For-Profit Colleges Fight ED Regs on Gainful Employment Rules

NEW YORK (MainStreet) — For-profit colleges have been a target of consumer groups and federal legislators alike, who point to the high tuition and loan balances that students have to bear while experiencing low employment rates after graduation.

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The schools themselves are experiencing declining revenues and falling enrollments. What's more, the Obama administration looks determined to regulate them as it examines public comments on the "gainful employment" rules it has proposed for for-profit colleges.

Gainful employment rules gauge the debt load and repayment rates of for-profit college graduates and are focused on post-college outcomes. The Department of Education (ED) proposed that for-profits demonstrate that 35% of their graduates were repaying their loans — a threshold that was criticized as too low by for-profit opponents. In a complex 2012 decision, a Washington, D.C. federal district judge threw out ED's proposal in what appeared to be a victory for the for-profits. But the court said the Department could still seek gainful employment standards.

ED was back last year with another proposal that addresses gainful employment and a loan default standard that includes students who fail to finish school. For-profit colleges are generally notorious for having high dropout rates.

The comment period on ED's proposal ends on May 26. If gainful employment rules go into effect, regulators will have a hammer that could disqualify these schools from federal aid, a potential death knell for an entire industry which depends on federal student loans.

Critics of gainful employment rules say they unfairly target for-profits. Rep. Matt Salmon, an Arizona Republican, told Congress last month that they should also apply to law schools and culinary arts programs.