Tuesday, March 18, 2014

Education Department Proposes New Student Loan Debt-Income Ratio Rules for Career Colleges

The Department of Education announced new regulations Friday for-profit career institutions to show that they are preparing students for gainful employment. This is the Obama administration's second round of "gainful employment" rulemaking after a federal district court struck down the ED's first set of regulations, Program Integrity, in 2012. In Ass'n of Private Colleges & Univ. v. Duncan870 F.Supp.2d 133 (D.D.C. 2012), the U.S. District Court for the District of Columbia vacated the regulations as arbitrary because the ED had not given a “reasoned explanation” for its student debt repayment rate test that required that at least 35% of an institution's  graduates had to be repaying their student loans for a for-profit to qualify for Title IV student aid. The Department said the 35% rate identified the lowest-performing quarter of for-profit institutions. The ED has set new metrics in its latest proposed regulations. From the ED's statement on Friday, the new regulations require that "the estimated annual loan payment of typical [career college] 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" and that "institutions must publicly disclose information about the program costs, debt, and performance of their gainful employment programs so that students can make informed decisions." The administration is targeting student outcomes in some of the nation's for-profit colleges, which represent about 13 percent of the total higher education population, but about 31 percent of all student loans and nearly half of all loan defaults. The administration says that 72% of for-profit gainful employment programs produced graduates that earned less than high school dropouts. Read the proposed regulations here.


Federal policy, Higher education | Permalink


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