Fact Sheet: Obama Administration Increases Accountability for Low-Performing For-Profit Institutions
JULY 1, 2015
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38. Cracked Down on Bad For-Profit Colleges: In effort to fight predatory practices of some for-profit colleges, Department of Education issued “gainful employment” regulations in 2011 cutting off commercially focused schools from federal student aid funding if more than 35 percent of former students aren’t paying off their loans and/or if the average former student spends more than 12 percent of his or her total earnings servicing student loans.
Over the past six years, the Obama Administration has taken comprehensive action to tackle one of the biggest problems in higher education: abusive practices in the career college industry. Today marks a milestone in that fight, as the Administration’s signature effort to protect students and taxpayers – the gainful employment regulations – go into effect, strengthening oversight that will end the flow of federal student aid to career training programs that leave students buried in debt with few opportunities to repay it. In addition, as part of the Department’s work to call for shared responsibility in holding colleges accountable, states now must meet minimum requirements in approving institutions that operate in their state and make sure students have a system through which they can file complaints.
“The clock is ticking for bad actors in the career college industry to do right by students,” said U.S. Secretary of Education Arne Duncan. “We know many have taken steps to improve or to close programs that underperform, but we believe there is more work to be done across the board so students get what they pay for: solid preparation for a good job.”
Gainful employment regulations take effect
What the gainful employment regulation does: To qualify for federal student aid, the law requires that most for-profit programs and certificate programs at private non-profit and public institutions prepare students for “gainful employment in a recognized occupation.” The regulations distinguish programs that provide affordable training that leads to well-paying jobs from programs that leave students with poor earnings prospects and high amounts of debt. They support greater accountability for colleges by requiring institutions to provide key information on program costs, whether students graduate, how much they earn, and how much debt they may accumulate. These required standard disclosures empower students to compare across career college programs when searching for and selecting a program. The regulations also help the Department in its efforts to protect students from deceptive practices on the part of some for-profit colleges.
Under the new regulations, a program would be considered to lead to gainful employment if the estimated annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income – what is left after basic necessities like food and housing have been paid for – or 8 percent of his or her total earnings. Programs that exceed these levels would be at risk of losing their ability to participate in taxpayer-funded federal student aid programs. Today, gainful employment programs will start to be held accountable to these outcomes, and the worst performing programs will lose eligibility for federal Title IV student aid if they do not improve. In addition, failing programs that may present a risk to students if they lose eligibility will have to start notifying students.
Based on available data, the Department estimates that about 1,400 programs serving 840,000 students – of whom 99 percent are at for-profit institutions – would not pass the accountability standards. All programs will have the opportunity to make immediate changes that could help them avoid sanctions, but if programs do not make these changes, they will ultimately become ineligible for federal student aid – which often makes up nearly 90 percent of the revenue at for-profit institutions.
Why the gainful employment regulation matters: Too often, students at some of the largest career colleges – most run by for-profit companies – enroll with hopes of finding a good job but instead are left saddled with debt in exchange for a worthless degree or certificate.
· For-profit students pay more up front: On average, attending a two-year for-profit institution costs a student four times as much as attending a community college.
· They borrow more often: More than 80 percent of students at for-profits borrow federal student loans to pay for college, while fewer than half of students at public institutions do.
· And they default on their student loans at disproportionately high rates: Ultimately, students at for-profit colleges represent only about 11 percent of the total higher education population but 44 percent of all federal student loan defaults, a clear sign that some of these colleges are not preparing students for good, well-paying jobs.
Over the course of developing and implementing these regulations, the Department has experienced unprecedented resistance from the career college industry and its allies in Congress. But as demonstrated by a series of recent actions – including the shutdown of Corinthian Colleges and investigations into the practices at other for-profit colleges – greater accountability is needed. Last week, the U.S. District Court for the District of Columbia affirmed the Department’s regulations, rejecting the industry’s attempts to fight basic accountability measures – a clear sign that the courts continue to recognize both the Department’s legal authority and its reasonable approach in establishing these consumer protections. Similarly, Congress needs to build on efforts to restore accountability to the industry, not roll-back efforts to protect students and taxpayers by undoing these critical regulations.
Continuing to follow-through on other commitments that increase accountability
In addition to the gainful employment regulations, today marks other milestones in the Department’s work to increase accountability and shared responsibility in higher education.
Increasing states’ role in accountability state authorization regulations
A longstanding provision in the Higher Education Act requires institutions to be authorized in the state in which they are located as a condition for eligibility to receive Title IV federal student aid and other federal funds. In 2010, the Department clarified states’ role and the minimum they must do to approve an institution and monitor complaints from the public about its operations, in order to meet this important oversight responsibility to protect students. The Department took this step because too many states had failed to establish clear rules for how they approve and monitor postsecondary programs. The Department has provided ample time – over four years – for states and institutions to comply with the requirements, and starting today, if an institution is found to be out of compliance during the Department’s normal review process, it risks losing eligibility to participate in federal student aid programs.
Giving consumers the tools they need to hold institutions accountable for their costs
Providing helpful consumer information is a key part of Administration’s work to increase transparency on the cost of higher education and hold institutions accountable for the cost of their institutions. To further that work, today the Department is also publishing its annual College Affordability and Transparency lists, which highlight institutions with the highest costs, the lowest costs, and those where costs are increasing rapidly. These lists can be seen at collegecost.ed.gov.