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July 23, 2010 3:55 PM New Rules on For-Profits

By Daniel Luzer

The U.S. Department of Education has finally released its much-anticipiated gainful employment rule, the device that allows for-profit colleges to remain eligible for federal financial aid. According to an article by Jennifer Epstein in Inside Higher Ed:

Striking a middle ground between aggressively attacking for-profit higher education and backing down under the sector’s intense lobbying pressure, the rule creates multiple paths to eligibility and takes aim at only the most egregious of bad actors.
[But] for a program to be fully eligible for Title IV aid, its graduates would need to have a debt service-to-income ratio under 8 percent of their total income or 20 percent of their discretionary income.

About 5 percent of for-profit programs are not in compliance with the new rules and could be eliminated. But they will not face an immediate loss of federal cash. According to the Epstein article, institutions violating the rules have until 2012-13 to comply. In addition, some 55 percent of for-profit schools would have to reduce enrollment or be more transparent about student debt.

The Career College Association, the for-profit college industry’s lobbying group, objects to the new rules. According to a press release issued yesterday, the group believes that,

The Department of Education’s metrics-based gainful employment proposal, establishing a ratio between student debt and anticipated graduate earnings, is unwise, unnecessary, unproven and is likely to harm students, employers, institutions and taxpayers. An earlier CCA commissioned study found the gainful employment ratio could eliminate programs serving 300,000 students, disproportionately harming female and minority students.

One way to reduce students’ debt service-to-income ratio would be simply to lower tuition. Most industries have a long-term profit margin around 6 percent. For-profit colleges had an average 21 percent profit margin in 2009.

Read the department’s rules on gainful employment here.

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