, 50 programs -- affecting some 12,000 students -- would fail under the program-level cohort default metric.

Representatives of the for-profit college industry, for their part, decried the proposed rule, which they described as part of a continued effort by the Obama administration to single out for-profit colleges.

Steve Gunderson, president of the Association of Private Sector Colleges and Universities, the industry’s main lobbying group, said the administration’s proposal represented an “ideological declaration of war against the private sector’s involvement in the delivery of postsecondary education.”

He said that, by the industry’s calculation, based on department data and surveys of its institution, about 2 million students would have their programs shuttered by the beginning of the next decade because of the rule.

The administration’s rhetoric in announcing the proposed rule was a “shot across the bow,” said Vickie L. Schray, the vice president of regulatory affairs at Bridgepoint Education who also served in the George W. Bush administration’s Education Department.

Schray, like other for-profit advocates, criticized the department’s rulemaking process. She said officials did not appear to be able to incorporate suggestions from negotiators during the rulemaking session -- either from critics or supporters of the for-profit industry.

“I’m very disappointed” in the proposal, she said. “It doesn't feel very collaborative.”

Gunderson said that APSCU has not made any decisions about whether it would again file a lawsuit to block the rules. But he said that the department’s proposal doesn’t end the "conversation on whether this is or is not legal."

APSCU, he said, maintains that the department lacks the statutory authority to develop their gainful employment regulations in the first place.

In striking down the 2011 gainful employment rule, the federal court ruled that the department’s loan repayment metrics were arbitrary but found that the Education Department did have the power to assess whether vocational programs prepare students for “gainful employment.”

“One judge did say that, but there is almost a universal feeling among all of higher education that that is not accurate,” he said. “It was never the Congressional intent for gainful employment to be defined by complex economic measures.”

Capitol Hill Reaction

Congressional reaction on the proposal was also split, which, at least in the current Congress, could limit the ability of lawmakers to either step in and block the rules (as many for-profit colleges would welcome) or writing a tougher version of them into law (as critics of the for-profit sector would like).  

Senator Tom Harkin of Iowa, a Democrat who has long criticized for-profit colleges, said in a statement that he had “serious concerns with this proposed rule’s ability to protect students and taxpayers from costly programs that consistently overpromise and under-deliver.”

Harkin, who chairs the Senate’s education committee, said he wanted to see the rule “strengthened during the comment process.”

Congressional Republicans, who are generally more supportive of for-profit colleges, said the administration’s efforts would harm students’ access to vocational programs.

“At a time when demand is great and the stakes are high, government should focus on increasing education opportunities, not unjustly penalizing institutions that are trying to prepare students and workers for a changing economy,” said Representative John Kline of Minnesota, who chairs the House education committee.

Representative Virginia Foxx of North Carolina said the administration’s proposal contained “arbitrary metrics that hinder student choice and create red tape for institutions.” She said that Congress should deal with the issue in the Higher Education Act.

Senator Lamar Alexander of Tennessee said the rule would be “highly destructive to our system of higher education.”

“To take 841 pages of regulations to define two words in the higher education law shows exactly what is wrong with Washington,” he said.

Paul Fain contributed reporting.  


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