For-profit schools fail to meet federal aid rule

The Department of Education has placed for-profit educational institutions on warning. Too many students from these institutions are finding it hard to pay off their student loans, says the federal agency. If the situation does not reverse, those schools could lose access to federal student aid.

The gainful employment rule

The U.S. Education Department said Tuesday that students in 193 programs at 93 institutions — that is five percent of all for-profit career training programs — have failed to meet all the standards set by the 2011 “gainful employment” rule. The rule pertains to the programs ensuring graduates will find work and be able to pay down their student loans.

Education Secretary Arne Duncan said Tuesday:

“Career colleges have a responsibility to prepare people for jobs at a price they can afford. Schools that cannot meet these very reasonable standards are on notice: invest in your students’ success, or taxpayers can no longer invest in you.”

Three criteria

To satisfy the rule, for-profit schools must meet three criteria. The average student can not have yearly loan payments that exceed 12 percent of earned income or 30 percent of discretionary income. Also, a 35 percent minimum of graduates must be making their annual payments.

The 93 targeted schools are meeting none of the three criteria, according to the Education Department. Stephen Burd, of the non-profit New America Foundation, said:

“(That) should raise alarms, and the fact we aren’t doing anything about them for a long while from now is worrisome.”

If the schools are not able to meet the standards set forth by the rule for three out of four years, they will lose students using federal aid, starting in 2015.

Thirty-five percent of the nation’s for-profit educators do meet all three tests of the gainful employment rule.

The Education Department said it will issue a financial aid sheet for students considering enrollment in the near future.

Duncan said:

“Students need to know up front how much college will actually cost them, instead of waiting to find out when the first student loan bills arrives.”

Few will fail, some say

However, some say that for-profit schools are already on-target for compliance. Jerry Herman of the investment banking firm Stifel Nicolaus, said, according to Reuters:

“Overall this data was better than expected. Companies have already undertaken corrective measures, which are not yet reflected in this data, thus very few, if any programs, at the publicly traded colleges are expected to ultimately fail the gainful employment rule.”

Sources:

Daily Finance
Reuters
UPI