The rule could face a legal challenge in courts and is likely to draw close scrutiny from Congress. Republican lawmakers and some Democrats have voiced support for the industry.
The rule effectively would shut down for-profit programs that repeatedly fail to show, through certain measures, that graduates are earning enough to pay down the loans taken out to attend those programs. Advocates say it addresses the chief complaint against for-profit schools, that students emerge from them with too much debt and too little earning power.
“The quality here has been very uneven,” Education Secretary Arne Duncan said of the industry Wednesday in a conference call with reporters. “There have been some absolute superstars. And there have been some players whose intentions, quite frankly, we doubt.”
The 3 million students in for-profit schools have already felt an impact. In anticipation of the rule, large for-profit providers have slowed enrollment, tightened entry standards and warned students against excessive debt.
Leaders of the for-profit sector say they serve a population of nontraditional students who might not otherwise secure a higher education. In general, they have contended that a gainful-employment rule will hurt students by shuttering programs and setting off an industry contraction.
Late Wednesday, some leaders in the for-profit sector had a cautious response to the rule.
“I want to acknowledge that the department did make changes,” said Harris Miller, president of the Association of Private Sector Colleges and Universities. “But we really don’t know the bottom-line impact on students and programs.”
Kent Jenkins Jr., a spokesman for Corinthian Colleges, said the changes in the final rule illustrate that “implementing a complex and far-reaching proposal takes time and that schools need a ‘longer runway’ to put effective programs in place.” The Washington Post Co., which owns Kaplan for-profit colleges, also owns 8 percent of Corinthian.
Representatives of several other for-profit schools could not be reached or declined to comment, for lack of information about the new rule.
The new regulation takes effect in July 2012. It denies federal aid to programs that fail three “tests” of gainful employment three times in a four-year span:
l Are at least 35 percent of former students actively paying down their loans? In other words, roughly a third of ex-students must make payments that lower the loan balance by at least a dollar in a given year.