In attempting to strengthen the student loan process and keep funding moving for students attending reputable schools, the Obama Administration has revised a series of regulations designed with For Profit Colleges in mind. The idea is to tie access to Federal financial aid to the success of graduates of these schools.
What is a For Profit College?
If you are unfamiliar with the term, a For Profit College is an educational institution that is run by one or more private businesses. They are not Private Colleges nor are they Public (State-Sponsored) Schools despite many of them using a National Landmark or State Capital in their name. Two of the more well-known For Profit Colleges are the Grand Canyon University and the University of Phoenix.
The original For Profit College regulations were blocked after a U.S. District Judge struck down the ‘Gainful Employment Rule’ in July of 2012. In his decision, the judge stated that it could not be determined if a school had actually prepared its students to enter the workforce. Without that, the government had no standard to use in restricting For Profit Colleges access to Federal financial aid programs.
Why are the rules being changed?
The concerns over For Profit Colleges though are quite valid. From Oct 1st 2009 thru Sep 30th 2012, an average of twenty-two percent of For Profit College graduates defaulted on their student loans. In the same period, thirteen percent of students defaulted from public colleges and universities. 8.2 percent of students from private, non-profit schools defaulted in the same period.
The revised regulations now contain a standard that the Department of Education believes will stand up to judicial review. This is the Cohort Default Rate. The rate is not new, but it has not been previously used as a standard for determining a college’s access to Federal student loan funding. In a March 13th conference call with members of the media; James Kvaal, Deputy Director on the White House Domestic Policy Council, explained that it has “been in place for more than two decades [and] we feel much more comfortable with it.”
With the new regulations the government hopes to implement, any For Profit College that has a Cohort Default Rate over thirty percent for three years out of a given four year period is at risk of losing access to Federal Student Loan Programs. In addition, access can also be lost if their graduates annual repayment amounts exceed either 8 percent of their total annual income or twenty percent of their discretionary income in the same timeframe. These numbers are higher than the original regulations that were in place before the judge overturned them in 2011.
Are the new rules harming students?
The For Profit Colleges are not happy of course. Association of Private Colleges and Universities President and CEO Steve Gunderson recently sent a letter to Education Secretary Arne Duncan, calling the new guidelines “financial discrimination”. He pointed to the fact that For Profit Colleges serve a very large percentage of minority students and lower-income families that are unable to attend traditional colleges due to their financial status or because they are working full time and/or have young children. He specifically pointed out the average age of a person attending a For Profit College is 24 and supporting him or herself. These are not recent high-school graduates living at home and going to the mall when they’re bored.
While this is not a perfect solution, it is a step in the right direction at least. Previous attempts that put new requirements and restrictions on the students and their parents have been plagued with unintended consequences, especially for Historically Black Colleges and Universities. These new regulations may restrict the overall number of colleges that students may be able to attend using Federal Student Loans, but they do not place additional hardship on students and their parents seeking to use them.