In an attempt to prevent for-profit colleges from preying on students, the Obama administration announced "gainful employment" standards on Thursday—but they are receiving criticism for being both too harsh and too lax.
Effective July 1, 2015, the extensive regulations apply to vocational and non-degree programs at community colleges and for-profit institutions.
Programs that fail to meet the new benchmarks stand to lose out on $22 billion in federal student-aid given annually to gainful employment programs under Title IV. The Department of Education (DOE) estimates that around 1,400 programs—99% run by for-profits—will fail the test initially.
The law assigns grades to programs based on comparing a typical graduate's annual loan payments compare to her annual salary:
- Pass: Loan payments below 8% of total (or 20% of discretionary) earnings.
- Zone: Loan payments fall between 12% and 8% of total (or 20% and 30% of discretionary) earnings.
- Fail: Loan payments above 12% of total and 30% of discretionary earnings.
- Ineligible for Title IV funding: Programs that receive a failing grade two out of three consecutive years or stay in the warning zone for four consecutive years.
DOE first released regulations involving loan repayment rates and two debt-to-income standards in 2012. Two years later, a federal judge ruled the repayment rate arbitrary, but upheld the general notion of gainful employment.
Experts expect for-profits to challenge this iteration as well, but DOE officials believe it to be a "policy that will withstand legal scrutiny."
Some say loan default rule would have been too harsh
In a notable change from a draft released in March, DOE removed a loan-default standard (that would have affected an estimated 500 more programs) in order to streamline the regulations and incorporate public feedback.
Community college trade groups had criticized the proposed loan-default rule. They said it held them overly accountable to the small number of students who borrow to attend their schools, resulting in "expensive and burdensome" reporting requirements on all schools with vocational programs, "regardless of their cost, borrowing rates, and risk to students."
As such, for-profit advocates chalk the deletion up to a desire to protect community colleges.
But others call the new rules too soft
The administration says the rules "capture the vast majority of poor performing programs," but consumer advocates call for even tighter measures.
By cutting the default rate standard, "the administration ignores the most vulnerable students: those who withdraw from failing programs with debt but no degree," says Rory O'Sullivan, deputy director of Young Invincibles, an advocacy group.
DOE still tracks default and completion rates, debt levels, and wages of former students. Such information will be available to the public, but not factored into the financial penalties (Fain, Inside Higher Ed, 10/30; Department of Education Fact Sheet, 10/30; AP/Washington Post, 10/30).
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