President Obama Cracks Down on For-Profit Colleges

July 2nd 2015

Last week, new rules went into effect that crack down on for-profit colleges. The rules, known as the "gainful employment regulations," mandate that all institutions -- community colleges, for-profit colleges, and public institutions -- monitor students' employment-to-student debt ratio to make sure they're not over-promising employment opportunities to prospective students and saddling them with debt.

"A for-profit college is a college that’s owned by a profit-making business, as opposed to the more traditional model of a college that is operated by a state or as a non-profit," education expert David Halperin told ATTN: in October of 2014. "Most for-profit colleges focus on training students for specific careers, in fields from information technology to health care to auto repair, as opposed to teaching broader liberal arts and sciences."

This type of training is necessary in our economy, but the business model of for-profit colleges can sometimes cost the taxpayers.

Problems arise when for-profit colleges make billions from students -- 90 percent of revenues come from loans and grants given to students from the government -- while not adequately preparing them for the job market or over-promising their degrees' earning potential. For-profit institutions hire lobbyists to convince lawmakers to relax rules on student aid, meaning the rules have been very weak, Halperin explained. For-profit institutions collected "$22 billion in taxpayer loans and Pell Grants in 2013," according to Politico.

"People have been taking out these big loans, ending up in a worse financial situation than when [they] started," Education Secretary Arne Duncan explained to CNN on Wednesday. "Nobody signs up for that." Duncan also called some of the practices "morally unconscionable," explaining that some for-profit colleges took advantage of students. Only 11 percent of students attend for-profit, higher education institutions, but nearly half of student loan defaults (44 percent) are from students who attended for-profit colleges.

Now, schools will have to prove their students can find gainful employment and are not overly burdened with debt using some hard and fast metrics: loan repayments may not "exceed 20 percent of his or her discretionary income, or 8 percent of his or her total earnings," CNN explains. The rule was recently upheld in court.

Not all for-profit colleges have this issue, but the ones that do will take a hit with the Department of Education's new rules. "These bad actors either change business, change what they're doing, or they go out of business," Duncan explained.

And many of them may. The Department of Education estimates that the rules may close 1,400 institutions, affecting 840,000 students -- 99 percent of which attend a for-profit school.

Already, for-profits like Corinthian have fallen (it declared bankruptcy earlier this year), and other schools such as DeVry Education Group, Education Management Corp., and Career Education Corp., have stated that they'll shut down or close campuses. Many lawmakers have also said they'll try fighting the new "gainful employment regulation."

The Obama administration is not backing down, saying the rules are not meant to shut down these schools, rather they're ensuring that students -- many of whom are vulnerable to scams -- are getting proper education and not ending up in dire financial straits.

“Our goal is not to close institutions and programs,” a White House official told Politico. “Our goal is to improve them. And we see that happening. At the end of the day, if a program is unable to meet the gainful employment standard after being given every opportunity to do so … that’s not acceptable.”

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