What Changed When The New Subprime School Regulations Were Watered Down?

Our guest blogger is Julie Morgan, a Policy Analyst with the Postsecondary Education Program at the Center for American Progress Action Fund.

Last week, the Department of Education released a rule called “gainful employment” that requires career education programs to account for their students’ outcomes upon graduation. The final regulation was significantly different from the draft rule proposed last July, a response to the intense lobbying effort on behalf of for-profit colleges whose soaring profits were put in jeopardy by the strong draft rule.

The basic premise behind the rule remained the same: it conditions access to federal financial aid on a programs’ student loan repayment rate and its graduates’ debt-to-income ratio. The most significant changes in the final rule are in the timeline of its enforcement and the method of calculating the debt burden and repayment rate metrics. Here is a run-down of the most significant differences between the rule proposed in July 2010 and the final regulation:

Draft Rule	New Rule
Sanctions begin in 2012.	Sanctions begin in 2015.
Programs with high debt burdens and low student loan repayment rates lose eligibility for aid after one year.	Programs with high debt burdens and low loan repayment rates can receive federal aid for three years before losing eligibility.
Programs with fairly high (but not highest) debt burdens and mid-to-low (but not lowest) loan repayment rates must restrict enrollment growth and warn students of the potential for high student loan debt.	No restrictions on programs other than those with the highest debt and lowest repayment rates.
Calculation of students’ debt burden includes all the education-related debt a student took on.	Calculation of student debt burden includes only the debt used to pay tuition and fees
Students are considered to be repaying their loans only if they are paying down the principal on their loans.	Students are considered to be in repayment even if they are only paying interest on their loans.
5 percent of the programs affected by the rule are likely to lose their financial aid.	Only 2 percent of the programs affected are likely to lose financial aid.

It’s clear that the new rule gives colleges much more time to come into compliance and makes it easier to meet the individual metrics. In short, it’s weaker. So besides wondering how special interest groups that represents a tiny group of colleges could come to control a debate that should have been about low-income students and the taxpayers who help them go to college, the question that comes to mind is: What we should do now?

Putting the gainful employment rule in context makes it easier to answer this question.
Even last July when the draft rule was released, gainful employment was only one part of two larger conversations: one about the fraud, abuse and waste in the for-profit college sector, and one about the phenomenon of skyrocketing tuition that bears little connection to the value of a college degree. These debates will continue beyond the release of the gainful employment rule, and there are several ways policymakers and advocacy groups can continue pushing to make colleges work better for the students they serve:

– Congress should support the gainful employment rule. Any educational program with prices so high and value so low that less than 35 percent of its students are making any payments on their loans and its graduates spend more than 12 percent of their gross income on student loan debt for three consecutive years should not have access to federal financial aid. This rule may affect only the very worst of educational programs, but repealing the rule would allow those colleges to continue operating unchanged. And having the gainful employment rule in place also encourages colleges that are on the cusp of falling below the mark on any one of the metrics to change their behavior.

– If colleges are off the hook for now, students should be too. By moving the sanctions out to 2015, career education programs will be able to continue with business as usual for another three years. That means that when colleges offer programs of no educational value, students take on debt they cannot possibly pay off and their federal student loans do not get paid. If we’re not punishing colleges for another three years, why do students continue to be punished with debt they can never discharge? We need to find ways to protect students when colleges fail to do so.

– Information should be available at all schools, not just the very worst. The final gainful employment rule requires only the worst colleges to give students any information about their likely loan debt. Providing students with information shouldn’t be a punishment for bad behavior. It’s a way to promote good choices among students and better outcomes among colleges.

– Keep the pressure on colleges in other ways. With 11 state attorneys general investigating consumer protection violations at for-profit colleges, and others considering whether such colleges merit participation in state financial aid programs, policymakers are finding other ways to promote change in that sector.