Department of Ed Hopes For Better Regulation Of For-Profit Market

Many private for-profit colleges have recently found themselves the center of negative publicity for what critics say is their practice of luring poor, unprepared students with misleading ads that promise good paying jobs on graduation, but in actuality discharges these students with mountains of debt and limited employment prospects for the future. These colleges are now expected to receive specific new regulations from the Department of Education as they have been the focus of many government investigations and congressional hearings.

For-profit colleges in many states are lightly regulated, and some have engaged in egregious fraud including deceptive marketing. They tend to charge higher tuition than community colleges, which get direct funding from states. Their students take on more debt, have a tougher time repaying it and suffer higher unemployment rates reports Eduardo Porter of the New York Times.

These colleges have quickly grown as a segment of the United States’ higher education market, as 20 percent of associate’s degrees awarded nationally from for-profits today in comparison to 8 percent two decades ago. The awarding of bachelor’s degrees has risen to 7 percent in that time as well from pretty much being non-existent in these schools.
There is growing demand for higher education not only in the United States but abroad as well and for-profits are filling that gap. The schools tailor to older students that other schools may not take due to poor grades in high school but that are mature and willing to advance their education.

“They are adding to the supply,” said Mr. Deming, an assistant professor of education and economics at Harvard’s Graduate School of Education. “They are reaching students in a different way, opening in places where there are no community colleges. They are filling in the cracks.”

The Department of Education hopes to implement federal law in which all programs offered by for-profits — like nondegree certificate programs at other institutions — must prepare students for “gainful employment in a recognized occupation” to remain eligible for federal aid. Degree programs at for-profits will pass the test — and retain eligibility for federal student aid — if the default rate of their students remains under 30 percent, according to the last draft released by the department. And graduates’ debt service will have to consume no more than 8 percent of their earnings and 20 percent of their disposable income.

The Department submitted its proposal of these new rules to the White House in January as the Obama administration has been the first to codify “gainful employment” and address the disparity between graduating students actual employment and debt.

Supporters of for-profit colleges argue that the new regulations would be unfair as public and non-profit institutions are not held to the same degree or requirement.

Professor Deming worries that the regulations might simply encourage for-profit schools to be more careful at selecting students, screening many out to improve their scores. “Schools are going to push certain students out,” he said. “Do we want that to happen? It certainly will.”

Ben Miller, an expert on education policy at the generally liberal New America Foundation, is sympathetic to the Education Department’s effort, but argues that the proposed rules don’t directly address high dropout rates. And they would allow the continuation of many programs that fail to significantly improve the earnings of their graduates.

“ ‘Gainful employment’ only tries to get at excessive debt that students can’t handle,” Mr. Miller said.

03 3, 2014
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