The “gainful employment” Rule

The “for profit” college industry has flourished over the past ten years. This is a good thing right? Well, maybe.

The business case for some of these schools is to sign up students that have absolutely no hope of actually graduating but are eligible for federal loans. The school gets paid and the student ends up with nothing but a debt which they can’t repay and they default. That’s YOUR tax dollars at work.

According to the National Center for Education “for profit” college students account for 12% of the college population but 25% of the Federal Loans and a whopping 43% of the defaults.

College expenses are divided into three categories, Instruction, Research and Public Service and Student, Academic and Institutional Services and Support. Public colleges spend, per student, approximately $9,400 a year on Instruction, $6,100 on Research and $6,600 on Services and Support for a total of $22,100 per year. Private, non-profit colleges spend approximately $15,300 a year on Instruction, $5,800 on Research and $14,100 on Services and Support for a total of $35,200 per year.

The colleges offset these costs by charging an average tuition of $6,400 for public colleges and $24,900 for private colleges. The rest has to be made up by state subsidies, grants and donations.

Now let’s consider “for profit” colleges. They spend $2,700 on Instruction, basically nothing on Research and Public Service and $9,000 on Services and Support for a total of $11,700 per year. They charge an average tuition of $15,300 per year. That’s a profit of $3,600 per year per student.

Now here’s the good part. Federal student loans pay for $9,700 of the “for profit” tuition as opposed to $6,000 in public colleges and $7,700 in private colleges.

What’s that you say? What about graduation rates? The graduation rate, for 4-year programs, from public colleges is 55%; at private non-profit schools it’s 65% and at “for profit” schools it’s a dismal 22%. To be fair however, “for-profit” 2-year programs have a higher graduation rate than public college 2-year programs.

What the “gainful employment” rule does is attempt to insure that students get reasonable value for the tax dollars being spent and there is a reasonable hope of getting loans repaid.

Career programs offered by “for-profit” schools will no longer be eligible for federal student aid if they do not hit certain benchmarks indicating they are not saddling students with unsustainable debt. The career programs would have to demonstrate that at least 35 percent of their former students are repaying their loans; that the annual loan payment of the average graduate is less than 30 percent of his or her discretionary income or that the graduate's annual loan payment is not more than 12 percent of his or her total salary.

If the programs fail to meet these benchmarks three years out of four, they would no longer be qualify for federal grants. Enforcement of the new rules would begin in 2015.

This strikes me as a pretty weak set of rules but at least it’s an attempt to protect both potential students and tax dollars. Needless to say, the two leading Republicans on the House Education Committee, John Kline of Minnesota and Virginia Foxx of North Carolina, Chairman of the Higher Education Subcommittee, are opposed to the regulations. Kline has vowed to undo any Department of Education attempt to withhold funds from “for profit” institutions.

I guess that fact that both Kline, to the tune of $100,000, and Foxx have received campaign donations from the “for profit” industry have nothing to do with those positions.

Here is the perfect example of regulations that could both save money and help people from getting ripped off and the Republicans are against it. So what else is new?