The Department of Education is working on new rules for for-profit colleges, community colleges, and technical schools that would withhold federal student aid money if their students have high debt levels or default at high rates after they graduate, the Wall Street Journal reports.
A version of the administration’s “gainful employment” plan that was released this week would require these colleges to meet criteria on student debt for their graduates: former graduates’ average payments on debt couldn’t exceed 12 percent of their annual income or 30 percent of their discretionary income for several years after they leave, and the share of students who default on federal loans within in three years of graduating couldn’t reach 30 percent. If they failed to meet the criteria, they would lose Title IV funds, mostly money from Pell grants for low-income students and federal student loans. Many of these schools get about 90 percent of their revenue from federal aid.
The administration has estimated that about 13 percent of programs at for-profit schools and community colleges would fail to meet the requirements, although BMO Capital Markets put the number at 20 percent.
For-profit schools have come under scrutiny for burdening students with debt without giving them degrees or skills that help them get jobs to pay them off. Many for-profit schools and community colleges have higher rates of students defaulting on their loans than who actually graduate. More than three-quarters of the students at for-profit colleges fail to earn a degree within six years. The schools’ priorities are also clearly not student outcomes, as the most important measure for compensating their executives is profitability.
But the predatory nature of these schools doesn’t impact all students evenly. That’s because low-income students attend for-profit colleges at a rate four times higher than other students. Wealthy students, on the other hand, are six times more likely than the less well off to attend elite schools that, while they come with a big price tag, may give graduates a better leg up. In light of these disparities, First Lady Michelle Obama recently launched a new initiative aimed at helping low-income students get to college.