Looking for Rats in a Hole: Unscrupulous For-Profit Colleges!

Dear Commons Community,

A New York Times editorial today examines a recent judge’s ruling against the US Department of Education’s attempt to rein in unscrupulous for-profit colleges and certificate providers.  Specifically the editorial comments:

“A federal judge in Washington has overturned a central provision of the Obama administration’s rules for evaluating career-training programs that receive federal student aid. But the judge left the door open for the Department of Education to rewrite the regulations and strongly reaffirmed its authority to rein in unscrupulous, for-profit schools that bury students in debt while giving them valueless certificates or degrees. Instead of backing down, the department should revise the regulations and increase its efforts to make this industry accountable.

The ruling, issued by Judge Rudolph Contreras last month, focused on the department’s “gainful employment” rules, which are intended to prevent for-profit colleges from saddling students with loans that they can never earn enough to repay. For-profit schools account for nearly half of all student-loan defaults, even though they have only a little more than 10 percent of the country’s college enrollment.

Under the regulations, both for-profit and nonprofit career-training programs had to meet one of three tests to remain eligible for federal student aid: at least 35 percent of graduates must be repaying their loans, the typical graduate’s estimated annual loan payments must not exceed 12 percent of earnings, or they must not exceed 30 percent of discretionary income.

An association representing private-sector colleges filed suit, and Judge Contreras ruled that the government had not offered a convincing rationale for requiring a 35 percent repayment rate.

But he ruled that the department had the authority to issue regulations, noting that, by trying to curb unscrupulous behavior by schools, “the department has gone looking for rats in ratholes — as the statute empowers it to do.”

The editorial concludes by calling for the department to return to court, with a better explanation of why the 35 percent threshold is rational or it could simply drop that provision and judge the schools by the two remaining criteria. Beyond that, the department should reconsider an overly lax provision that allows programs to remain eligible for aid unless they fail all three eligibility tests for three of four consecutive years.

The editorial is on target.  Some of these schools purposely took advantage of and hurt people who were simply looking to improve their skills in order to get a better job.



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