For-Profit School Regulation Arrives

But the most controversial rule is still far from being finalized.

By Julianne Hing Oct 28, 2010

After a series of Senate hearings, one damning GAO report of financial aid fraud, eighteen months of debate and a summer of intense lobbying, the Department of Education today released its final updated rules for for-profit school regulation. The thirteen updated rules demand that for-profit schools disclose graduation rates and job placement rates to students before students enroll. Schools would also have to report these numbers to the Dept of Education to help it The new rules forbid the practice of paying admissions representatives (who function more like sales reps) from collecting commission pay for every student they bring in to the school. This is a practice that some schools have already [begun cleaning up]( in an effort to counter their poor public image. Schools will also have to ensure that federal student aid is being appropriately disbursed to students with legitimate needs. Schools with shoddy track records who worry about whether or not they can meet the new rules will have to work with the DOE when they want to rework old programs or start new ones. "These new rules will help ensure that students are getting from schools what they pay for: solid preparation for a good job," Secretary of Education Arne Duncan said. But the most important, and most controversial, proposed "gainful employment" rule has yet to be cemented. If passed, for-profit schools would lose their eligibility for federal student loans if they sent students off with too much debt that they were unable to pay. The rule shocked the system; more than 25 percent of for-profit schools get 80 percent of their revenue from their students’ federal student aid, which is of course paid for by taxpayers. In 2008 the for-profit school giant University of Phoenix collected $657 million in Pell grants, which are designated for low-income students. [The AP]( reported that that $657 million amounted to roughly University of Phoenix’s parent company, the Apollo Group’s, yearly profits in 2008. Facing the looming possibility of federal regulation and oversight this summer, for-profit schools organized a letter-writing campaign in response. The DOE was inundated with n avalanche of [90,000]( letters during a public comment period, most from students and teachers who said for-profit school regulation would hurt them. The new regulations were spurred in part by a Government Accountability Office investigation that found that fifteen out of fifteen randomly chosen for-profit school recruiters intentionally misled students about for-profit schools’ business practices and program costs. Some investigators posed as students were encouraged to lie on their financial aid forms–inventing dependents or hiding assets–so that "students" could qualify for more federal grants, which the school would pocket. With so many students graduating in debt–$14,000 is the average for for-profit schools grads–and so many students reporting that their program credits were non-transferrable, regulation became an urgent priority for the Department of Education. In recent months for-profit schools responded by organizing a letter-writing campaign and ramped up their lobbying efforts. The [Chronicle of Higher Ed]( reported that for-profit schools doubled their federal lobbying spending in a matter of months, spending $1.3 million from January through March, and then $2.6 million from July through September. The money was certainly enough to sway [certain people in Congress]( Students at for-profit schools make up more than 10 percent of those enrolled in higher education, but they take out 26 percent of all student loans, and are 43 percent of those who eventually default on their loans. Part of this is due to the fact that for-profit schools’ consumer base are often poorer students and people of color who are the first in their families to go to college. But for-profit schools are also notorious for rampant abuse. They lure students who’ve been locked out of community college or traditional higher education and peddle programs that students often find, after graduation, are [unaccredited]( The new regulations will take effect on July 1, 2011, and the Department of Education is holding a series of public meetings on November 4 and 5 to discuss the proposed gainful employment regulations, which would go into effect in 2012.