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New Regulations on For-Profit Colleges: Are They Fair?

Jul 12, 2010 Jennifer Williamson, Distance Columnist | 0 Comments

Congress has made moves to restrict federal funding to for-profit colleges with the so-called “Gainful Employment” rules. Ever since the Bush administration, for-profit colleges have had more-or-less unlimited access to federal funds for their students, and these new
rules would severely curtail those funds. The problem with this is that without access to these funds, the students who typically use for-profit colleges—often lower-income students who qualify for Pell Grants—won’t be able to pay college tuition.

According to supporters of the new rules, this isn’t necessarily a bad thing. For-profit colleges have been in the news lately with plenty of anecdotes from dissatisfied students who claim that once they graduated, they had thousands of dollars in debt and a degree that employers would not accept. They believe that if students can’t access unlimited funds for the programs, those programs don’t have leeway to raise prices—and they’ll have to charge less. This will reduce student debt.

But for-profit college proponents claim that the new rules would limit
access to college for people who might not otherwise be able to go—and
they claim the rules would effectively put them out of business. Are the gainful
employment rules fair? Here’s a look at the issue.

Boo and Gavel

What Are the New Rules?

The most recent version of the new rules includes two main components: new regulations on recruiting tactics, and restrictions on federal funding going to for-profit colleges.

The rules would ban the industry from compensating recruiters based on how many students they bring in to the program. This would put an end to what many consider to be overly-aggressive recruiting practices, driven by for-profit colleges’ desire to raise their numbers of students and their profits.  Some believe that the aggressive recruiting produces a conflict of interest among recruiters, who are pressured to get students into the degree program regardless of whether it’s the right fit for that particular student.

The other part of the rules cover federal aid cuts. In the new regulations, for-profit programs would have to show a desirable ratio of salaries to student loan debts among its graduates. If graduates spend more than 8% of their beginning salaries on loans, federal aid to the school would be cut. Ideally, these rules would ensure that only schools that prepare students for the job market would receive federal funds.

The Controversy

One problem with the rules is that a gainful employment standard isn’t one that every college that receives federal funding is expected to adhere to. Liberal arts colleges often consciously avoid job-specific training in the interest of promoting free academic exploration.  With the unemployment rate up to approximately 13% for recent grads according to FastWeb, underemployment isn’t the sole province of for-profit schools. Everyone from humanities graduates to law school grads have also had the same problem.

For-profit schools claim they play a vital role in getting students job qualifications that are sorely needed. And they also believe that if the government cuts federal aid, it would keep some students out entirely—especially because many community colleges, usually the cheapest alternative for low-income students, have full programs. They also say that the rules are an unfair attempt to impose price controls on the industry—but only for a certain kind of college.

But advocates of the rules claim that steps need to be taken to limit student debt—and that if the federal government is going to lend to students through institutions, it needs to be sure that they’re getting a legitimate education.

The effects of the rules won’t be seen for some time. In June of 2010, the rules were postponed—but the issue isn’t dead, and it’s likely they’ll come back at some point in 2010.  But with default rates at approximately 11% for recent grads of for-profit schools—a rate higher than the rates for public colleges (6.2%) and private colleges (4.1%), it’s fairly reasonable to assume that something is going on with for-profit colleges. Whether stronger strictures on the access of federal student funding for for-profit colleges is the answer or an unfairly harsh regulation remains to be seen.


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