The Obama Administration announced today new steps to address growing concerns about burdensome student loan debt by requiring career colleges to do a better job of preparing students for gainful employment--or risk losing access to taxpayer-funded federal student aid.
The proposed regulations released by the U.S. Department of Education will help to strengthen students' options for higher education by giving all career training programs an opportunity to improve, while stopping the flow of federal funding to the lowest-performing ones that fail to do so.
"Higher education should open up doors of opportunity, but students in these low-performing programs often end up worse off than before they enrolled: saddled by debt and with few--if any--options for a career," said U.S. Education Secretary Arne Duncan. "The proposed regulations address growing concerns about unaffordable levels of loan debt for students enrolled in these programs by targeting the lowest-performing programs, while shining a light on best practices and giving all programs an opportunity to improve."
To qualify for federal student aid, the law requires that most for-profit programs and certificate programs at non-profit and public institutions prepare students for gainful employment in a recognized occupation. Some of these programs, whether public, private, or for-profit, empower students to succeed by providing high-quality education and career training. But many of these programs, particularly those at for-profit colleges, are failing to do so--at taxpayers' expense and the cost of students' futures.
Students at for-profit colleges represent only about 13 percent of the total higher education population, but about 31 percent of all student loans and nearly half of all loan defaults. In the most recent data, about 22 percent of student borrowers at for-profit colleges defaulted on their loans within three years, compared to 13 percent of borrowers at public colleges.
Most students at for-profit gainful employment programs who graduated with an associate degree were also left with federal student loan debt, which averaged $23,590, while the majority of students at community colleges did not borrow. And of the for-profit gainful employment programs the Department could analyze and which could be affected by our action today, the majority--72 percent--produced graduates who on average earned less than high school dropouts.
In the Department's proposed regulations, career programs would need to meet key requirements to establish that they sufficiently prepare students for gainful employment.
Institutions must certify that all gainful employment programs meet applicable accreditation requirements and state or federal licensure standards.
All gainful employment programs must pass metrics to continue eligibility in the student financial aid program, including: the estimated annual loan payment of typical graduates does not exceed 20 percent of their discretionary earnings or 8 percent of their total earnings and the default rate for former students does not exceed 30 percent.
Additionally, institutions must publicly disclose information about the program costs, debt, and performance of their gainful employment programs so that students can make informed decisions.
Background on the need for action and history of reform
Career training programs offer millions of Americans an opportunity to further their education so that they can pursue their dreams of gaining a well-paying job, owning a home, and providing for their family. These values are the cornerstone of the nation's economy and the gateway to the middle class.
For-profit colleges can receive up to 90 percent of their revenue from taxpayer dollars, with the additional revenue frequently coming from veterans' benefits and private student loans.
These students--including veterans--enrolled to become equipped for the workforce, but often they didn't get what they need. Instead, they found confusing or misleading information, excessive costs, poor quality, low completion rates, and programs that provide training for low-wage occupations or, in some cases, where there simply are no jobs.
Widespread concerns prompted the Obama Administration to embark on a multi-year negotiation with the higher education community over new regulations that ensure students are being prepared for gainful employment. Following last year's court decision, which affirmed the U.S. Department of Education's authority to regulate in this area in order to protect students and taxpayers, the Department undertook new efforts to make career training programs affordable pathways to good jobs.
"Success in career education should be measured by how many students graduate prepared for a good job with sufficient earnings," Duncan said. "While state attorneys general across the country and allies like the Consumer Financial Protection Bureau have taken steps in recent months to stop programs from preying on students, we know more can be done at the local, state, and federal level to stop this abuse."
Details of the New proposal to better prepare students for gainful employment
The proposed regulations follow on public hearings the Department held last year. The affected programs include nearly all programs at for-profit institutions, as well as certificate programs at public and private non-profit institutions, such as community colleges.
The Department has proposed a framework with three components: certification requirements, accountability metrics, and public disclosures. The proposal distinguishes programs that provide affordable training that leads to well-paying jobs from those programs that leave students with poor earnings prospects and relatively high amounts of debt, or which lead to high student loan default rates.
While all programs would have an opportunity to improve under the proposed regulations, those with the worst outcomes--high debt-to-earnings rates or high loan default rates--would lose eligibility to participate in federal student aid programs to protect students and taxpayers.
The proposed rule also increases transparency about gainful employment programs by requiring institutions to tell current and potential students about key outcomes, like average debt levels, earnings, loan repayment rates, loan default rates, and completion and withdrawal rates. This information would help students identify programs that may serve them best and help them make more informed decisions about their educational investment.