Administration proposal aims to tighten oversight of for-profit colleges

By Daniel de Vise
Washington Post Staff Writer
Friday, July 23, 2010

Education Secretary Arne Duncan proposed Thursday that for-profit colleges be required to show through certain new measures that their graduates are not saddled with too much debt, an initiative he said was meant to protect students from "a few bad actors" in the industry.

Through the proposal, the Obama administration aims to tighten oversight of the fastest-growing sector of higher education. The for-profit sector enrolled 1.8 million students in 2008, more than triple the number of a decade earlier.

Starting in the 2012-13 academic year, for-profit colleges would have to demonstrate that they prepare students for "gainful employment" in order to remain eligible for federal aid.

They could do this in two ways. One would be to show that at least 45 percent of former students are paying down the principal on their federal loans. The other would be to show that graduates are paying no more than one-fifth of their discretionary income, or 8 percent of total income, toward student debt.

Colleges that fail to meet those tests would face potential limits on enrollment growth and would be required to warn students about potential debt. They would become ineligible for aid if less than 35 percent of former students are paying down their principal and if graduates pay more than 30 percent of discretionary income -- and more than 12 percent of total income -- toward student loans.

The rule would become final Nov. 1, after a public comment period. Duncan estimated that it would disqualify 5 percent of the for-profit industry from receiving federal aid.

"That 5 percent would be, frankly, the bottom of the barrel," he told reporters in a phone briefing. "The industry as a whole, unfortunately, has been given a black eye by a few bad actors."

The Career College Association, an industry group, said in a statement that the proposed regulation was "unwise, unnecessary, unproven and is likely to harm students, employers, institutions and taxpayers." Kaplan University, owned by a subsidiary of The Washington Post Co., belongs to the for-profit sector. A Kaplan spokesman declined to comment pending a review of the proposal. Representatives from other for-profit colleges could not be reached for comment.

The Education Department released 13 other regulatory changes related to higher education in mid-June. The agency had delayed action on the last and most controversial rule to settle lingering industry objections.

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