For-Profit Colleges Must Lead To Gainful Employment

The Department of Education announced new regulations to try and make sure that students walk away from college with gainful employment. The regulations target for-profit colleges that have high tuition rates and high numbers of students that default on their loans.

According to the regulation legislation, in 2008, “46 percent of student loans (weighted by dollars) borrowed by students at two-year for-profit institutions are expected to go into default over the life of the loans, compared to 16 percent of loans borrowed by students across all types of institutions.”

These for-profit institutions like the University of Phoenix, DeVry University, or Heald College allow certain people more flexibility by offering online classes. Carmen Wong Ulrich is a personal finance journalist and author of “The Real Cost of Living,” said on NPR’s Marketplace, “We’re just in an economy where everyone’s getting the message that you need to retrain yourself, you need to get a new degree, you need to get a different degree in order to be wanted in the job market.”

However, the revenue at for-profit institutions is dependent upon the number of students they enroll, and is not dependent on the number of students that graduate, find jobs, and repay their loans, according to the regulations.

In the final version of the regulations, the government does not put a limit on enrollment. To meet the gainful employment requirements, colleges must have a repayment rate on their loans of at least 35 percent. Or, the college has to show that its graduates in jobs are paying 12 percent or less of their earnings on loan repayments.  But these restrictions will only apply to a small percent of colleges.

The Center for American Progress, a liberal think tank, writes that the regulations are a step in the right direction, but don’t go far enough to protect students. “It gives programs more leeway. Only colleges with extremely low repayment rates and high debt burdens are subject to any sanction. Programs with dubious debt burdens and repayment rates can continue unrestricted.”

Rick Castellano, spokesperson for the University of Phoenix said, “We’re currently reviewing the final gainful employment regulations and how they may impact our students.”

Stay tuned for more on for-profit institutions from Turnstyle.