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  • Gainful Employment Rule Will Limit Access to Non-Traditional Colleges

    On Tuesday, Senator Mike Enzi (R–WY) took a stand against the Department of Education’s (DOE) assault on the for-profit college sector, walking out of a hearing on the DOE’s new regulations limiting access to higher education.

    The new “gainful employment” rule issued by the DOE on June 2 restricts access to student loans for students attending for-profit universities. Enzi noted in a statement released after the hearing:

    Many of these affected schools provide important training for those who choose to become mechanics, plumbers and electricians. This rule uses a heavy hand against these schools and makes it more difficult for Americans to access educational opportunities.

    Senator Tom Harkin (D–IA), a supporter of the new regulations, wants to see the DOE pursue even more aggressive restrictions on the for-profit sector. Harkin has been orchestrating the fight against for-profit colleges, holding a series of hearings last fall. One hearing last August was based in large part on a rushed GAO report that contained numerous errors, an extremely rare occurrence with the agency.

    The new rules prohibit students from receiving federal loans or grants to attend a for-profit college if the college’s average debt-to-earnings ratio exceeds 12 percent of a graduate’s income or 30 percent of discretionary income. Harris Miller, president of the Association of Private Sector Colleges and Universities, said the new regulations are “basically a back-door way of price fixing.”

    Even though the final 436-page rule issued by the DOE provided some concessions to the for-profit sector, the new debt-to-earnings restriction means that an estimated 18 percent of for-profit programs will fail to meet the new regulations, and 5 percent could lose eligibility entirely, reports the Chronicle of Higher Education.

    And an even more concerning problem has arisen. In order to track the debt-to-earnings ratio of for-profit college graduates, the Social Security Administration will be providing its income data on individual students to the U.S. Department of Education. According to the Manhattan Institute’s Minding the Campus blog:

    Most troubling is the involvement of the Social Security Administration [SSA]—and also, indirectly, the Internal Revenue Service, which supplies earnings information to the SSA based on tax returns. After all, the SSA is supposed to be in the business of calculating Social Security benefits, not monitoring compliance with laws that have nothing to do with Social Security. The IRS, in turn, is supposed to be in the business of collecting taxes, including Social Security taxes, not helping the Education Department decide whether the University of Phoenix is in compliance with new gainful employment rules. Both agencies, the IRS in particular, are bound by strict laws forbidding the sharing of data except as explicitly permitted by federal statute, such as the one that allows the SSA to use IRS-supplied tax-return information along with filings by employers to determine benefits. Taxpayers have historically relied on the nearly complete confidentiality of their tax-return information as an incentive to honesty in reporting.

    Those who favor the new regulations on the for-profit sector note that the sector can claim just 12 percent of students in higher education overall, yet it accounts for nearly 25 percent of student aid. Half of all loan defaults are from students at for-profit universities. However, these statistics don’t provide an “apples-to-apples” comparison with similar students at traditional universities. Daniel Bennett writes in The New York Times:

    While data suggest that default rates are higher among for-profit schools than other sectors, defaults at public community colleges are comparable even though they charge much lower tuition (taxpayer subsidies cover the remaining costs). Both of these sectors serve a challenging student population (low-income and minority), and yet proprietary schools are singled out by the “gainful employment” regulations.

    Default rates have risen for all of postsecondary education, as the national cohort default rate increased to 7 percent in 2008 from 4.5 percent in 2003.

    For-profits are finding success because they are helping a segment of students that are historically underserved by traditional universities. In order to ensure that students continue to have access to for-profit institutions, Senator Jim DeMint (R–SC) has offered an amendment that would nullify the gainful employment rule by preventing the new regulation from having any force of law.

    President Obama says he wants the United States to have the highest percentage of college graduates by the year 2020. The merits of the goal aside, if the President is serious, his Administration should stop the witch hunt against for-profit colleges.

    Posted in Education [slideshow_deploy]

    11 Responses to Gainful Employment Rule Will Limit Access to Non-Traditional Colleges

    1. Patrick, Fort Worth, says:

      Why would anyone want to go to a for-profit institution if a community college essentially offers the same services?

    2. Alan Collinge, Washi says:

      I agree that the intense media, and Congressional focus on the for-profits is nonsensical. The fact is that the default rates of 4-year universities, and community colleges are astoundingly high, certainly greater than 20%, and probably closer to 30%. So this "non-profit= good, for-profit=bad" subtext is providing cover for the non-profits and their (probably) more dominant role in causing the rampant inflation we have seen over the years.

      I also agree that gainful employment is a bad plan, but not for the reasons cited here. This rule is, essentially a cheap feedback mechanism for determining if the cost of a school is too high, or the quality of the school is poor. And even if adopted as originally written, It is certain that the Department of Education would bend over backwards to keep schools out of the penalty box. Between this, and huge manipulation of the data by the schools themselves ensures that Gainful employment would never have worked, could never have served the purpose it was designed to serve.

      Of course, the true feedback mechanism to gauge whether a school is too expensive, or the quality too low is bankruptcy protections on the loans used to pay for the education. This critical free market mechanism has been missing for years, and in its absence, the Department of Education, which has been actually MAKING, not losing money on defaulted FFELP loans for years, views defaults as a preferable outcome, from a fiscal standpoint.

      If bankruptcy protections were returned, (and I can only assume that the Heritage Foundation would be compelled to agree that it should be), and the Department of Education actually had skin in the game going for, instead of against the borrowers, we would surely see inspired,efficient, and no-nonsense oversight that would bring down the cost of college for both for- and non-profit schools, and give the taxpayers what they have demanding for years…better, not more government.

      Until this free market mechanism is returned, we will see a failed lending system, and no rules, be it gainful employment or otherwise will undo the systemic consequences( inflation, defaults, etc) that are, at this point, impossible to ignore.

      If there is an economist at the Heritage Foundation who disagrees, I would be delighted to hear the argument. If not, I'd be interested to know why Heritage, Cato, AEI, and other free market, conservative groups waited so long to weigh in on this important topic. Huge amounts of damage have been done to the public, and vast amounts of wealth squandered, and the problem grown more intractable due to the dilly-dallying.

    3. A Former Student says:

      Just so you know, its bull. Its spin.

      The students will still get funding, they'll just be told that school doesn't get it. They can still use it at other schools that follow the rules.

      As a former student of these schools, I must say they do NOT have the students in mind. They just churn and burn students.

      Enzi was one of the people that helped put this current bogus system in place.

    4. H Springer says:

      Having attended both types of institution, I know that the for-profit colleges provide life changing vocational instruction & orientation to a cohort essentially abandoned by trad colleges.

      Are some operations scams? Undoubtedly.

      However, one might describe the leftist indoctrination and elitist orientation imparted at the trad mills as an even more harmful scam.

      What is needed is quality vetting— an industry standards board.

    5. Pingback: The Morning Links (6/13) | From the Desk of Lady Liberty

    6. Redfray, Pea Ridge, says:

      There is a common sense answer to this problem. Stop using tax money to support these colleges. Why should I pay to put someone's child through college?

    7. lin sim says:

      This is merely additional evidence that the greatest fear of the national education collective's Politburo is competition. Several states have come to realize that FDR was right. It is a conflict of interest to allow people in government service to bargain collectively.

    8. John Williams, Sands says:

      As a returning student at the age of 55 to increase my job related skills and make me more marketable. I have found the so called for profit schools to be a great opportunity for someone like me. I researched for over a year which school had what I wanted and the best success ratio. To make this gainful employment rule would be just another burden on the American people that need it the most. Just my humble opinion.

    9. Pingback: Gainful Employment Rule Will Limit Access to Non-Traditional Colleges

    10. Renny, Maryland says:

      Are these pages "double spaced????" That is the only thing I can comment on because "they" are just going to do their thing, destroy the country!!

    11. Anonymous says:

      That 18% of for-profit colleges need to get their act together and quit targeting people that will most likely never repay the loan that the college gave them so that they could achieve the 90/10% rule. While "for-profit" schools offer specialized skill training, many are telling their students to lie on their Pell Grant applications so they (the schools) can get the Pell Grant money (their profits). (In the end, the school is the recipient, not the student). In the end, the "for-profit" school writes off the private loan, profits from the Pell Grants, and leave the student with a defaulted loan on their credit history. Fraud, waste, and abuse. Shame on these schools. Hold them accountable!

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