The Obama administration is proposing to tighten oversight of for-profit colleges through new rules that seek to limit how much debt students can amass in career-training programs.
The proposal, announced Friday, is the administration’s second try at regulations setting standards for what colleges must do to ensure that graduates of career programs get “gainful employment.”
The first gainful employment initiative, debated from 2009 to 2011, spawned a huge campaign by for-profit colleges to block new regulation. The colleges, supported by many congressional Republicans and some Democrats, said then that they had been unfairly targeted and that the initiative would hurt low-income students.
Obama administration officials said they were trying to protect those students from low-quality programs that would saddle them with too much debt.
The Education Department issued a rule in 2011 that set standards for loan-repayment rates and the ratio of graduates’ debt to income. Programs that failed the tests could be disqualified from participation in the federal student aid, which would essentially shut them down. But in 2012, a federal judge blocked major provisions of that rule, forcing the department to start over.
The new proposal jettisons the repayment-rate metric. Instead, it would require that the estimated loan payments of typical graduates not exceed 20 percent of discretionary income or 8 percent of total annual income.
Programs in which loan payments exceed 30 percent of discretionary income or 12 percent of total annual income would be deemed failing. Those in which loan payments amount to 20 to 30 percent of discretionary income, or 8 to 12 percent of total annual income, would be placed in a warning zone. Either way, colleges would be required to improve performance rapidly, or the programs would be ineligible for federal aid.
Also, the proposal would require colleges to ensure that the loan default rate for former students does not exceed 30 percent. Like the earlier regulation, the proposal threatens to shut low-performing colleges out of federal student aid programs.
The proposal, which now enters a period of public review, would cover thousands of programs at for-profit colleges, as well as non-degree programs at public and private nonprofit colleges.
“To be clear, we think the majority of gainful employment programs out there would pass these metrics,” Education Secretary Arne Duncan told reporters. But many, he said, particularly at for-profit colleges, would not. He said the proposal is, in some ways, “possibly a little tougher, and more thoughtful and more accurate,” than the first attempt.
“This rule is designed both to identify those programs that are doing a good job and target those that are failing both students and taxpayers,” Duncan said.
The industry assailed the proposal. “The gainful employment regulation would deny millions of students the opportunity for higher earnings,” said Steve Gunderson, president and chief executive of the Association of Private Sector Colleges and Universities. “The government should be in the business of protecting opportunity not restricting it.”
The administration said students at for-profit colleges account for about 13 percent of all postsecondary enrollment but nearly half of all federal student loan defaults. About 22 percent of borrowers who studied at for-profit colleges default within three years, according to federal data, compared with 13 percent at public colleges. Administration officials say that about 20 percent of programs in the for-profit sector would fail under the proposed standards.
James Kvaal, deputy director of the White House’s Domestic Policy Council, said the proposal is part of Obama’s push to make college affordable and ensure that it has value. “College is something the middle class needs,” he said. “It shouldn’t be a luxury for the few.”