By John Sandman
NEW YORK( MainStreet) - Late last month the Department of Education (ED) released its final rule that spells out what for-profit colleges must do to remain eligible for federal aid, money used by students to attend these schools, which have been criticized for their low graduation rates and low value credentials.
ED said these regulations were designed to ensure that these institutions improve their outcomes for students or risk losing access to federal student aid if they fail to make the grade.
"Career colleges must be a stepping stone to the middle class," U.S. Secretary of Education Arne Duncan said. "But too many hard-working students find themselves buried in debt with little to show for it. That is simply unacceptable. These regulations are a necessary step to ensure that colleges accepting federal funds protect students, cut costs and improve outcomes. We will continue to take action as needed."
To qualify, most for-profit and certificate programs must prepare students for “gainful employment in a recognized occupation.”
What is gainful employment? The Department’s guidelines may seem to put the cart before the horse. Rather than looking first at the money graduates make, they appear to place more emphasis on the debt graduates have when they leave school, underscoring the often dismal experience for-profit grads have in the job market.
The new regs say that a program would be considered one that led to gainful employment if the estimated annual loan payment of a typical graduate does not exceed 20% of his or her discretionary income or 8% of his or her total earnings. Programs that exceed these levels would be at risk of losing their ability to participate in taxpayer-funded federal student aid programs. The regulations on gainful employment are set to go into effect on July 1, 2015.
Not everyone was impressed. Critics pointed out that schools with low graduation rates would still get cash from ED because the cohort default rate is left out of the equation.