For-Profit Schools: New Proposal

On May 19, we discussed the new rule proposals for “For-Profit Schools” arising from concerns that the vocational or technical training they offer does not, in many cases, equip students to earn enough to pay off their school debt.

In our June 21 blog “Federal Student Aid Rules Rollout,” we explained that on June 16, the US Department of Education had issued a proposed rule on the first 13 of 14 issues concerning federal student aid, and that the 14th was being held for reconsideration.

Today, the results of that consideration have been announced.

The U.S. Department of Education today released a proposal that ties the eligibility for federal aid for students at for-profit schools such as University of Phoenix, ITT, and Corinthian Colleges, Inc., for example, to the rates of former students’ salaries and debt repayment.

In an article titled “Obama Cracks Down on For-Profit Colleges, Links Loans to Income,” Bloomberg reports that US Secretary of Education Arne Duncan stated in an interview yesterday that the new ruling would mean that 5 percent of all for-profit education programs would not qualify for any federal student aid whatsoever.

The proposed criteria are two-pronged. Either a for-profit has to demonstrate that a minimum of 45 percent of its former students are successfully paying off their student loans or it must show that graduates are paying less that 20% of their discretionary income or 8% of their total income on repayment of student loans.

A Signal Hill Capital Group analyst, Trace Urdan, suggested that high-priced programs that are intrinsically linked to low-paying jobs—such as criminal justice degrees—may be terminated to new students and eventually phased out, if the proposed rules go through.

Reaction from one of the for-profits cautioned about cutting off education access, while the associate executive direction of the American Association of Collegiate Registrars & Admissions Officers, Barmak Nassiarian, cautioned that standard that allows federal student aid may prove to be too low.

The Wall Street Journal in “U.S. to Scrutinize For-Profit Career Colleges” reports that for “many” for-profits 90 percent of their revenue is through federal aid. There is a 45-day period for comments on the proposal, which would not go into effect until the school year 2012–2013.