Gainful employment rules target federal aid at for-profit schools

Tuesday, March 12th, 2013 By

a college degree sitting on a pile of money

New gainful employment rules proposed by the Education Department require for-profit colleges to prove the cost of tuition is worth the investment. Thinkstock photo.

Last week the Education Department released a report showing nearly two-thirds of students who attended for-profit colleges aren’t repaying their federal student loans. The data added spice to the story about proposed changes to “gainful employment” rules that determine a college’s eligibility for federal aid. With rising college costs , the return on investment is being questioned. New gainful employment rules require for-profit colleges to prove that a graduate’s projected income makes student loan debt worthwhile.

Gainful employment rules and student loan repayment rates

Federal student loan repayment rates are forcing the Education Department to write new gainful employment rules. Its proposal cuts off federal aid to for-profit colleges where less than 45 percent of students repay their loans. In an article about the report, the Los Angeles Times said that the federal student loan repayment rate at for-profit colleges was only 36 percent in 2009. The student loan repayment rate at private nonprofit schools was 56 percent. At state colleges and universities, 54 percent repaid their loans. Losing federal aid would put many for-profit colleges out of business. Some rely on federal student loan funding for nearly 90 percent of their revenue.

For-profit colleges must prove return on investment

Gainful employment rules also consider the total student loan debt and average earnings. The Center for College Affordability reports that eligible for-profit colleges must have graduates with a debt-to-earnings ratio of less than 20 percent of discretionary income or 8 percent of total income. If the college fails these tests, it must disclose its graduates’ debt-to-earnings ratios to prospective students.

For-profit colleges feast at the government trough

The amount of federal aid for-profit colleges get has soared. NPR reports that in 2000, $4 billion in federal student aid went to for-profit colleges. Today they get nearly $27 billion. Students are getting a hard sell from marketing companies branding themselves as colleges. They pay a premium to take courses and borrow money to pay the bill. Upon graduation, often the degree isn’t worth what they paid. They can’t get a job that would enable them to pay back the loan. U.S taxpayers foot the bill

Making college a sound investment

Rising college costs are making Americans battered by the economic downturn wonder if student loan debt for college is worth it. Allison Lynn at MSNBC writes that the issue isn’t whether a person should go to college, but that college should be approached with caution like any other investment. A philosophy degree may not translate into much future income. And experts say people should look at how much in student loans they absolutely need, and how much they can pay out of pocket with a part-time job, family help or savings. Personal finance pundit Suze Orman recommends not taking on more in loans than one expects to make in their first year out of school.

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This post has 9 comments

  1. Topper says:

    If the dept of Ed did this to most public universities, they would be forced out of business for shilling worthless degrees. This is obama supporting unions again.

  2. Sherri says:

    2. I also think it is a good thing for the school to disclose TRUTHFULLY what a person can expect to earn per degree, instead of lie about it the way they do in thier business ads. To the person who mentions people with poor financial situations kissing college good-bye, why would you say this? I would think you would want someone especially in a poor financial situation to make a good decision for themselves. I think when you are facing money issues, it is a hundred times more important to make the best decision possible. Going to a school that can't get federal funding would be a huge red flag that perhaps it isn't the best choice. Gaining a job from these schools that will barely pay the bills isn't worth the time or the debt you incurred to get it.

    This bill is only targeting for-profit schools where less than 45 percent of students repay their loans AND who can't prove their students get gainful employment. I have three kids either going to college or going to attend in the next two years, and I had rather be protected from schools like these. The good ones will survive.

  3. Sherri says:

    1. Am I the only one who sees sense in this? If you are investing your money, you have critera for it, and the government is no different. It makes no sense to invest $30,000 in an education for someone who is only going to make a low enough amount per year to barely support themselves and make it impossible to pay back the loan, which is what does happen at a lot of for-profit colleges. Many of their certificates open up job opportunities that don't pay any more than an out-of-high school hourly job without much upward mobility. It think it is perfectly within the rights of the government to say "Prove to me this isn't the situation with this particular certificate/degree, and I'll hand over some money to support it."

  4. jobs says:

    What this means is that it will be harder than ever to get a solid education for vast majority of young people out there..I guess people with poor financial situation can kiss college goodbye?

  5. Cindy Dudley says:

    How can the government take student loans away from hard working Americans when the government has sent most non-educational jobs overseas? Taking finical aid away when students can not find a job to pay for school is very unfair. The government needs to keep money in the United States and settle the problems here before giving so much to other country's and people of other country's who only care about his or her own country. What is wrong with this government? Instead of going after students with unpaid debt the government is forcing new students out of school by taking away financial aid. Take care of others but not the people of the United States. What is wrong with this picture?

  6. ReCruitMe says:

    What we do in our schools are non judgmental, encouraging, and honestly heartfelt. Am I rich in cheating, lying, and manipulation? I am not at all! Am I a low person in this field? No! If it was not for people like me, many would be still wondering where they stood. At least for-profit schools give everyone an opportunity in this world, no discrimination at all. I attended a college fair with my 16 year old and one of the non-profit universities told the Parents and students how they would not be able to attend there university. My 19 year old, I gave a full Bachelor degree scholarship with no GPA, SAT requirements. It was an art college I was the Director at previously to where I am at now. He is a straight A, very artistic student.

  7. ReCruitMe says:

    How many wished that the "COUNSELOR" had given them more time to sit down and go over the road map to their educational needs? My point is do a cost analysis of the time it would take you, if you do not go straight to college from high school of the money you have spent or not in going from job to job while trying to complete a
    2 year degree in a 3 to 6 years time frame while providing for an already made family or yourself in today's economy. These schools make so much more sense for the right person. When education was proposed as a way to create Mathematicians and Scientist we did not see that artist, that care provider, that special person that it takes to get the job done correctly in career development. How many of you have a degree, but are not working in the field that you have a degree in? Again it works for the right type of person. In the definition of "Gainful Employment" What are the GOA's concerns truthfully? It's the fact that prospective students are tired of being neglected, told they are not smart enough, belittled, and criticized about how they do not have what it takes to make it in today's world.

  8. RecruitMe says:

    Wow!! This is definitely a sign of the times. I have worked in the for-profit sector for about 9 years.
    How is it that the government that gives us the ability to be called an educational free country and try to
    regulate what we do within that system based off what they view is correct? The majority of students
    that I have met in my career have all tried some college of some sort hence, TRIED!!! When you can find
    an environment that is so comfortable in your learning process that provides quality great customer
    service would you not want to be in that position as well? How many people on this comment section
    have electives that they did not need when you attended college?

  9. brent says:

    I attend the University of Phoenix and I find there are good and bad to the school. I am working toward my Bachelors in Osychology, with an eye toward a PsyD or PhD and become a criminal posychologist. I am a police officer and I can pay my student loan off. I am so close to completing phase one in my goal. If the Gainful employment law comes into place, my dream will die on the spot. UOP allows me to attend college while working full time. I agree that it is troubling that student loans at for profits are conly accounting for 36% of federal loans repaid. Changes to the program is throwing the baby out with the bathwater. Punish the individual not repaying the loan, don't punish the institution or those students who work hard and are paying their loans back.

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