Obama weighs crackdown on for-profit college industry

It’s decision time for the Obama administration on a major rule designed to crack down on colleges that saddle students with a mountain of debt without preparing them for the job market.

The Education Department is under intense pressure as the agency prepares to finalize its highly anticipated “gainful employment” regulations, aimed squarely at for-profit college programs seen as predatory.

{mosads}Go too far, business groups warn, and the Obama administration risks denying millions of students a higher education.

Yet the agency’s draft rule, issued in March, has come under fierce criticism by some congressional Democrats and advocates, including former Homeland Security Secretary Janet Napolitano, who say it is too weak.

“In its current form, the proposed rule is meaningless, sets the compliance bar far too low, and will not stem the flow of federal dollars to poorly-performing institutions, even in the most egregious circumstances,” Napolitano, now the president of the University of California system, said Tuesday in a letter to the Education Department.

The missive was part of a deluge of responses to the proposal received by the agency ahead of the close of a formal public comment period. Officials must now sort through the submission as the agency crafts final language.

Regulators have no specific timetable for issuing the rule, according to Education Department spokeswoman Jane Glickman, who said only that it was expected sometime in 2014.

The agency’s balancing act is complicated by federal judge’s decision in 2011 to toss out the agency’s initial attempt at the regulation.

This time around, opponents — including the for-profit college industry and the U.S. Chamber of Commerce — are launching a preemptive strike.

The Chamber, in comments submitted to the agency, described the March proposal as overzealous.

“The proposed one-size-fits-all system of higher education where winners and losers are picked by regulatory fiat would not allow for the diversity of educational programs needed to narrow (an) ever-increasing skills gap,” the Chamber argues. “Graduates from ‘traditional’ institutions alone cannot meet employer demand for an educated workforce, which prohibits growth and competitiveness for businesses of all sectors and sizes.”

The regulations, due to take effect by late 2016, would impose a new set of metrics that colleges must meet to be eligible to participate in federal loan and grant programs.

First, the estimated annual loan payments for graduates must not exceed 20 percent of their discretionary earnings. Second, the default rate on loans taken out by former students must not exceed 30 percent.

Institutions would be required to certify that all gainful employment programs are accredited and have the proper state and federal licenses. And they would be subject to new public disclosures to better inform students about the costs of the programs.

Critics say the new rules are unlawful, unfairly target private programs and would ultimately backfire.

The Association of Private Sector Colleges and Universities (APSCU) points to a new study showing the regulations would have an adverse impact on millions of students.

The APSCU-commissioned study, conducted by Northwestern University Economics Professor Jonathan Guryan, estimates that between 2 million and 7.5 million students would be denied access to post-secondary education by 2020 under the proposal.

Guryan argues that the Education Department has overestimated the number of students that would be able to enroll in alternative programs.

“Our analysis shows that much fewer reasonable alternatives actually exist for students and that the Department’s assumptions are overly optimistic …,” according to the study.

The concerns were echoed in a letter signed last week by nearly three dozen House members from both sides of the aisle, seeking language in appropriations legislation expressly prohibiting the Education Department from enacting the law.

But other federal lawmakers are urging the administration to go bold on the rule.

Sens. Richard Durbin (D-Ill.), Tom Harkin (D-Iowa) and others have called out schools like the University of Phoenix and Corinthian Colleges, noting while only one in 10 students attend for-profit colleges, they account for almost half the country’s student loan defaults.

“They won’t deny it; they can’t deny it,” Sen. Dick Durbin (D-Ill.) said this month. “When it comes to the facts of the matter, this sector of higher education is disgraceful and scandalous.”