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U.S. Court Rules against “Predatory” For-Profit Colleges

— June 25, 2015


Justin Sullivan/Getty Images
Photo courtesy of Justin Sullivan/Getty Images

On Tuesday, U.S. District Court for the District of Columbia Judge, John Bates, upheld regulations set to begin July 1st restricting the conduct of for-profit colleges and career-training programs. The U.S. Department of Education (DOE) announced rules last fall that could potentially restrict federal funding for schools that saddle students with markedly high tuition tabs while issuing degrees of little worth. The new rules will go into effect shortly after the collapse of Corinthian Colleges amid allegations of lying about graduation rates and other fraud, potentially saddling taxpayers with billions of dollars of forgiven loans from students victimized by the institutions. It also comes as the Security and Exchange Commission (SEC) is suing executives from industry powerhouse, ITT Tech, for misleading regulators about the performance of two student loan programs. Data shows that for-profit colleges account for only 12 percent of student enrollment, but 50 percent of loan defaults. In the wake of the new rules, Congress on both sides of the aisle are dueling over the provisions, with Republicans attempting to block the new rules and Democrats fighting against the colleges’ predatory recruitment of veterans. The new rules were actually attempted once before in 2012 which was blocked by a federal judge, however, the newest version does not include a controversial provision that would deny federal funding if less than 35 percent of graduates were repaying federal loans.

Under the new regulations, the colleges must demonstrate to DOE that the average loan payment for an institution’s graduate must not exceed 20 percent of the graduate’s discretionary income or 8 percent of annual earnings. If an institution failed to meet these requirements for four straight years, it would lose federal funding, as it would if the discretionary income to payment rate was 12 percent or more for two out of three years. The Association of Private Sector Colleges and Universities (ASPCU), representing the over 1,400 for-profit colleges sued to prevent the “gainful employment” standards from being enacted. Sally Stroup, ASPCU counsel called the ruling disappointing, writing that “Indeed, as numerous commentators have observed, the primary impact of the regulation will be to deprive hundreds of thousands of students of access to higher education. That is inconsistent with the congressional plan under the Higher Education Act, unlawful and bad policy.” Education Secretary, Arne Duncan praised the ruling, saying in a statement; “Every student who enrolls in college of any kind deserves a fair shot at a degree or credential that equips them for success. We’ll continue to fight until that’s a reality.”

The fight may continue as the Republican-led House Appropriations Committee drafted a spending bill last week that would prohibit funds from being used to enforce the gainful employment regulation. Secretary Duncan reacted sharply to the measure saying, “With students across the country reeling from the predatory behavior of failed and fraudulent ‘career’ colleges, it’s truly mind-boggling that House Republicans are still fighting tooth and nail to protect schools that take advantage of students and leave taxpayers with the bill.” Meanwhile, Democrats in the Senate introduced a bill on Wednesday that would close a major loophole regarding federal funding for veterans attending college on the GI Bill. The so-called 90/10 rule prohibits for-profit institutions from receiving more than 90 percent of its operating revenue from federal funding, although currently, GI Bill revenue does not count towards that threshold. Led by Senators Dick Durbin (D-IL), Richard Blumenthal (D-KY), and Tom Carper (D-DE), the new bill would include GI Bill funding in the total. Similar legislation has been blocked on many occasions despite a damning 2012 Senate report that uncovered predatory recruitment of veterans in hospitals and Wounded Warrior facilities, with recruiters misleading veterans about tuition costs and graduate salary expectations. The current bill has little traction at the moment, however, with only 21 co-sponsors and none of them Republicans. Durbin is also planning on introducing legislation that will roll back the 90/10 rule to the previous standard of 85/15. Lobbyists fought the 85/15 standard, which was introduced in 1992, and succeeded in 1998 to raise it to the current threshold. As the new regulations take shape, and more for-profit colleges fail or find themselves in legal trouble, it is possible that public pressure may lead to more momentum supporting the legislation.



Associated Press – Ann Flaherty

Inside Higher ED – Doug Lederman

MarketWatch – Jillian Berman

New York Times – Editorial

Washington Post (blog) – Danielle Douglas-Gabriel




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