The for-profit college fight: Regulation, less onerous than expected, still unfair

posted at 8:05 pm on June 2, 2011 by Tina Korbe

The Obama administration today finalized its long-pending regulation of for-profit colleges — and, while an uptick in for-profit college stocks suggests the new rules are less onerous than expected, they’re still a little hard to swallow.

The regulations essentially aim to penalize those schools that don’t amply ensure “gainful employment” for graduates — all in the interest of preventing students from defaulting on their federal student loans. According to The Washington Times:

The rule would impose three tests on for-profit institutions, whom critics say have enrolled huge numbers of students receiving federal aid without delivering real results. Repeated failures to meet the new tests would mean the college could no longer accept students paying with federal money, a restriction which could force some nontraditional institutions to close their doors. …

The three tests? At least 35 percent of former students must have begun to repay their student loans (reducing the balance by at least $1) within the first three years of graduating, the estimated loan payment of a typical graduate must not exceed 30 percent of discretionary income and the estimated loan payment of an average graduate must not exceed 12 percent of total earnings.

A program must fall short on all three counts for three consecutive years before being cut off from the federal checkbook. Once that happens, the institution cannot reapply to federal aid programs for three years.

On the one hand, it makes sense for the federal government to protect taxpayers by seeking to minimize loan defaults — but, on the other hand, these new regulations almost exclusively target for-profit colleges. Do no public university students default on student loans?

“Directing new rules at one sector when there’s a problem in the whole sphere is kind of analogous to Major League Baseball imposing steroid rules on only one conference and letting others avoid the policy,” says Daniel Bennett of the Center for College Affordability and Productivity.

More broadly, why is the federal government nearly the sole provider of student loans in the first place?

“The federal government and the taxpayers are ultimately the ones providing these loans and they do have a vested interest in trying to limit the number of defaults as a private credit market would want to do,” Bennett said. “But you could ask the question, ‘Why is the government involved in what has been in the past a private market in offering any type of loan?’ There is an argument against the government being involved in this market at all.”

But the administration cemented its involvement in the  student loan industry when it passed Obamacare. The health care law included an overhaul of the way the industry works.

“Previous to that transition, the student loan market was largely backstopped by the federal government, so [private loan-makers] were receiving subsidies for providing and servicing these loans,” Bennett explains. “What the Obama administration did was cut that program off, which, in itself, is not a bad idea because we shouldn’t be subsidizing loan-makers, but I think we went in the wrong direction. Rather than getting out of the business altogether, we went headfirst into it.”

Now, not surprisingly, even more strings are attached to federal dollars — and schools and students are less free to pursue their own self-interest as they seek an education. After all, for-profit colleges often provide for student needs that go unmet at more traditional schools.

“A lot of working-age people who have families to provide for — they need the flexibility of the program or of being able to take some of their classes online or in more convenient locations and the for-profit sector has done an excellent job of meeting these needs,” Bennett said.

That only makes the new regulations seem all the more unwarranted.

“The thing that’s so frustrating about this administration’s regulatory overreach into the for-profit college sector is that President Obama has said he wants us to have the highest percentage of college graduates in the world by 2020, but then these types of regulations are preventing these schools [from] serving students that have historically been underserved by traditional universities,” Heritage Foundation education policy analyst Lindsey Burke said.

Fortunately, Congressional Republicans and several minority groups immediately spoke out about the new regulations, which don’t take effect until July 1, 2012. Maybe they’ll sponsor a regulatory rollback before then.

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Ok fine.

First.

But I didn’t enjoy it.

Bishop on June 2, 2011 at 8:12 PM

It’s nothing but a payback to the useless eggheads who have positions at the more prestigious 4 year socialist camps.

forest on June 2, 2011 at 8:15 PM

Hey, how about instituting these rules and regs for “non-profit” colleges or any “non-profit” college that receives federal funds?

How about those “non-profit” colleges that have BILLIONS in “endowment funds”?

What a CROC!

More war against anything with the word “profit” attached to it by the statists in charge of our once proud Republic.

Opposite Day on June 2, 2011 at 8:18 PM

While generally against such things, and won’t care one way or another if these regulations get overturned somehow, I can’t really get too upset.

Having done some teaching for a for-profit college, they are complete scams. I generally think that federal aid and loans guarantees for college should be scaled way back (way too many people are going to college), no federal aid / loans should go to students of for-profit schools.

1) they cost as much or more then a community college;

2) there are no admission requirements;

3) the students can barely read or write;

4) the pressure is to pass everyone with a “b” or better;

5) the students learn nothing.

I’m sure that a few people really apply themselves and get something out of a for-profit like Bryant and Stratton or Everest, but that is less than 1%.

America is slowly realizing that a vast majority of real college eduaction is b.s. adn worthless, imagine how much more b.s. and worthless these strip-mall “college” educations are.

And, these school prey on the most uneducated and poorest.

Look, I don’t want gov’t to put these places out of business, i just don’t want gov’t to pay for any of it – either through aid or guarantees. If these places can’t compete w/o gov’t aid, tough.

Monkeytoe on June 2, 2011 at 8:23 PM

Its because of special interests. Just like hollywood has inlisted Obama to crack down on online downloading the big private collages such as Harvard and Yale want a crack down on their private sector rivals. This will drive up costs as fewer collages will be availible and students are forced to go to them.

Its obama playing favortism again to those that grease his campaign with money.

William Amos on June 2, 2011 at 8:25 PM

Where are the assurances for gainful employment from traditional universities? There are many degrees that ensure the recipient of employment at Starbucks or McDonalds.

Common Sense on June 2, 2011 at 8:33 PM

Eliminate all government financed or insured student loans except for veterans. Leave it to the colleges to provide loans. Bet then they make sure the students can pay them back.

huckleberryfriend on June 2, 2011 at 8:38 PM

i think there’s something like 1T of student loans on the books. barry ain’t going to touch universities obviously…the dims get a piece of the trillion

r keller on June 2, 2011 at 8:41 PM

Eliminate all government financed or insured student loans except for veterans. Leave it to the colleges to provide loans. Bet then they make sure the students can pay them back.

huckleberryfriend on June 2, 2011 at 8:38 PM

Exactly. And, no regular school has any competition from these schools. these school are teh people who can’t even make it in community college.

Monkeytoe on June 2, 2011 at 8:43 PM

And, these school prey on the most uneducated and poorest.

Look, I don’t want gov’t to put these places out of business, i just don’t want gov’t to pay for any of it – either through aid or guarantees. If these places can’t compete w/o gov’t aid, tough.

Monkeytoe on June 2, 2011 at 8:23 PM

Glad to hear you feel that way about your alma matter. Gtown has been getting rich by exploiting kids like you for far too long.

crr6 on June 2, 2011 at 8:43 PM

Obama has lots of friends in the traditional higher ed schools. He’s just taking care of them by squeezing their competition.

The Monster on June 2, 2011 at 8:48 PM

Glad to hear you feel that way about your alma matter. Gtown has been getting rich by exploiting kids like you for far too long.

crr6 on June 2, 2011 at 8:43 PM

Are you still pretending to be a 6th year law student at a “prestigious” school, who is going to work for the summer agt a “big firm”? such a joke. What does a comment troll get paid by soros anyway?

Monkeytoe on June 2, 2011 at 8:52 PM

the big private collages such as Harvard and Yale want a crack down on their private sector rivals.
William Amos on June 2, 2011 at 8:25 PM

LOL.

crr6 on June 2, 2011 at 8:53 PM

How long till the ivy league gets a waiver?

peacenprosperity on June 2, 2011 at 8:53 PM

Didn’t they just federalize all of the student loans.

Count to 10 on June 2, 2011 at 8:59 PM

Republicans and conservatives would be well advised not to support these schools who actively encourage debt burdens based on false assurances of a high paid job when the course is finished. This is a disaster in the making and it is on a scale not unlike the real estate credit spiral.

lexhamfox on June 2, 2011 at 9:04 PM

People are sure coming out of the woodwork to attack “this kind of school”. What are we talking about here? ITT tech? Pheonix? Or no-name colleges that I’ve never heard of?

Count to 10 on June 2, 2011 at 9:11 PM

People are sure coming out of the woodwork to attack “this kind of school”. What are we talking about here? ITT tech? Pheonix?

Count to 10 on June 2, 2011 at 9:11 PM

ITT Tech, Phoenix, Georgetown Law, etc.

crr6 on June 2, 2011 at 9:13 PM

Look, I don’t want gov’t to put these places out of business, i just don’t want gov’t to pay for any of it – either through aid or guarantees. If these places can’t compete w/o gov’t aid, tough.

Monkeytoe on June 2, 2011 at 8:23 PM

Exactly. If these schools are worth anything let them show it.

I saw a link on Facebook the other day to a letter written by the creative writing chair at UCR. Read the insanity for yourself none of which should be surprising coming from the Mecca of failed states we know as California. The short of it though is that all the crazy loons who want to keep taxation low just want to make sure that we have an uninformed and uneducated citizenry so we can keep them under our jackboots I guess. The CA legislature responsible for the budget cuts are being cowed by guess who?:

The people in the legislature understand the value of public higher education—the vast majority of them have degrees from our state system, and many of them have multiple degrees—all made possible by the legislators who preceded them and had more courage. They do not protect the University for a very simple reason: because they risk a flow of conservative attacks and Tea Party racism if they stick up for anything that is directly devoted to the commonweal.

Umm no bonehead, the do not protect the University because California is a failed state but thanks for playing.

Why are we funding any of this $h*t?

msmveritas on June 2, 2011 at 9:16 PM

ITT Tech, Phoenix, Georgetown Law, etc.

crr6 on June 2, 2011 at 9:13 PM

So, the people complaining about them are just shilling for public universities then.
The only people I know that have a load of debt and no career prospects to show for it went to public universities. The ones who went to ITT tech are doing better than me.

Count to 10 on June 2, 2011 at 9:17 PM

Even though I am a free market supporter, I do believe more regulation is needed in these for profit colleges. Here’s why – I had 4 employees who went to one of these schools (2 and University of Phoenix and two at DeVry graduate school). The education and requirements to get a “degree’ are a joke. None of them learned anything. One of them that was in the MBA program at DeVry had to take a remedial writing class before she could take classes (I was not surprised, her writing sucked before and after getting her MBA). The other one had to take a remedial math class. This is GRADUATE school. If you can’t write or do basic algebra, you should not be in graduate school. I had to take the GMAT to get into graduate school, these schools have their own test they give. The two that went to UofPhoenix did eventually get promoted, but would have anyway without the degree. The two “MBA” grads are still working front line supervisor jobs (4-5 years later) because their “MBA” did nothing to help educate or give them additional skills. They both have $50K in student loans they have to pay back.

But the main reason I think these for profit schools are a shame is I have a lady from my church that used to work for DeVry in admission and when I told her about the elementary work my employees were doing in an MBA class, she said she quit because DeVry is a scam that targets minorities (which both employees were). She said minorities almost always qualify for student loans and that is how the college makes their money. (sounds kinda like Fannie and Freddie Mac, huh?). She said her admissions job was really a sales job and she was trained to sell the student on college no matter how much money they were making (knowing these people would never make enough money to pay back these loans). She said she had to follow up with the students she signed up every day for two weeks, because if the student drops after two weeks, the college doesn’t have to give the loan money back. She quit because it is a total scam and after seeing my employees who went through these programs, I believe her. And I think it needs to be regulated, just like Fannie and Freddie Mac.

ramrants on June 2, 2011 at 9:34 PM

So, the people complaining about them are just shilling for public universities then.

Not at all.

The only people I know that have a load of debt and no career prospects to show for it went to public universities.

That’s bizarre.

The ones who went to ITT tech are doing better than me.

Count to 10 on June 2, 2011 at 9:17 PM

That says more about you than ITT tech.

crr6 on June 2, 2011 at 9:45 PM

Price controls for higher ed.

Since they are all for price controls for everyone else.

Their tuition hikes should be tied to inflation like COLA’s.

profitsbeard on June 2, 2011 at 9:57 PM

I worked for one of these schools for five months and count my last day in their employ among the happiest of my life. Within a month of being hired, I was the senior program manager at the campus; all others quit or were fired.

The students were not college material. There were constant fights and little discipline. Admission test proctors helped students pass the test. I found many of our students had extensive arrest records (Tampa/Hillsborough county posts arrest records with mug shots online), yet conviction for drug arrests didn’t stop students from entering the pharmacy tech program and arrests for spousal abuse and assault didn’t prevent students from entering any medical field.

I could write a book about the horrifying experiences from my brief stay there. Let me summarize by saying, without any doubt, that most of these schools exist solely to siphon student loan dollars to pay for inflated tuition from the US treasury with absolutely no concern for their student ability to lear, suitability for the profession, or ability to gain employment in their field. While I am a conservative (since 1980), I have to give Obama credit for clamping down on this bubble before it bursts.

docjeff on June 2, 2011 at 10:16 PM

Let’s be clear that by “for-profit” school, they don’t mean Cornell or Notre Dame. This legislation is focused at those smaller private schools that have popped up in the past 5-10 years that charge fees for missing class and give graduates degrees that aren’t worth the paper they are printed on, all by giving terrible advice and accepting anyone who applies. Normally a student would attend an inexpensive community college before either transferring into the workforce/vocational program or going on to a more traditional 4-year university after having proved that they are college material. As someone who has a cousin with 60k in debt and a University of Phoenix Online degree that can’t get him anything besides a part time job, I applaud this legislation.

As for the government providing the loans, it’s to keep interest rates from exploding on them. Isn’t Tina a relatively young girl? I suppose she had parents wealthy enough to pay tuition out of pocket, as that’s the only way I can think of for her to ask such a silly question about student loans.

Rainsford on June 2, 2011 at 10:59 PM

I’m with ya on the Phoenix and DeVry scams, but what about the Women’s Studies majors with minors in basketweaving? Come on! How many jobs actually require these degrees? Why does college cost more per year than many people earn? Where is the outrage? Where is the Obama czar to investigate college presidents and provosts making far more than many evil CEOs?

Laura in Maryland on June 2, 2011 at 11:19 PM

It’s the corruption: Education Department Rules on For-Profit Schools Created With Investor’s Help

Education Department officials were encouraged and advised about the content of the regulation by a man who stood to make millions if it were issued.

“Wall Street investors were manipulating the regulatory process and Department of Education officials were letting them,” charged Melanie Sloan of a liberal-leaning ethics watchdog called Citizens For Responsibility and Ethics in Washington.

slickwillie2001 on June 2, 2011 at 11:51 PM

As I see it there’s a few issues afloat here that congress won’t touch:

1)The government promotes college education too much. In a time when your average BA or BS means about as much as a HS diploma did in 1950, politicians promote a college education because it’s an easy position to take. Who doesn’t want to see their kids get a better education? Never mind the quality. But more importantly, politicians throw money at it in the hopes that colleges will make up for a failed public school system.

2)There’s a major supply deficit in the education market. When was the last time you can remember a new university being opened? Or maybe just a small private college? Most of our universities were opened in the 1800′s or very early 1900′s. Why? Surely, the universities that could serve our population fully in 1900 haven’t been able to grow in accordance with our booming population. So demand increases faster than supply and what do we get? Higher Prices!

3)This all points to the racket. Student loans are a federal subsidy to non-profit(HA!) schools and give them no incentive to grow. If I’m running a university, what’s easier to do?: A)Buy up land and build more plant or B)increase tuition with the full knowledge the government will pick up any size tab. You decide.

The 48er on June 3, 2011 at 9:27 AM

The regulations essentially aim to penalize those schools that don’t amply ensure “gainful employment” for graduates

How many liberal arts colleges can “ensure” this?

Maybe a Harvard or Yale degree in Sociological Art History might – might – get a handful of their top graduates jobs. But that’s about it.

logis on June 3, 2011 at 1:39 PM

At the risk of stating the obvious, this is about Dhimmicrats taking care of their teachers union buddies.

The Dhimmis want full gubermint control over the university system, lest any free-thinking conservative principles get taught to our students.

FlatlanderByTheLake on June 3, 2011 at 3:02 PM

Bottom line is that there is good and bad in every industry. There are private for-profit colleges that reinvest millions into their facilities and technology. There are some that take the student loan money and run leaving students with a substandard education. Some that have stricter admissions processes and some that are open enrollment…just like community college.

A man or woman with a full time job and family has virtually no chance of getting through community college, let alone a 4 yr degree in a reasonable amount of time. Colleges for non-traditional students fit a niche.

Like any private college, for-profits are not subsidized so they have to charge higher tuitions to meet their operating expenses. When the govt starts to cut fat juicy checks to these schools the way they do for state schools, they they can lower their tuition, but until then…

Check out the medical assistant next time you have a doctor’s appt. Look at the IT person who is fixing your virus infested computer. In this day and age,chances are those folks graduated from a for-profit college. Now take a look at the 4 yr communications degree standing in the unemployment line or the group of education majors who just got laid off from your underfunded school system. who regulates their schools?

Another angle to this story, are schools supposed to guarantee jobs for life, now?

sothinbelle on June 3, 2011 at 4:57 PM