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Obama Administration Backs Down On For-Profit College Regulations

Final rules drop a key accountability metric from a draft version earlier this year. A previous attempt to crack down on the industry was thrown out by the courts.

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The Obama administration has released a final version of regulations targeting for-profit colleges that is significantly weaker than the initial rules proposed earlier this year, caving to complaints and legal threats from industry lobbyists. The regulations could still shut down 1,400 programs at for-profit colleges, which collectively enroll about 840,000 students.

The administration has made reining in the for-profit college industry a key component of its education agenda. For-profit college companies, like Apollo, which owns the University of Phoenix, and DeVry Education Group, receive billions of dollars of taxpayer money each year in the form of federal financial aid, drawing as much as 90% of their revenue from the federal government. Many of the biggest for-profits are mired in lawsuits from organizations like the Justice Department, the Consumer Financial Protection Bureau, and dozens of state attorneys general, which allege a raft of violations, from misleading enrollment claims to predatory lending schemes.

For-profit college students make up just 11% of the total higher education population, but take out a disproportionate percentage of federal loans, defaulting on them at high rates. Their earnings after graduating from programs targeted by the employment regulations, such as medical assisting and cosmetology, are relatively low, and students sometimes pay up to four times as much for their educations as they would have done at a community college.

The for-profit college industry says its students' high debt levels are simply proof that it largely enrolls poor and minority students, who are more likely to need to borrow to finance their education.

The administration's "gainful employment" regulations cut off access to federal funding for career training programs — the vast majority of them at for-profit colleges — where students graduate with high levels of student debt in comparison to their earnings. But a second accountability metric which would have penalized programs with high loan default rates was dropped in the final version after being included in the preliminary regulations released in March.

Five hundred programs that would have failed the draft rules are now expected to pass, Education Department officials said.

The administration likely dropped that second metric to give the regulations stronger legal footing. In the past, attempts to regulate the for-profit college industry fell prey to industry lobbyists, who successfully sued to strike down a 2011 version of the gainful employment rule. In that case, a judge ruled that one of the regulations' two metrics, the rate at which students repaid their loans, was invalid because it was set arbitrarily.

That sent the administration back to the drawing board. It replaced the loan repayment rate with a similar measure, called the "program cohort default rate" — the same measure that it dropped in its final version, eventually sticking with just one measurement of programs' success, the ratio of student debt to earnings.

But that ratio only includes program graduates, not those that drop out of career programs. Because those students would have been included in the loan default metric, critics calling for a harsher regulation say that the final rules fail to hold programs accountable for what happens to students who fail to complete their degrees.

Though weakened from its initial proposal, the rules are still significantly tougher than the 2011 version, which would have shuttered only 200 programs.

But the regulations are likely to still face heavy criticism from both sides: those who think they are far too weak to effectively regulate the industry, and the for-profit colleges, whose main lobby group, the Association of Private Colleges and Universities, has already released a statement condemning the rules.

APSCU argues that the dropped second rule gives an unfair break to programs at community colleges. Some community college programs would have lost their federal funding under the loan default metrics of the March draft, but almost none are threatened by the final regulations. Because community college programs are significantly less expensive than those at for-profit colleges, their students rarely fail the debt-to-earnings ratio, even though a significant percentage of community college borrowers in some programs ultimately default on their loans.

"The gainful employment regulation is nothing more than a bad-faith attempt to cut off access to education for millions of students who have been historically underserved by higher education," said Steve Gunderson, APSCU's president, in a statement.

Those opposed to for-profit colleges have also found plenty to criticize with the final regulations. Young Invincibles, a national nonprofit, called the rules "unconscionable," saying the dropping of the default metric "ignores the the most vulnerable students: those who withdraw from failing programs with debt but no degree."

Molly Hensley-Clancy is a business reporter for BuzzFeed News and is based in Washington, DC. She covers the intersection of business and education.

Contact Molly Hensley-Clancy at molly.hensley-clancy@buzzfeed.com.

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