In an announcement that will hopefully save millions of eager and unsuspecting students from the trap of large student loan debt, the Obama administration recently revealed it would seek to impose new oversight of for-profit colleges. Specifically, the new rules would try to limit how much debt students are allowed to amass in certain career-training programs.
The attempt to bring for-profit colleges in line is the second one in five years. The first attempt began back in 2009 when the Obama administration tried to implement a gainful employment initiative. The measure was ultimately beat back by for-profit colleges and their lobbyists who claimed that the rules were unfair and would actually end up harming many low-income students who rely on the schools for education and training.
This time, the Obama administration hopes to have more success imposing regulations on the colleges that are designed to ensure the schools create useful programs that result in graduates achieving gainful employment. Advocates of the new proposals say that low-income students are all too often saddled with unsustainable levels of debt and then left with useless degrees or certificates, something that ends up making their already bad situations worse.
The new rule says that for-profit institutions must loan students only enough money so that their payments will not exceed 20 percent of discretionary income after graduation or eight percent of their total annual income. Those programs where loan payments exceeded 30 percent of discretionary income or 12 percent of annual income would be given a failing grade and would then be ineligible for federal aid.
Under the new rules, colleges would also be required to ensure that the loan default rate of former students never exceeds 30 percent, a warning sign that the program is not leading to gainful employment. Schools that exceed this level face being shut down and having their students excluded from federal student loan programs.
The Secretary of Education, Arne Duncan, has said that the new rules are tough, but are not meant to make things more difficult for schools or their students. Instead, the regulations are aimed at programs and schools that are failing their students. The rules amount to an attempt to spare already struggling students with a mountain of student loan debt, which can never be discharged in bankruptcy.
Though the for-profit school lobby has already attacked the proposal, saying that it amounts to an attempt to restrict opportunity for higher earnings, the reality is that the for-profit college industry has some notorious trouble providing useful education to students. Though students at for-profit institutions account for only 13 percent of all post-secondary students, they make up almost half of all student loan defaults.
Sources:
New Obama Administration Proposal to Regulate For-Profit Colleges, by Nick Anderson, published at WashingtonPost.com on March 13, 2014.
Barack Obama Cracks Down on For-Profit Colleges, by Stephanie Simon, published at Politico.com on March 13, 2014.
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