Education Department’s ‘Program Integrity’ Rules Remain Under Fire

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The Obama administration’s attempts to increase the integrity of institutions of higher education – especially among the companies that operate for-profit colleges – continue to be tested on several fronts.

The U.S. Department of Education issued its long-awaited regulations on “gainful employment” in June to a chorus of criticism from both sides of the issue: Liberal lawmakers generally deemed the regulations too watered down to do much good and for-profit school owners forecast doom and gloom for the industry because of the new rules.

The final “gainful employment” regulations give schools whose graduates aren’t repaying their federal loans a three-year grace period before any punitive action can be taken, which seemed to lower the rhetoric and slow the lobbying campaign against the rules, at least briefly.

But strong opposition to other new program integrity rules emerged: the House Education and the Workforce Committee approved a bill that would repeal two regulations – one that would set a standard measure for a credit hour and another that would require all schools offering distance learning to be authorized in every state where they have students.

Rep. Virginia Foxx (R-N.C.), who sponsored the bill, dubbed it the “Protecting Academic Freedom in Higher Education Act.” It passed the committee with the support of all but one Republican and that of five of 17 Democrats.

And in the Senate, Sen. Jim DeMint (R-S.C.), who tried to tack an amendment blocking the gainful employment regulations onto the major jobs bill, was soundly rebuffed but heaped with praise from the Black Chamber of Commerce and the Hispanic Leadership Fund, two groups that have joined with the for-profit college industry to oppose the regulations.

Gainful employment

Some of the harshest criticism of the reworked gainful employment regulations came from Sen. Tom Harkin (D-Iowa), who for the past year has chaired a series of hearings on the vast profits the for-profit colleges have reaped at the expense of heavy debt loads for thousands of minority and low-income students, misleading recruiting and financial aid efforts of several for-profit colleges and how the for-profit colleges have targeted returning service members, tearing through their G.I. bill benefits at astonishing rates.

“The Department of Education’s gainful employment rule is a modest and important first step to protect students and taxpayers from subprime academic programs that have a demonstrated track record of failure,” Harkin said after the regulations were issued. He also noted, “At a time when Congress is concerned about the growing deficit, we should not turn a blind eye to the waste, fraud and abuse of taxpayer dollars.”

The Education Department’s summary of what it had considered in changing its original proposed regulations made it clear that the millions of dollars spent by the for-profit colleges and their allies had paid off.

“Specific issues raised by the commenters are addressed in the relevant topical discussions. These comments were instrumental in identifying ways the department could design final regulations that provide benefits to students, minimize costs to regulated institutions and provide institutions with greater flexibility to achieve regulatory compliance,” the department said in introducing the final regulations.

The Institute for College Access and Success took a typically critical view:

“Unfortunately, the final rule will allow many programs that over-charge and under-deliver to continue to receive federal student aid. It also fails to address the recommendations of a broad coalition of student, civil rights, consumer, higher education and college access organizations to strengthen the modest draft rule published last July. While the final rule is a step in the right direction, it is substantially weaker than the draft rule and it will take longer to protect students and taxpayers from the worst of the worst programs.”

The final rules tie participation in federal student aid programs to a repayment rate of at least 35 percent and repayment amounts not in excess of 12 percent of a graduate’s discretionary income. A school or college must fail to meet those conditions for three out of four years before its participation in federal aid programs is curtailed.

The original proposal had a three-tier system of reprisals for failing to meet repayment standards – starting with “probation” for falling below 45 percent repayment and expulsion from the program at 35 percent. The percentage of discretionary income required for loan repayment could not exceed 8 percent. The rules apply to all so-called “gainful employment” programs at for-profit, public and nonprofit schools, though for-profit programs are expected to be affected most because of their higher prices.

The final rules also cap punitive action to the lowest performing 5 percent of covered programs. In addition, rather than basing repayment rates on the number of loans in default, they will be based on the amount of money in default. While the original regulations indicated that each campus location where a particular program was taught would be considered separately, the final rules say a program encompasses all campuses where it is taught and they will all be considered together.

Rep. John Kline (R-Minn.) chairman of the House Education and the Workforce Committee, and Foxx immediately condemned the new rules and called on their fellow legislators to help block them.

More to come

Almost immediately after releasing the gainful employment regulations, Undersecretary of Education Martha Kanter told the Senate Health, Education, Labor and Pensions Committee that the department would issue suggestions for for-profits operating trial admission programs.

The Apollo Group, which operates the largest for-profit college system – the University of Phoenix – and Kaplan, part of the Washington Post Co., began offering such trial admission programs in response to intense criticism of recruiting practices that led to the enrollment of many students who were unprepared for their programs.

The department’s guidance, issued in a “Dear Colleague” letter, would allow a student to attend a program for four weeks as a trial. If the student dropped out during that period, he or she would not incur any debt. At the end of the four-week period, the student would have to declare his or her intention to continue the program, the school would accept him or her as a regular student and the student would become eligible – assuming he or she meets other criteria – to receive federal student financial aid.

If, after being accepted as a regular student and obtaining financial aid, the student decides to drop out, the amount that might be refunded would be figured under existing guidelines. During the trial period, the school would have to make certain that the student had books and other tools and materials required for the course, for which the school would be allowed to charge a small fee.

The department also announced that soon it would release similar guidance on a program to limit the amount of student loans. Under current regulations, a student who qualifies for a student loan can borrow more than the amount needed for the actual college costs, to cover costs such as child care or transportation.

The for-profit education sector has complained that too many students borrow too much money, making it more difficult for the schools to remain within the 90/10 rule, which requires the school to obtain at least 10 percent of its revenue from sources other than federal student aid programs. Other critics say borrowing too much money is the real reason that students end up with so much student debt.

Wade Henderson, chief executive officer of the Leadership Council on Civil and Human Rights, told the Senate committee in prepared testimony that the way loans are described to students by for-profit colleges means many students don’t truly understand the amount of money they are borrowing.“We are alarmed, however, about mounting evidence that the for-profit sector is engaging in predatory lending practices, overcharging for their product, failing to deliver on programs leading to ‘gainful employment,’ leaving large numbers of students saddled with enormous debt, and leaving taxpayers holding the bag,” Henderson said. For-profit colleges are a viable option for many students who may not have very many other options, but that doesn’t give these businesses the right to exploit those they serve, he said.