After months of political wrangling, the U.S. Department of Education finalized on Thursday its highly contentious "gainful employment" rule, a crucial element of the Obama Administration's crackdown on the rapidly growing for-profit career-college industry.
The rule will strip federal financial aid dollars from vocational programs that load students with more debt than they can realistically repay. When it goes into effect in July 2012, it will join a batch of other previously announced regulations set to begin next month, which include preventing career-college recruiters from being paid based on the number of students they enroll and placing stricter requirements on states to monitor schools.
Under the gainful-employment rule, to qualify for federal financial aid, a program must meet one of three requirements: at least 35% of former students are repaying their loans; the estimated annual loan payment of a graduate does not exceed 30% of his or her discretionary income; or the estimated annual loan payment does not exceed 12% of his or her total earnings.
Because the regulation stipulates that programs will not lose eligibility until they fail all three metrics three times within four years, the first year a program could become ineligible for aid would be 2015 a shift from the original plan to begin revoking eligibility as early as 2012.
"What we really wanted to do is give [the schools] a chance to reform," said Secretary of Education Arne Duncan of the altered timeline. "This is not about 'gotcha.' "
Another notable revision from the originally drafted regulation is that the debt-to-earnings ratio will be calculated on the basis of a 10-year repayment plan for certificate and associate's degree graduates, a 15-year plan for bachelor's and master's degree graduates and a 20-year plan for all other graduates (the previous version used an across-the-board 10-year plan). The revisions were made after the Education Department reviewed more than 90,000 public comments on the proposal.
Senator Tom Harkin, chairman of the Senate's Health, Education, Labor and Pensions Committee, who has been leading an extensive inquiry into the industry over the past year, voiced his support for the finalization, calling it an important step in protecting students and taxpayers against "subprime" academic programs.
"At a time when Congress is concerned about the growing deficit, we should not turn a blind eye to the waste, fraud and abuse of taxpayer dollars," Harkin said in a statement.
The reforms of the career sector come at a time when public opinion seems divided on the true purpose and value of higher education. A recent study by the Pew Research Center found that about 47% of the public thinks that the main purpose of a college education is to teach work-related skills and knowledge, while 39% say it is to help a student grow personally and intellectually. Those attitudes, coupled with a period of lax regulation, may account for the dramatic rise of enrollment in the career-centric for-profit industry to 2.2 million nearly triple the number in 2001. For-profit colleges get huge amounts of government money: they enroll about 11% of all higher-education students, yet receive nearly a quarter of all federal financial aid. For-profits also account for more than 40% of student-loan defaults.
But for-profit industry representatives maintain that the debt-to-earning metric is a bad yardstick to use. "Students who graduate from programs in our sector who have a higher debt-to-income ratio have a lower default rate than students who graduate from programs with a lower debt-to-income ratio, so the whole premise of the regulation is factually incorrect," Harris Miller, CEO and president of APSCU, told TIME earlier this year, citing research commissioned by his organization.
The rule will likely affect for-profit career programs more than their community-college counterparts the Education Department estimates that 5% of for-profits will lose federal aid eligibility, compared with just 1% of public programs since the median debt carried by students earning associate's degrees at for-profits is $14,000, while most community-college students do not borrow.
Duncan emphasized that the Education Department is not aiming to eliminate the for-profit sector, which serves a high number of low-income and older, working Americans.
"For-profit institutions have done a lot to introduce important technological innovation, to increase access to higher education and to create new career opportunities for millions of Americans," said Duncan. "We as a country desperately need this sector to succeed."