Career colleges react strongly to fed's 'gainful employment' rules

NORTH BAY -- A provision put forward by the Federal Department of Education and slated to go into effect in 2011 is alarming career colleges with the possibility that government-backed student loans will be unavailable for certain programs.

Called “Gainful Employment” and just past its Negotiated Rulemaking Public Comment (NRPC) period, the provision attempts to address students coming out of accredited educational training programs with heavy debt and no immediate way to pay it down through employment opportunities available to them.

The University of Phoenix, with 500,000 students and learning centers in San Francisco and Novato, is the largest for-profit school in the country and has been the target of critics who say students are being unfairly burdened with debt.

For-profit school enrollment has surged during the past few years as unemployed people retrain themselves for new work or obtain a degree while waiting for the economy to rebound.

“Gainful Employment” would determine whether students can receive loans for educational programs by measuring the percentage of debt they can pay down immediately upon leaving the program and entering the job market.

“It all seems to have started with huge for-profit corporations like the University of Phoenix,” said Roy Hurd, president of 750-student Empire College in Santa Rosa.

Studies show that more than 67 percent of two-year for-profit schools have less than 45 percent of loans being paid down. Many schools have much better track records.

The new regulations would give the DOE a lot more clout in determining a for-profit school’s eligibility for federal aid. To gain access to federal grants and loans new programs would have to disclose expected enrollment and documents from employers stating the need for workers in the field addressed by the program.

The regulations set a percentage of debt repayment below which the program is unacceptable for continued loans.

“If 45 percent of graduates from our business program are paying down student debt within a year, that program is safe,” said Mr. Hurd. “If 35 percent are paying it down, the program’s in jeopardy.”

Graduates of a hospitality program, for example, would have to get higher-wage jobs quickly. Paying interest only while they got a foot in the door by waiting tables would still bring the program under review for possible blacklisting, Mr. Hurd said.

The new rules also could affect programs at the Santa Rosa Junior College, the College of Marin and the College of Napa Valley.

“The provision has the potential to unfairly disadvantage hundreds of thousands of historically underserved students,” said the University of Phoenix in a statement.

The statement characterized the provision as “extremely complex. Many industry and policy experts don’t yet understand its full impact of unintended consequences.”

Also coming out strongly against the provision is the U.S. Chamber of Commerce.

“This ill-conceived regulation will work against job creation, only resulting in jobs lost and fewer Americans getting the post-secondary education and training they need to secure work in today’s economy,” chamber President Thomas Donohue wrote in a letter to the DOE.

Social Security records will be used to determine financial records of former students.

At question is how the Department of Education and the Federal Trade Commission, which administers student loans, will determine the percentage and rate of debt pay down for every program offered by each of the 8,000 accredited learning programs in the U.S., from Harvard University to a school of massage.

“The bureaucracy – just the sheer number of people needed to compile that information is stupendous,” said Mr. Hurd, who recently traveled to Washington, D.C., with a group of 2,000 concerned school administrators, employers and students.

The NRPC period for public comment usually draws a few thousand letters, he said. This time the Department of Education received 90,000 comments.

“I’ve spoken to a number of attorneys about this issue and they’re nearly unanimous in agreeing that it could lead to some massive lawsuits,” said Mr. Hurd.

With political upheaval in the House of Representatives there’s no telling whether the provision as it stands will receive final approval.

“We can’t help but hope Republicans refuse to authorize the expense of implementing the policy,” said Mr. Hurd.

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