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March 14, 2014 4:54 PM New Student Employment/Debt Standards a Second Bite At the Apple

By Ed Kilgore

There’s been a fair amount of buzz today over new proposed federal regulations governing the eligibility for student loan programs of colleges that tend to produce a lot of debt without a lot of corresponding earning power (or to use the technical term, “gainful employment”) for graduates. Here’s how Huffpost’s Chris Kirkham described the new regs:

The regulations are likely to fall the hardest on for-profit colleges, which on average cost nearly twice as much as comparable two-year and four-year public colleges and leave students with much more debt. Only about 13 percent of students attend for-profit schools, yet the sector is responsible for nearly half of all student loan defaults.
Such poor outcomes have led to criticism that some companies lure students with promises of new careers, then fail to deliver training and job placement services. The Obama administration determined that nearly three-quarters of for-profit college programs subject to the new regulations produced graduates who made less money on average than high school dropouts.

So inevitably these proposed measures will be described—particularly by the schools whose heavy federal subsidies are threatened by them—as another front in the Obama administration’s “war” on for-profit colleges.

But as Daniel Luzer explains at College Guide today, the regs are better understood as a second bite at the same apple:

In 2012 Judge Rudolph Contreras of the U.S. District Court for the District of Columbia vacated several parts of an earlier draft of gainful employment regulations, because parts of the rules seemed arbitrary….
And so the department went back to the drawing board….
Under the proposed regulations, a program would lose eligibility for federal financial aid if its program has a default rate of 30 percent or greater for three consecutive years. If a school has too many former students who fail to make payments on student loans as scheduled according to the terms of the loans the school will lose access to federal financial aid money.
So, basically, the first measure of program effectiveness, the ratio of debt to salary, remains the same, but the second measure, the evaluation of how many students are in trouble, is different….
Education Secretary Arne Duncan indicated that about 20 of programs would fail under the proposed new standards.
Under the earlier, repayment rate measure, approximately 25 percent of programs were supposed to fail.

That’s still a lot of programs with a lot of federal money. And if it sticks, the new regs could have quite an impact on for-profits, who will accordingly fight it like sin.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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