College & Workforce Readiness

Analysis of For-Profit College Rule Suggests Small Impact

By Caralee J. Adams — September 16, 2010 2 min read
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While for-profit colleges are concerned about the impact of proposed federal gainful employment regulations, a report released today by an independent non-profit suggests that few programs would actually be cut off from federal financial aid.

Just 4 percent of programs would be deemed ineligible for federal student aid funds if the current gainful employment rules were enacted, according to the report, “Are you Gainfully Employed? Setting Standards for For-Profit Degrees,” by Ben Miller, a policy analyst for Education Sector, a think tank based in Washington, D.C.

Under the U.S. Department of Education proposal, a program is ineligible if the repayment rate of its graduates is below 35 percent and the annual loan payment is both above 12 percent of average annual earnings and 30 percent of discretionary income.

Of the remaining programs, the Education Sector analysis estimates 15 percent would be restricted, 65 percent would be eligible with a debt warning, and 16 percent would be fully eligible, the report estimates.

Programs required to post a debt warning must alert potential students to the likelihood that enrolling would be hazardous to their financial health, Miller writes. “The gainful employment standard would not lead to a wholesale shutdown of the for-profit sector,” writes Miller. “But it would force many for-profits to substantially change their pricing and approach to student debt.”

The analysis looked at 12,662 programs offered at 2,667 colleges and universities, reviewing the cost to attend and repayment rates.

These findings aren’t much different from the DOE projections. It estimated that 5 percent of programs would be deemed ineligible, 8 percent would be restricted, 48 percent would be eligible with a debt warning, and 39 percent would be fully eligible.

Much of the focus in the debate has been on institutions, but the report suggests that individual programs within those institutions may vary widely in how they measure up to the gainful employment standard. Some may be unaffected while others become ineligible for federal student aid.

Of the programs analyzed in the Education Sector report, programs most likely to be affected are those tied to high-tech fields, such as e-commerce or graphic design, or those jobs with low starting salaries, such as medical assistant or chef. The marketing pitches to these programs often tout the benefits of an entire industry, rather than the reality of a specific job, which can be entry-level with low pay and poor investments for students.

Debate over the proposed rules has been lively over the past two months. Critics of the gainful employment standard have claimed it would eliminate quality programs and attack freedom and individual liberty, the Education Sector report notes. Community colleges are concerned they are being swept into the oversight that was intended to clean up the for-profit sector.

Public comment in the federal gainful employment rules wrapped up on Sept. 9. A final decision is expected in November.

A version of this news article first appeared in the College Bound blog.