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June 11, 2010 3:37 PM Gainful

By Daniel Luzer

Any day now America will know what the Department of Education has decided to do about gainful employment, the hotly debated proposal that would render for-profit schools ineligible for federal financial aid if average graduates need to spend more than 8 percent of starting salaries to pay off student loans.

For profit schools cry that this rule will shut low-income students out of college. Ben Miller at Ed Sector offers a rather balanced perspective on this issue, explaining that:

While I don’t doubt that this proposal would result in some overly expensive programs closing their doors, the hand-wringing forecasts of gloom and doom scenarios and a large-scale shutdown of the sector are tiresome and misleading.

Here’s what’ll actually happen: for-profit schools will just be forced to charge lower tuition (these institutions now have profit margins of up to 34 percent, it looks like they can accept a little downturn). Furthermore, for-profit schools are actually protected from automatic financial aid cut off if they demonstrate that they’re otherwise effective. As Miller explains the proposed rules,

Contain safe harbor provisions that allow schools over the borrowing limit to avoid penalties if they can demonstrate that their graduates’ actual earnings are higher than [average the 25th percentile earnings for individual professions as reported by the Bureau of Labor Statistics]. Schools also avoid penalties for showing that they have high graduation and placement rates or high student loan repayment rates.

In April the Career College Association (er, Association of Private Sector Colleges and Universities) wrote a letter of Education Secretary Duncan explaining that by its own estimation, “If adopted, the impact of this Gainful Employment metric would be widespread, not limited to a few ‘bad actor’ programs or institutions.” More than 2,000 programs might be impacted by the new rules.

Well, maybe the problem is bigger than anyone thought.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer