For-profit colleges face crackdown on federal student-aid programs

WASHINGTON – The for-profit college sector filed a lawsuit Thursday that seeks to halt new regulations of its industry.

The lawsuit is in response to a rule the Obama administration announced last week that requires career training programs to show their graduates make enough money to pay back their loans. Programs that don’t pass its new “gainful employment” standard risk losing the ability to receive federal student aid. The administration estimated that about 1,400 programs serving 840,000 students won’t pass.

“This regulation, and the impact it will have on student access and opportunity, is so unacceptable and in violation of federal law that we were left with no choice but to file suit,” said Steve Gunderson, president of the Association of Private Sector Colleges and Universities.

Gunderson’s association filed the lawsuit against Education Secretary Arne Duncan. It said the new rule is “unlawful, arbitrary, and irrational” and will needlessly harm millions of students who attend these schools.

An Education Department spokeswoman declined to comment on the lawsuit.

For-profit colleges offer training in areas such as auto repair and nursing and have been popular with nontraditional students, including veterans. About 1.3 million students enrolled last spring at a for-profit school, according to the National Student Clearinghouse Research Center.

The industry has among the highest student loan default rates and lowest graduation rates in higher education, and critics say taxpayers bear too much of a burden to keep them afloat.

The rule was the second time the administration attempted to implement such regulations. The first attempt was halted by a judge’s 2012 ruling that said the regulations were too arbitrary.

The new lawsuit alleges that instead of correcting problems identified by the judge, the new rule “repeats and exacerbates” them.

It is asking the court to set aside the regulations, which go into effect July 1.

To meet the new standards, a program will have to show that the estimated annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income or 8 percent of total earnings. The administration said about 99 of the training programs that will be affected come from the for-profit sector, although affected career training programs can come from certificate programs elsewhere in higher education.

The regulations also didn’t satisfy some critics of for-profit colleges who say the new rule doesn’t stop colleges that offer poor-quality programs where most of the students drop out.

Some questions and answers arising from the new rule:

Q: Who goes to for-profit colleges?

A: Students seeking training in areas such as nursing, truck driving, culinary arts and auto repair. Such fields attract many nontraditional students, including veterans and workers laid off during the economic downturn. About two-thirds are over the age of 24. Half have dependents and almost 40 percent work full time while enrolled, according to the Association of Private Sector Colleges and Universities. Students at for-profit schools are more likely to live at or below the federal poverty level and receive food stamp benefits than students in other sectors of higher education. About 1.3 million students enrolled last spring at a for-profit school, according to the National Student Clearinghouse Research Center. That was about a 5 percent decline from a year earlier.

Q: In what ways are for-profit colleges under fire?

A: The regulation, which goes into effect on July 1, is the latest step in a yearslong fight by the Obama administration to improve outcomes and end aggressive recruiting at for-profit colleges. In 2012, the for-profit colleges convinced a judge that similar regulations were too arbitrary.

Last summer, the Education Department reached an agreement with Corinthian Colleges, a chain based in Santa Ana, California, to sell or close its more than 90 U.S. campuses.

The Consumer Financial Protection Bureau earlier this year filed suit against the large, for-profit college chain ITT Educational Services Inc. alleging that it pushed students into high-cost private loans that would likely end in default. The company denied the charges.

On Capitol Hill, Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee, has aggressively investigated the industry. At the state level, several attorneys general have also pursued action.

“These regulations are a necessary step to ensure that colleges accepting federal funds protect students, cut costs and improve outcomes,” Duncan said.

Q: Why is the sector a target?

A: The industry has among the highest student loan default rates and lowest graduation rates in higher education. Some veterans’ advocates have accused it of aggressively targeting veterans because of their federal GI Bill money. Critics say the schools are too expensive and a waste of money not just for students, but for taxpayers who fund the GI Bill and other loan and grant dollars used by a large chunk of students to help pay to attend for-profit colleges.

Q: What’s the other side of the story?

A: For-profit colleges argue that they provide educational programs to students who have historically been left out of higher education and that the regulations would reduce the educational opportunities for students most in need of training programs. Critics say it’s unfair to target just these career-oriented programs because poor outcomes can be found in other areas of higher education.

“This regulation could shut down a bachelor’s degree nursing program at a for-profit institution but not one in exactly the same circumstances at a nonprofit or public institution,” said Sen. Lamar Alexander, R-Tenn., the ranking member of the Senate education committee, who argues this isn’t the best way to weed out bad actors in education.

In the proposed regulation released earlier this year, another measurement proposed to judge these programs was the default rate of student loans. But that was removed in the final regulations because the Education Department said doing so would create more streamlined regulations. The for-profit sector says that was done to appease publicly funded community colleges that would have gotten snared under that metric.