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For-Profit Higher Education Industry Sues to Block Weak “Gainful Employment” Rule

posted by Jean Braucher

Last week the Association of Private-Sector Colleges and Universities (aka the Career College Assn.) filed suit in U.S. District Court in Washington, D.C., to block enforcement of the U.S. Dept. of Education’s “Gainful Employment” regulation, issued in June.  See here for the complaint.   The for-profit colleges are challenging the agency's authority to issue that regulation.  It requires that, to be eligible to receive federal grant and loan funds, the colleges must show that 35 percent of former students are paying something (even $1) on their student loans (or that they must meet other benchmarks set in terms of debt to income).

So let’s back up and put this issue in context.  There is lately a general unease about whether the cost of higher education is worth it, even though income rises and unemployment decreases steadily with successive degrees (except that PhD’s are more likely to be unemployed than those with professional degrees, hardly a surprise).  See here.   

 And this leaves out the personal fulfillment and societal participation that often come with study of the liberal arts.  Of course there is plenty of room for all sectors of higher education to engage in reflection about the debt burdens students and their families are bearing and to find ways to reduce the cost (administrative bloat, for example, deserves serious attention).  Higher education debt looms as the next great threat to sound family finances, once the mortgage crisis subsides.  Meanwhile, the problem gets worse as state austerity measures take away the option of a high quality education at an affordable price at many public universities.

But under the principle of worst things first, the highest urgency should be assigned to curbing the abuses in for-profit higher education.  These schools involve the highest debt per student, the biggest grab of federal financial aid dollars per student, the highest default rates on student loans, the lowest expenditures on instruction, and some of the worst outcomes in terms of employment.   The problems in this sector are much worse than in prime higher education, and we shouldn’t lose sight of that fact.

 Subprime higher education is marketed aggressively, and often predatorily and fraudulently, to the poor, minorities, and adults with children.  The schools sell the American dream of a college education.  While educational access is a worthy goal, too many of those getting loans to attend for-profit schools cannot benefit and become roadkill, either dropping out or not getting good jobs even when they complete programs, meanwhile running up big debts.   This national scandal is primarily funded with federal grants and loans, meaning that students and taxpayers foot the bill, while the institutions collect billions in federal money, report impressive profits to their Wall Street investors, and pay high salaries to their executives, a number of whom are former politicians.  Many observers are reminded of subprime mortgages, but at least in the home loan sector, the bailout wasn’t pre-packaged. 

Into this cesspool, the U.S. Dept. of Education dared to tread, first with a proposed regulation last summer and then this past June with the final regulation, set to go into effect July 1, 2012.  See here.  DOE’s tome on the issue, published in the Federal Register last month, shows the strain of an agency under siege by lobbyists and members of Congress for nearly a year.  In the end, the agency excessively deferred to industry opposition, and the regulation now calls for the for-profit colleges to meet only one of several benchmarks and with lots of lead time to do so.  One of those is that by 2015, the colleges be able to show that 35 percent of former students are repaying something on their federal loans, that is, if the colleges want to continue to be eligible for federal money. 

Oh the wailing over such a high bar!  Just over a third repaying federal loans!  An impossible standard!  As noted above, the industry has sued, claiming that the Higher Education Act’s demand for “gainful employment” is toothless.   The complaint picks off various sectors of prime higher education for comparison (such as doctors still in training), but overall the industry seems to be admitting very poor results for many of its students.  DOE’s analysis is that its regulation targets only those career colleges that “unambiguously” are not fulfilling their mission of educating students for gainful employment.

If 35 percent of former students of a for-profit college can’t reasonably be expected to be able to repay their loans, why should these students’ unmanageable debts be non-dischargeable for life?  If the for-profit schools are right that it is predictable that more than 65 percent of students can’t repay their debts, surely it is inhumane to keep dunning them to the grave, as we do under federal law, including the Bankruptcy Code absent undue hardship such as permanent and severe disability.  The colleges might gain a little credibility by supporting discharge after seven or eight years, given that they don’t want to do underwriting at the outset to ensure decent results before taking federal funds.

Furthermore, we might want to look at alternatives to these schools, redirecting the federal money going to for-profit institutions to the nation’s community colleges, which typically don’t require students to go into debt, given their very low tuitions, but which are being gutted in the austerity measures states are currently implementing.  Educational access is a good goal, but the abuses of the for-profit sector ought to be leading to more questioning of the industry's ability to play the role of providing it without offloading excessive risk to students.


The "GSE Business Model" all over again (College, Inc.). As it hijacaked the mortgage business, it will also hijack the business of education.

Until we realize that the combination of goverment and business do not work we are kidding ourselves.

It is time to remove these for profits off the taxpayers' backs.

..."Subprime higher education"...

Best description ever of these vultures.

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