Updated federal regulations target for-profit colleges

New regulations close some loopholes allowing poor practices.

The U.S. Department of Education (ED) on Oct. 28 will release finalized regulations targeting for-profit colleges that give the government a stronger hand overseeing the fast-growing sector–including new rules reining in how recruiters are paid and a controversial attempt to define credit hours.

Still to come early next year is the most fought-over proposal: A rule that would cut off federal aid to college vocational programs with high student-debt levels and poor loan repayment rates.

ED put off finalizing those “gainful employment” regulations until early next year, although the updated package of rules includes one scaled-down gainful employment provision that has eased industry worries.

A full review will not be possible until the final regulations are published online Oct. 28 and in print Oct. 29 in the Federal Register. But ED officials are portraying themselves as good listeners, saying they made 82 changes in response to comments and criticisms of 13 new “program integrity” rules that will go into effect in July 2011.

“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 in a statement.

On recruiter pay, admissions officers at for-profit colleges have been barred since 1982 from receiving incentive pay based on securing enrollments. But since then, a dozen loopholes have been put in place allowing the practice, with limits.

The regulations to be released Oct. 28 will eliminate such “safe harbors.”

“It closes the loopholes that led to boiler room-style sales tactics at some colleges, with recruiters doing and saying whatever it took,” said Pauline Abernathy, vice president of the Institute for College Access & Success, an advocacy group for tighter regulations.

Other new regulations strengthen ED’s authority to take action against schools engaging in deceptive advertising, marketing, and sales practice. Those are common complaints against for-profit colleges, which are facing intense scrutiny this year for their huge reliance on federal aid and high student-loan default rates, among other things.

Industry officials are eager to see specifics on ED’s attempts to define a credit hour, the metric used to determine a student’s eligibility to receive federal aid. ED said a standard definition is necessary because some schools are gaming the system, inflating student credits to get more federal money.

Laura Ascione