For-profit regulation could survive Senate vote, sources say

Democratic senators are expected to fight the House's "gainful employment" amendment.

Many of the country’s largest online colleges still could be subject to the Obama administration’s regulations on for-profit schools, despite a vote by the Republican-controlled House of Representatives to stop any attempt to enforce the proposed rules.

House Republicans, along with more than 50 Democrats, passed an amendment Feb. 18 that would block the U.S. Education Department (ED) from using funds to initiate “gainful employment” regulations on for-profit colleges—including the University of Phoenix and other large online-learning institutions.

However, the Democratic-controlled Senate isn’t likely to approve the defunding of “gainful employment” rules, according to sources familiar with Capitol Hill negotiations on the matter. The sources said they would only speak to eCampus News anonymously because senators are still deciding how the for-profit amendment will be handled in a Senate vote.

Under “gainful employment,” for-profit colleges such as Kaplan University and the University of Phoenix would have to prove their students are able to find employment and repay their loans.

Failure to abide by the rules would result in a loss of federal funding, which is the primary source of income at many for-profit schools. For-profit colleges take in more than $140 billion annually in federal aid, according to government statistics.

Even if the House version of the for-profit rules passes in the Senate, organizations that have pushed for “gainful employment” believe President Obama will veto the measure, sources said.

Organizations that have supported the administration’s for-profit regulatory efforts said students would continue to be buried in student loan debt if for-profit colleges go unchecked.

The House amendment would “continue subsidizing career education programs that routinely leave students with steep debts they cannot repay and credentials they cannot use,” the Institute for College Access and Success, a California-based nonprofit group, said in a Feb. 18 statement. “The abuses in the career college industry are similar to those behind the subprime mortgage crisis, but the effects of defaulted student debt can be even more severe, with borrowers stuck in debt for life while taxpayers foot the bill.”

Killing the stricter for-profit rules would allow for-profit colleges—many of them with online enrollments in the hundreds of thousands—to “deceive and defraud first-generation college students, students of color, low-income students, and veterans,” the institute said.

Those charges were supported in an August 2010 ED report detailing “fraudulent” practices among recruiters for some for-profit colleges.

The for-profit college industry lauded the House’s strike against ED’s regulations, which have been debated for more than two years.

“This critically important amendment, with its bipartisan support, prevents [ED] from singling out our schools and the non-traditional students they serve, and allows Congress to determine what measures are appropriate for all postsecondary education institutions,” said Harris Miller, president of the Association of Private Sector Colleges and Universities (APSCU).

The National Black Chamber of Commerce said in a statement that blocking for-profit college regulation would “protect minority students.” Minorities account for about 40 percent of for-profit students, according to the chamber.

The House vote, APSCU said in its statement, was the first step in stamping out “gainful employment” rules and ensuring that for-profit students aren’t greeted with signs on “the school house door” reading: “Closed by Washington D.C. Bureaucrats.”

About 25 percent of students at for-profit institutions defaulted on their school loans within three years of starting repayment, according to a federal analysis released Feb. 4.

That default rate is up from a 21-percent rate at for-profit colleges in late 2009, according to ED. For-profit college students, who make up about 15 percent of all U.S. students, now account for 46 percent of all student loan defaults.

Student loan defaults have increased as higher-education enrollment has risen in the down economy.

About 8 percent of nonprofit college students default on their loans within three years—up from 7 percent in 2009—and students at public colleges and universities recorded an 11-percent default rate, marking a one-percent increase.

For-profit college giants Kaplan Higher Education and Corinthian Colleges Inc. have campuses with default rates higher than 30 percent, according to the report. New Jersey-based Drake College of Business, a school with 543 students, posted the highest student loan default rate at 43 percent.

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