For-Profit Colleges Offer Another Way to Measure 'Gainful Employment'

April 22, 2010

Warning that a proposed limit on student borrowing would force thousands of programs serving low-income students to close, the Career College Association on Thursday released an alternative that would require for-profit programs to provide prospective students with more information about their graduates' debt levels and salaries.

The move comes as the Education Department is finalizing a rule that would withhold federal aid from for-profit programs whose graduates are likely to carry high debt-to-income loads. An early version of the "gainful employment" rule, released during a negotiated rule-making session that ended in January, put the cap on loan payments at 8 percent of graduates' expected earnings, based on a 10-year repayment plan and Bureau of Labor Statistics. Programs could escape penalty by showing that their graduates' true earnings were higher than the government averages or that 90 percent of all graduates repaid their loans. (Existing law requires for-profit colleges to show that they are preparing their graduates for "gainful employment," but the Department of Education says the term hasn't been well defined.)

The association, which represents for-profit colleges, says the department's proposal lacks an empirical basis and appears to be driven by stories of students who took on large debt loads to finance worthless degrees. The department recently rejected the association's Freedom of Information Act request seeking the data behind the 8-percent limit.

"The department is basing this on anecdotes, not systematic research," said Harris N. Miller, president of the for-profit college association.

To bolster the case for its alternative, the association released a study of more than 10,000 for-profit college programs estimating that a fifth of those programs would exceed the 8-percent cap and be eliminated. The study, which was conducted by a professor at the University of Chicago, also predicted that more than 300,000 students would be displaced by the proposed rule. However, the study did not consider how many programs would be exempt from the rule because their graduates earned more than average or repaid their loans.

Rule Due Out Soon

The department is expected to release its rule by mid-June. Last week, analysts at Credit Suisse reported that the department is weighing another exemption to the rule, for institutions with a completion rate of at least 50 percent and a job-placement rate of at least 70 percent. The first draft of the rules had set both rates at 70 percent, but the exemption was removed from later drafts.

In addition to expanding disclosures to prospective students, the association's plan would require programs to prove that they prepare students for employment by vetting them with employers in the field and making sure they pass licensure and certification exams.

Asked about the association's study and alternative proposal, the department issued a statement saying it was "pleased that many participants in the program community have expressed views and presented information in this important area.

"We look forward to considering their comments as they react to what we will propose in our notice of proposed rule making," it continued.

Congress weighed in on the controversy in March, sending a letter to the Education Department that raised "serious concerns" about the department's plan and urged its officials to consider "other means to address overborrowing that would not create additional barriers to service for at-risk students." The letter, which asked the department "why your goals for this proposal cannot be met simply through expanding disclosures," was signed by 15 Democratic and Republican lawmakers.