New federal rules on for-profit colleges fail to stop poor practices

The Department of Education released final rules today that limit the eligibility of for-profit colleges for federal loans and aid if they fail to adequately prepare students for gainful employment.

Woodstock Institute and advocates from across the country urged the Department to strengthen its proposed rules in May but, unfortunately, the final rule is inadequate to protect students from schools that fail to prepare them for the future.

 

“We are disappointed that the Department of Education finalized a rule that would allow programs with poor graduation rates and high default rates to keep using taxpayer dollars to burden students with heavy debt loads,” said Katie Buitrago, senior policy and communications associate at Woodstock Institute. “We urge the Obama Administration to use every tool at its disposal to hold accountable for-profit colleges that trap students in expensive debt and provide little benefit.”  

 

The proposed rules contained two standards that would disqualify for-profit colleges from qualifying for federal loans and aid: a debt-to-earnings test to measure whether borrowers could afford their debt; and a cohort default rate that would measure how many students in a program default on their loans. Advocates argued that the Department should strengthen the default rate standard since schools could game the rules by putting former students in forbearance when it may not be an appropriate solution for them. Instead of strengthening the rule by measuring how many students are repaying their loans, the final rule drops the cohort default rate standard entirely.

 

Additionally, the debt-to-earnings test would apply only to students who graduate from programs. This means that schools where most students do not graduate but have unaffordable debt can still pass the gainful employment rule as long as schools limit the amount of debt for students who do graduate. This is particularly concerning in the case of for-profit colleges, which have dismal graduation rates. Just 27 percent of African American students graduate from for-profit colleges, while that same group has a graduation rate of 44 percent at private nonprofit colleges.

 

For more information, contact Katie Buitrago at kbuitrago@woodstockinst.org or 312-368-0310.