Washington
At an unusual public hearing on Thursday, a parade of critics of the U.S. Department of Education's planned "gainful employment" regulation decried the proposal as "anti-business" and "illogical, unfair, and beyond the agency's authority," while supporters of the rule backed it as a "necessary and important safeguard" that, if anything, needed to be made even tougher.
The comments came during the first of two days of meetings the department is holding to hear, in person, from some of the 90,000 or so people and organizations that submitted a record number of comments about the proposed rule. The next session is tomorrow.
As proposed, the regulation could eliminate federal financial aid for career-focused programs at for-profit and nonprofit colleges where high proportions of students are not repaying the principal on their student loans or end up with excessive debt loads for the salaries they can earn. The proposed regulation has been the focus of intense debate, heated lobbying, and some high-profile media campaigns by the for-profit-college industry.
At the sessions on Thursday, most speakers used their five minutes at the podium to politely but pointedly revisit some of those same issues.
'A Perverse Incentive'
Sheryl Moody, a regulatory lawyer for a college company called Anthem Education, with 23 institutions in 15 states, questioned the department's decision to base the regulation in part on the numbers of students who were repaying principal on their loans. "If you wanted to measure student-loan defaults, you would have used the cohort default rate," she said.
Advocates of the regulation say the use of repayment data is more reliable than the default data because the "default management" activities of for-profit colleges can obscure how many students are able to repay their loans. At the session on Thursday, Justin Draeger, president of the National Association of Student Financial Aid Administrators, warned that using repayment data as the standard could "introduce a perverse incentive" to discourage students from making use of student-loan options like income-based repayment plans or deferrals and forebearances.
Meanwhile, the legislative director of the United States Student Association, Getachew Kassa, urged department officials to add a provision to the regulation that would send students warnings directly from the government if they were enrolled in programs whose students were found to end up with high debt relative to their income.
Angela Peoples, the policy and advocacy manager for Campus Progress, an arm of the Center for American Progress, said the loan-repayment standard in the proposed regulation was too lax because it would still allow programs to continue even if more than half of its former students were not repaying their loans.
Rule Covers Nonprofits as Well
For-profit colleges have been most active in opposing the rule, but according to Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, it could actually cover about 53,000 programs, of which 80 percent are at nonprofit and public colleges.
Speaking for the council and 58 other higher-education organizations, he suggested the department consider several exemptions to streamline the paperwork for institutions and the department itself. Those exemptions, he said, should go to institutions where programs that specifically train students for gainful employment make up less than 5 percent of all offerings, and also to programs where levels of borrowing are low.
The department also heard on Thursday from business leaders, including representatives from the U.S. Chamber of Commerce, who called for the regulation to be withdrawn altogether, and from the leaders of hospitality-industry associations from South Carolina and Nevada, who said the rules would hit hard at culinary programs from which many of their members draw employees.
David Bergeron, acting deputy assistant secretary for policy, planning, and innovation at the department, said the sessions were helpful. "We heard some things we hadn't heard before," he said, during a break. But he gave little hint as to whether the comments would result in changes in the final regulation, expected to be published in early 2011 and, barring a court challenge (which several critics have already hinted at), go into effect in July 2012.
Comments
1. bruceen08 - November 04, 2010 at 04:06 pm
Forgive the retentive comment, but very few of us are able to repay the PRINCIPLE of a loan. The PRINCIPAL, though, is a numerical figure that could actually (I've heard) be paid down in order to become free of debt.
2. tjbryanfsu - November 04, 2010 at 04:07 pm
In the third paragraph, the word should be "principal" and not "principle."
3. goldieb - November 04, 2010 at 04:17 pm
Apologies for the (now-fixed) typo and thanks to the two commenters above who pointed it out to us.
Goldie
4. 11223140 - November 04, 2010 at 04:47 pm
Let's see...where have we somewhat recently heard terms like this thrown around the halls of Congress: "anti-business" and "illogical, unfair, and beyond the agency's authority?" Do any of us perhaps remember any of the many hearings in which proposed stronger regulation of the untamed derivitives market featured this identical rhetoric? Please remind me...how did that work out again?
jimeddy
5. mherdeg - November 04, 2010 at 05:06 pm
Hi, sorry to trouble you, but the "principle"/"principal" typo is repeated in the 5th paragraph: "Sheryl Moody, a regulatory lawyer for a college company called Anthem Education, with 23 institutions in 15 states, questioned the department's decision to base the regulation in part on the numbers of students who were repaying principle on their loans."
6. edulender - November 04, 2010 at 06:05 pm
It's worth noting that the data that lenders themselves seem to place more emphasis on when underwriting loans are the cohort default rates than the repayment rates.
Thrilled to see this topic getting so much attention. Dept. of Ed. reports that more than a quarter of for-profit institutions receive 80% of their revenues from federal student aid -- it's outrageous. Look forward to more by the Chronicle of H.E.
Sue Khim, CEO
EduLender, Inc.
@edulender
7. uwest_worker - November 04, 2010 at 08:14 pm
Not sure how the typos became such a controvery in the comments section. Here's the real controversy: 'At the session on Thursday, Justin Draeger, president of the National Association of Student Financial Aid Administrators, warned that using repayment data as the standard could "introduce a perverse incentive" to discourage students from making use of student-loan options like income-based repayment plans or deferrals and forebearances.'
Without opening a new spelling controversy, forbearance is also misspelled in the article.
Anyway, to me Mr. Draeger is basically saying it is "perverse" to push students toward repaying their debt obligations. Isn't this at the heart of the problem (not to mention the larger economic problem in the U.S. created by this exact sort of attitude)? Repayment plans, forbearance and deferrals should be a student's weapon of last resort. These programs should be made difficult to access, just as a restructured mortgage is difficult to obtain. Outside of the negative affect upon our culture of Mr. Draeger's irresponsible shared attitude, there may be harmful effects upon a student who uses these programs.
This just seems like a really boneheaded thing to say, particularly in this era where we've witnessed personal financial irresponsibility wreak havoc upon our economy. All students should be pushed toward student loan repayment all the time. Period. Far from being perverse, this is a healthy way to live and grow one's sense of responsibility as well as one's personal wealth.
8. drmhp - November 05, 2010 at 10:32 am
The point is that the use of the various re-payment plan options offered by the government's direct lending program could result in students being deemed as not being in "repayment" even though they are in fact making their payments on time.
The "graduated" repayment plans provide students with a payment schedule that allows them to make smaller payments for the first 2-3 years (thereby paying only interest and not reducing their principal balance) - the payments then increase to allow the student to begin paying down the principal. These plans are not ways for studetns to avoid repaying their debt obligations - but rather a way for students to get started in a career with a slightly lower debt burden.
I suspect many of the people who view these plans as a "last resort" are not recent graduates. These plans are becoming the standard accross the board with the rising costs of higher education. They are useful even for graduates in career fields that (over the long term) pay very well (e.g., Law, Pharmacy, graduates of Ph.D. programs, etc.).
The truth is that the proposed metrics used to measure gainful employment and subsequent program eligibility are off the mark. They implicitly put forth the assertion that the only "value" of a degree is the average income level of the field that the degree prepares you for (i.e., a degree in Marketing is more valuable than a degree in Music Education, even if they were earned at the same university).
Education is an investment - and like all investments, there is risk associated with investing in your education. Students need to be informed of that risk, including the risk of loan default, etc. but they should not see a reduction in the programs that are available to them because of poorly specified regulations. If the government wants to measure academic quality, they should take the time to do it right instead of introducing a proxy variable (debt-to-income ratio, loan repayment) that is frought with confounds (e.g., student borrowing isn't contrained to the cost of their program; leftover loan money doesn't have to be immediately paid back - students can use it for any purpose outside of tuition costs that they see fit).
9. mmccarthy - November 05, 2010 at 12:02 pm
I agreed wtih drmhp. When graduates take their first job after graduation they earn less and may have been hired off of an internship.
10. mikehext - November 12, 2010 at 02:09 am
Gainful Employment needs to pass. Most of these companies know they're luring in students, churning them, and burning them. They make most of their money off the drop outs they lure into debt.
They get majority of that in guaranteed federal loans that collection companies add 25% to (because their incentive to garnish is the same as getting a willing payment, nice eh?)
Add on the fact these colleges write off the private loans because 90% of their funding comes from the government, NOT EVEN COUNTING THE GI BILL. Pell Grants and Federal loans go right into these rich exects pockets. Then they order their chain schools to lower costs/cut funding, yet still raise costs. WHAT?
There is no bankruptcy. There are no rights for these students. Its a one way door. A trap.
The deck is stacked entirely AGAINST consumers/students.
Students get stuck with a useless degree (or in my case and several others NO DEGREE AT ALL) and all the debt with no hope of ever paying it.
Funny, I heard the CEO of EDMC saying it would be a good idea for longer repayment periods. Have any of these people TRIED living with this debt and still maintaining a functional life? You can't do it with bills of over 900+ a month in student loans that never end.
Gainful employment needs to pass so these schools that scam us will finally have to pay the piper. If they're good at educating students then they can get the funding ELSEwhere. Let the economy guide their success. Get rid of the government leaches. They're killing our future generations.
11. wadebritt - November 12, 2010 at 10:42 am
Interesting to note the difference in tone between the posts drmhp and mikehext. Drmhp seems to express a desire for better standards - perhaps something like achievement of outcomes -rather than a debt basis.
As a philosophy major in my undergrad days, I have to agree. There is no measureable way to say that degree was "worth it" financially - but it was my passion and I am happy for having done it.
Quality should be defined by the outcomes the student achieves - regardless of the structure of the school (private, non-profit, for-profit). Reducing choice seems a rather blunt tool for addressing a sector wide quality issue.