Obama Proposes Tighter For-Profit College Rules

Mar 14, 2014

The Obama administration is announcing new regulations aimed at for-profit and vocational colleges.

The rules will set standards for what colleges must do to prepare students for employment after graduation, tying their success to federal student aid programs.

The proposal would make a program ineligible for federal student aid if its graduates fail to meet a debt-to-earnings metric.

Federal officials say they’re trying to protect students from low-quality programs that burden them with debt. Critics say the rules harm students and single out for-profit colleges.

This is the second time the administration has released standards for for-profit colleges. A judge blocked a previous proposal in 2012.

Bloomberg News reporter John Lauerman joins Here & Now’s Jeremy Hobson to discuss the new regulations.


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This is HERE AND NOW, from NPR and WBUR Boston. I'm Jeremy Hobson.

Today, the Obama administration is proposing new rules requiring for-profit colleges and vocational schools to better prepare students for employment, or risk losing federal funds for student aid, for-profit colleges like the University of Phoenix, Ashford University and the American Public University System. John Lauerman is a reporter with Bloomberg News. He is covering this story, and he's with us now. John, welcome.


HOBSON: Well, tell us exactly what the White House is proposing.

LAUERMAN: Well, this is really a continuation of a process that began about five years ago in 2009, when the Obama administration first rolled out these proposed rules for - what they called - a package of rules called gainful employment. And what they do mainly - they have a number of provisions, but the stipulations that the industry probably objects to most are these - the links that the rules would set up between for-profit colleges, their students' debt levels and income, and the eligibility of for-profit colleges for federal student grants and loans.

HOBSON: Well, yeah. I see that students at for-profit colleges represent about 13 percent of the total higher ed population, but they account for about 31 percent of all student loans and about half of loan defaults.

LAUERMAN: That's right. And so the president and Arne Duncan have often referred to these for-profit colleges as leaving students with debt and no degree. The average debt of a student who has attended a for-profit college and gotten a two-year associate's degree, according to some government statistics, is about $23,500. And that's in comparison with students who get degrees from community colleges, for example, who often graduate more - frequently graduate with no debt at all.

HOBSON: So, essentially, they would look at how much you're making, or how much debt you have, how far out after you graduate and decide whether or not the school was living up to what it said it would do.

LAUERMAN: Well, they're going to look at both. They look at a metric called cohort default rate, and that is the percentage of students in a program who have defaulted on their loans within three years of becoming eligible to start repaying their loans. And the other metric that they use is - are these debt-to-income ratios, which basically look at both your discretionary income and your net income, and sort of determine how much of that income you're using to pay back your loans.

And if schools fail to reach these benchmarks in both categories, for - it's a number of years. In the CDR case, in the cohort default case, it's three years. In the debt-to-income ratios, it's two out of three years - then they lose their eligibility for those student grants and loans. And that's a huge issue for these for-profit colleges, because they typically get about 90 percent of their revenue from the government.

HOBSON: And I assume that they are going to say, in response to this proposal, that it's not us that's making it difficult for people to get jobs and make enough money to pay back their debt. It's the sagging economy.

LAUERMAN: Well, they do say that. And they also say that they are a window. They say that the traditional educational set up doesn't really assist the types of students that they sign up most frequently for courses, and these are older learners, adults, people who already have jobs, people with families who want to study at home, because many for-profit colleges offer online courses.

HOBSON: Right. John Lauerman, a reporter with Bloomberg News, on today's announcement from the Obama administration, a proposal of new rules that would require for-profit colleges to better prepare students for employment, or risk losing federal funds for student aid. John, thanks so much.

LAUERMAN: You're welcome.

HOBSON: This is HERE AND NOW. Transcript provided by NPR, Copyright NPR.