Federal Rules Attempt to Address For-Profit Colleges and Student Debt

for-profit colleges

On Last Week Tonight in September, John Oliver did a bit on the student debt problem that largely pointed a finger at for-profit colleges. The schools  have been criticized for encouraging students to enroll in programs that have little chance of resulting in professions that would enable them to pay off the debt incurred to take them in the first place. Now, after much debate, the federal government is setting rules for those programs and federal student loans and grants to address the growing student debt/for-profit colleges issue.

Federal financial aid reportedly accounts for 90 percent of the annual revenue received by for-profit colleges. In the future, however, the schools may not qualify for the funding, which would preclude most students from attending, unless they improve their graduates’ ability to obtain gainful employment that realistically enables them to make payments on their student loans.

To meet the “gainful employment” requirement, the educational program must be able to demonstrate that the expected loan payments for the average graduate will not exceed 8 percent of total income or 20 percent of discretionary income. That requirement, which is scheduled to go into effect next summer, will prove daunting for most for-profit colleges. The federal government estimates that 1,400 programs will not pass the standard without changes, which will affect 840,000 students based on current enrollment.

Oliver attacked the schools for sky-high prices and deceptive recruiting, both of which have drawn federal scrutiny as well. One reason is that for-profit colleges have the lowest graduation rates and highest student loan default rates. Oliver’s monologue, for example, cited a report that of the 115 students who started an engineering program at one ITT Tech school in 2012, only one-fourth graduated and a mere 13 wound up working in engineering. One can assume that the others left school with additional debt and nothing to show for their efforts.

The rules being set by the federal government are an attempt to added the growing criticism toward for-profit colleges and the debt incurred by the typical student. In recent years, the for-profit colleges have typically attracted people who are not likely to pursue decrees at more traditional higher education institutions, such as those who did not do well in high school, were laid off from other jobs or are veterans. Several are really vocational programs, such as schools for nursing, culinary arts and such. Critics say they charge too much programs that will not enable students to pay for them. They claim the schools prey on students with aggressive recruiting and promises that they can get federal financial aid that will not need to be paid back for years.

U.S. Education Secretary Arne Duncan pointed out that too many of the for-profit colleges fail to provide the promised training and leave students buried in debt they cannot repay. The standards being introduced will “eliminate the worst-performing programs that are poorly serving students and taking advantage of taxpayers,” he added.

The for-profit colleges defend themselves saying that they provide educational programs for people who would not normally have access to higher education. They maintain that they are being targeted unfairly in the attempt to address the student debt problem, even though more of the defaults are tied to for-profit colleges, and that the federal rules being introduced will result in fewer educational opportunities for those most in need of training programs.

By Dyanne Weiss

Business Week

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