6. New rules targeting for-profit colleges could change the online education landscape.
Some of the country’s largest online education programs will have to comply with new federal “gainful employment” rules that take effect in 2015. The rules are meant to ensure that students aren’t graduating from for-profit colleges unqualified for the professional world and burdened with excessive student loan debt, but the final regulations issued in June are far less stringent than first proposed.
One-fourth of the students at for-profit colleges default on their loans after three years, for-profit students account for almost half of all federal loan defaults, and graduation rates at those schools hover around 50 percent, according to national education statistics. For-profit colleges, which have seen enrollments skyrocket in the past decade, rely heavily on federally backed student loans.
A college must fail all three of the government’s “performance requirements” in three out of four years before the institution no longer can receive federal loans, according to the Education Department’s new regulations. These three requirements are: (1) students must be spending 12 percent or less of their total income on loan repayment after they’ve graduated; (2) graduates must be spending 30 percent or less of their discretionary income on loan repayment; and (3) 35 percent of former students must be paying down their loans by at least one dollar every year.
Advocates of far stricter rules laid out by federal officials last fall said the Obama administration had missed its chance to crack down on an abusive industry that took in more than $20 billion in federal student loans in 2009.
“I feel like it’s an unconditional surrender to the [for-profit] industry,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. “This administration is putting on a brave face, but the fact is that they caved in. … I see it as a complete defeat for reform. This was a rout, and the industry won clear across the board.”
The for-profit college industry had a different take. In a statement, the Association of Public Sector College and Universities criticized the government’s measurements for how for-profit schools must comply with the new rules.
“We remain very concerned that the gainful employment regulation, while reflecting the fact that the department has listened to the sector and made changes to its initial proposal, is still using the same ill-advised metric approach to this matter and is clearly outside of its statutory authority,” the statement said. “Our concern is that the regulation will still penalize programs with great outcomes while allowing under-performing programs to continue.”
Meanwhile, as critics decry the abuses of for-profit colleges, some observers fear this criticism could damage the public’s perception of online education in general.
Many of the industry’s largest colleges with the most recognizable brand names, including the University of Phoenix and Kaplan University, have used the anywhere, anytime convenience of online courses as a key selling point. But associating online education with a college sector that has been hammered in recent years could tarnish the public’s perception of web-based learning, Nassirian said during a Senate hearing in July.
“Committing fraud is easier from a distance,” he said, referring to a 2010 Government Accountability Office report detailing how for-profit colleges pressure students into signing up for massive student loans. “That’s just the nature of distance delivery. It’s just like eMails you get from princes in West Africa asking for money. There’s more ambiguity online.”
It’s not just online learning’s reputation that could take a hit, as an internal Education Department probe is looking into whether Wall Street traders influenced the development of the final gainful employment rules, or benefitted from inside information about these rules before it became public. The investigation was prompted by the release of several eMails exchanged between department employees and Wall Street traders. Government watchdog groups obtained the messages under Freedom of Information Act requests.
The probes could cast a dark cloud over the department’s efforts to crack down on predatory student recruiting practices by for-profit colleges, calling into question the department’s true motives. Aside from whether education officials acted appropriately, the flap also raises larger questions about “the integrity of government decision-making in the face of relentless Wall Street scrutiny,” the Project on Government Oversight says.