College & Workforce Readiness

Debate Begins on Proposed Gainful Employment Regulations

By Caralee J. Adams — August 02, 2010 2 min read
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Now that the U.S. Department of Education has put out its proposal to rein in for-profit colleges, people are beginning to sift through the details of the draft regulations and offer their two cents.

The proposed “gainful employment” rules were published July 26 in the Federal Register, and a 45-day public comment period kicked off.

Some think the proposal is too weak. Other think it’s too intrusive. Most agree it’s complicated. And the administration is expecting a lot of feedback.

Under the proposal, if for-profit educational programs want to be eligible for federal aid, they must show that their graduates are finding jobs and are able to pay back their loans.

To discuss the potential implications, the New America Foundation hosted a panel on the topic Friday. James Kvaal, deputy under secretary in the U.S. Department of Education and chief architect of the proposal, explained the basics. To determine if certain educational programs should be eligible for federal aid, two measures would be established—an income-to-debt ratio and a percentage of loan repayment.

If the students’ debt burden is more than 12 percent of their total income or 30 percent of their discretionary income, the program would be ineligible for federal aid. If loan repayment rates of graduates dip below 45 percent, a program would be considered problematic. If the rates dip below 35 percent, it would be ineligible.

Kvaal estimates that under this approach, no more than 5 percent would lose eligibility in the first year. If programs were problematic under one measure, they would be required to disclose debt measures to students.

Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, said the proposed regulations don’t go far enough. “This is now a sector in which the vast majority of these participants are engaged in what I view as counterfeiting of degrees and consumer fraud—consumer fraud defined as: overadvertise, overpromise, overcharge, and under deliver,” he said.

The situation is dire, but the solution is inadequate. “A 45 percent repayment makes you golden? In what line of work would 45 percent repayment of loans be a reasonable measure of market success?” said Nassirian. He was also critical of the approach that punishes schools after the fact, after students have been victimized, rather than providing gatekeeping on the front end.

“In general, I think it’s a good step in the right direction,” he said. “We hope the administration takes steps to fortify it, because it’s anemic on many fronts.”

Katherine Mangu-Ward, senior editor for Reason Magazine and, challenged the administration as to why the scrutiny should be limited to for-profit colleges. “Why not apply the same standards to all education?” she asked the panel. “With so much money at stake, regulations may be appropriate, but why regulate only one slice of the sector?”

For-profit colleges have faced oversight in Congress as the industry has grown with increasing amounts of federal aid money—$26.5 billion last year, up from $4.6 billion in 2000.

These proposed gainful employment rules will likely be the focus of intense lobbying. Public comments are due by Sept. 9. The final rules are to be released in November. Aid eligibility could be taken away beginning in the 2012-2013 school year.

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