For-Profit Colleges Face New Regulations Around Student Debt

After hearing from NEA and other student advocacy groups, President Obama’s administration has proposed new regulations for the for-profit colleges whose students graduate with huge debts and few jobs.

Consider the recent graduate who told NEA that he owed about $225,000 after earning a master’s degree in “entertainment business” from Full Sail University, a for-profit college touted by former presidential candidate Mitt Romney. “After I graduated, I was waiting tables at Olive Garden and facing monthly loan payments of $2,200,” he reported. “I struggle to maintain a comfortable livelihood, while saving and paying off my loans…I hope something can be done.”

That something are the proposed regulations, released this spring after lengthy negotiations between the U.S. Department of Education (DOE), for-profit industry lobbyists, and NEA and other groups. During the process, with the stories of students in mind, NEA has repeatedly called for strong, enforceable rules that will protect students from predatory lending practices and require colleges to provide a path to gainful employment for their graduates.

“Federal law requires career education programs—at public, nonprofit, and for-profit colleges—to prepare students for gainful employment in a recognized occupation,” wrote NEA in a recent letter to Education Secretary Arne Duncan. “Regulations are urgently needed to enforce this statutory requirement and protect both students and taxpayers from waste, fraud, and abuse.”

Take the Degrees Not Debt Pledge!
The NEA Degrees Not Debt campaign believes need-based student aid must increased, and student loans made more affordable. Every American deserves a #fairshot at #degreesnotdebt. Take the pledge today.

Considering students at for-profit colleges account for just about 13 percent of all higher-education students, they suffer an outsized share of misery, i.e. student debt and unemployment. Compared to graduates of community colleges, who typically graduate with zero to little debt, students who earn associate’s degrees at for-profit colleges owe an average $23,590 in federal student loans.

And their graduates, who are more likely to be low-income, of color, and U.S. military veterans, often struggle mightily to repay that money. A recent federal analysis of for-profit college programs, the kind that could be affected by the new regulations, found that the majority—72 percent—produced graduates who, on average, earned less than high school dropouts. With that in mind, perhaps it’s not surprising that students from for-profit colleges are twice as likely to default on their federal loans than students from public or non-profit institutions.

“Higher education should open up doors of opportunity, but students in these low-performing programs often end up worse off than before they enrolled: saddled by debt and with few—if any—options for a career,” said U.S. Education Secretary Arne Duncan. “The proposed regulations address growing concerns about unaffordable levels of loan debt for students enrolled in these programs by targeting the lowest-performing programs, while shining a light on best practices and giving all programs an opportunity to improve.”

About 25 percent of for-profit colleges get 80 percent of their funding from taxpayers. In order to stay eligible for that federal money, the proposed rules require institutions to show that the estimated annual loan payments of typical graduates do not exceed 20 percent of their discretionary earnings or 8 percent of their total earnings, and that the loan default rate for former students does not exceed 30 percent. The proposed rules also would require institutions to publicly share information about program costs, debt, and performance.

NEA has further encouraged the White House to close loopholes in the proposed rule and consider a few additions to the rule. Specifically, programs that fail to meet the new federal standards should have to financially compensate their students, and those schools also should be forced to limit enrollment until they improve. Meanwhile, low-cost programs should be protected.