After calls for more oversight of for-profit colleges, the federal government has set new rules for for-profit colleges whose graduates cannot pay off their student debt.
The new “gainful employment” standards require these colleges to show that the estimated annual loan payment for program graduates will not exceed 20% of discretionary income, or 8% of total earnings. Failure to comply could result in a loss of access to federal student aid programs.
According to the Department of Education, about 840,000 students enrolled in 1,400 programs will not meet the guidelines. Roughly 99% of these programs are offered through for-profit schools. The new standards are meant to put a stop to programs who “prey on students.”
However, Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, calls the effort “nothing more than a bad-faith attempt to cut off access to education for millions of students who have been historically underserved by higher education.”
Students of for-profit institutions are typically seeking training in a specific area, many of whom are veterans or workers affected by the economic recession. Almost 2/3 of these students are over the age of 24, half have family members dependent on them, and 40% work full time in addition to attending school. Students at these schools are more likely to live below the federal poverty line.
For-profit schools enrolled 1.3 million students last year, a 5% decrease from the previous year. The sector holds the highest student loan default rate, as well as the lowest graduation rates in higher education. Veteran groups have accused the system of targeting veterans for enrollment because of their federal GI bill money.
Critics believe the schools to be too expensive and a waste of money, both for students and the federal government who funds GI bills and other student loans. Rosalyn Harris, a single mother who entered the criminal justice program at for-profit Everest College, told Blake Ellis of CNN that upon graduating a program with awful classes, she did not have the proper training she needed and as a result spent months looking for a job with no success. She was left with was over $22,000 in student debt.
The new regulation is set to go into effect on July 1, 2015. The rules are an effort by the Obama administration to improve standards while ending aggressive recruitment methods at for-profit schools. However, for-profit colleges were able to convince a judge in 2012 that similar standards were arbitrary and ineffective.
“These regulations are a necessary step to ensure that colleges accepting federal funds protect students, cut costs and improve outcomes,” Education Secretary Arne Duncan said.
For-profit schools have replied to the issue, saying they are beneficial as an educational opportunity for students who are left out of traditional methods of higher education, and that these regulations would hinder the students who need the programs the most.
“We will vigorously contest all these issues to help ensure that students, employers and communities are not harmed by such an arbitrary and biased regulation,” Gunderson said.