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A Blog from New America's Higher Education Initiative

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The Gainful Employment Rule's Potentially Fatal Flaw

Published:  June 3, 2011

In its final “Gainful Employment” rule, the Obama administration has made many major concessions to the for-profit higher education industry. But perhaps none is more damaging than the fact that administration officials have significantly delayed the point at which the worst for-profit school programs would be in jeopardy of losing access to federal financial aid. By doing so, they have made it many times easier for career college lobbyists to kill the regulation before the Department of Education can effectively shut down even the most irredeemable programs by removing them from the aid programs.

Under the proposed rule, which the Education Department released a little less than a year ago, career college programs that leave low-income and working class students buried in debt but without the training they have been promised could have been kicked out of the federal student aid programs as early as next year. Under the final regulation, however, these programs will be allowed to continue operating "with no requirements to improve," as the research and advocacy group Education Trust points out, until at least 2015.

Unlike the draft regulation, the final rule takes a “three strikes” approach to disciplining the worst programs (those at which fewer than 35 percent of former students are repaying their loans, and where graduates have a debt-to-income ratio greater than 12 percent of their total income and 30 percent of their discretionary income). Instead of immediately losing access to federal financial aid (as the proposed rule required), these programs would have to fail each of these tests at the same time three out of four years in a row before they could become ineligible.

Given current political realities, this delay could prove fatal to the rule. Had the original timeline stuck, the elimination of at least some of the most exploitative programs would have been virtually guaranteed. That’s because the penalties would have gone into effect prior to the 2012 elections. With Democrats in charge of the White House and the Senate (and with Sen. Tom Harkin (D-IA) leading the Senate Health, Education, Labor and Pensions Committee), the chances that the industry’s friends in Congress will be able to block the Education Department from enforcing the rule are extremely slim.

Now, however, that the penalties will not be imposed until after the elections, all bets are off. That’s especially true because with so many Democratic seats in play, control of the Senate appears to be very much up for grabs.

Don’t forget that the Higher Education Act will be up for renewal in 2013. A Republican-controlled Congress would surely attempt to strike the language in the law requiring for-profit colleges to provide “gainful employment” to their students in order to be able to participate in the federal student aid programs. Failing that, they would likely be tempted to come to the aid of for-profit college companies that at that point will be in imminent danger of losing access to federal aid funds. Either way, the regulation could be gone before any schools are penalized.

This may seem like a far-fetched or overly pessimistic scenario to some. But at Higher Ed Watch, we believe that it is a very real possibility -- in which case all of the administration’s hard work on this regulation over the last two years (as well as that of the consumer advocacy groups that have been fighting for it) will have been for naught.

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