The U.S. Department of Education on Thursday issued long-awaited regulations to increase federal oversight of for-profit colleges, despite an intense, year-long lobbying effort by the colleges to fight the new rules and opposition from Republicans and some Democrats on Capitol Hill.
The regulations aim to rein in for-profit education programs that saddle students with more loan debt than they can reasonably repay. They also try to reform “some of the career college programs [that] do not succeed” and “bad actors” that have misled students, Education Secretary Arne Duncan told reporters on a conference call late Wednesday.
Bad practices in the for-profit education sector mirror much “of what happened with subprime housing,” said Gene Sperling, director of the National Economic Council, who has played a key behind-the-scenes role coordinating the White House’s vision for the rules with the Education Department’s.
For-profit, or career, colleges aren’t the only institutions that will be touched by the regulations, but they are the ones that have made the most noise about them — and stand to lose the most. The new rules begin to take effect in July with new disclosures to students and will be fully in place in 2015.
The regulations — and the broader scrutiny of the for-profit college sector by the Obama administration and Sen. Tom Harkin (D-Iowa), who chairs the Senate’s education committee — prompted Don Graham, chairman and CEO of the Washington Post Company, to lobby against the rules on behalf of the Post’s Kaplan Higher Education division.
A spokesman for Kaplan declined to comment Wednesday night, as did a spokesman for the University of Phoenix. The Arizona school is the nation’s largest for-profit college, which has an overall enrollment of nearly 500,000 students and derived 88 percent of its revenue from federal sources in fiscal 2010.
In all, nearly $24 billion in federal financial aid went to for-profit colleges in 2008-09, and likely increased during the two most recent academic years. The colleges – many of which are owned by publicly traded companies like the Post — disclosed spending more than $8 million on federal lobbying in 2010. Earlier this year, Sen. Dick Durbin (D-Ill.) quipped that “the best way I can find to meet former members of Congress … is to take on this issue because they have all signed up as lobbyists for these for-profit colleges.”
The nuts and bolts of the regulations, published in Thursday’s Federal Register, look a lot like an earlier draft version released last summer. If anything, they appear to be less onerous on colleges.
Programs that receive students’ federal grants and loans because they “prepare students for gainful employment in a recognized occupation” will have to pass at least one of three tests: 1) a student loan repayment rate of at least 35 percent; 2) a ratio of no more than 30 percent between debt that must be repaid each year and annual discretionary income; 3) a ratio of no more than 12 percent between debt and overall income.
If a program fails all these tests three times within four years, it can no longer receive federal financial aid. Programs that fail fewer tests or fail them less frequently will be required to make additional disclosures and issue warnings to students about the heavy debt loads they may take on.
Harkin, who has led a series of oversight hearings on the for-profit education sector since last June, said in a statement that the regulations are “a modest and important first step to protect students and taxpayers from subprime academic programs that have a demonstrated track record of failure.”
Harkin plans to hold another hearing next week. But all the Republicans on the committee plan to skip it to protest what they describe as increasingly partisan hearings on the issue.
A spokesman for Sen. Mike Enzi (R-Wyo.), the top Republican on the panel, said he would comment on the regulations after he studies them in their entirety.
On the House side, Rep. John Kline (R-Minn.), chairman of the House education committee, said in a statement that he “remain[s] concerned this regulation could undermine an entire sector of colleges in the name of rooting out a few bad actors.” He said his committee “is reviewing the final regulation closely.”
Harris Miller, president and CEO of the Association of Private Sector Colleges and Universities, the largest trade group representing for-profit colleges, also took a wait-and-see approach, though he said the Education Department “clearly listened to a lot of the concerns” aired by his group.
Miller had threatened a lawsuit challenging the Education Department’s authority to impose the rules and said Wednesday that at a suit could still follow, as could further action from the industry’s allies on Capitol Hill.
Critics of the industry were dissatisfied with the regulations.
Pauline Abernathy, vice president of the Institute for College Access and Success, a group that advocates against student debt, called them “a limited first step” that did not address the concerns her group and others had put forward. “We clearly were hoping for a stronger rule, there’s no doubt about it,” she said. “It was always the case that this rule was an important step but not going to address all of the issues that have arisen.”
Another longtime advocate for greater regulation of the for-profit industry, Barmak Nassirian, the associate executive director of the American Association of Collegiate Registrars and Admissions Officers, said his reaction is one of “profound disappointment.”
But ambivalence from both sides of the debate may have been just what the White House wanted, he said. “The administration thinks that if they get enough adverse comments from both sides, they’ve done well.”
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