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Education Department Ends Program Policing For-Profit Colleges

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At a time when student loan debt has soared to $1.5 trillion, affecting 43 million Americans, and has become a key issue in the Democratic presidential nomination race, Department of Education Secretary Betsy DeVos has decided to end a program that helps student loan borrowers.

Late Friday afternoon, June 28, DeVos announced she is rescinding the Gainful Employment Rule, which was created by the Obama administration to police programs that saddled students with excessive debt relative to their incomes after graduation. The rule applied to all non-degree programs at for-profit and nonprofit institutions, but for-profit institutions were most at risk of losing federal student aid funds if the DOE found they violated the rule.

DeVos had delayed implementation of the rule three times, with the last delay due to end Monday. Instead of extending the delay or moving to implement the program, she announced its demise, effective July 1, 2020.

(Related: 16 States Blast DeVos Over Third Delay of For-Profit College Rules )

In a 316-page final regulation  published on July 1 in the Federal Register, the Department of Education says the rule uses a “fundamentally flawed” debt-to-earnings (D/E) ratio formula, “unfairly” targets “career and technical education programs” and uses cohort default rates (CDRs) that may be more influenced by demographics and socioeconomic status of the borrowers rather than the quality of the institution. Instead, the DOE plans to include some of the GE disclosures in an expanded College Scorecard providing data on school costs, graduation rates and typical debt levels.

For-profit schools, however, will no longer be required to publish disclosure of data used in the calculation of the D/E rates such as program length, program enrollment, loan repayment rates, total program costs and job placement rates, and they will no longer lose ability for students to obtain federal loans if graduates’ debt-to-earnings and debt-to discretionary income exceed certain thresholds.

Bob Shireman, senior fellow at The Century Foundation and former deputy undersecretary of education in the Obama administration, said DeVos’ repeal of the gainful employment rule “means it is open season for predatory schools to take advantage of students and taxpayers. Schools will no longer risk having their federal funding cut off for loading up students with debts they cannot repay.”

He said the rule had initially provided or-profit colleges with incentives to improve affordability, reduce tuition and focus on job training so that student debt would not be unreasonable. “They saw the rule coming.”

Without the rule there will be “no accountability and ultimately no cutoff of aid and a return to the Wild West situation for for-profit schools, which will pocket the money [from federal aid] and taxpayers will foot the bill,” Shireman said. 

When the Obama administration announced the final version of the Gainful Employment Rule in late 2014, it estimated that about 1,400 programs serving 840,000 students — almost all for-profit institutions — would not meet the accountability standards, which limited annual loan payments of school graduates to 12% of total earnings or 30% of discretionary earnings. The schools would lose the ability for students to obtain federal loans if those levels were breached.

Since then, many for-profit institutions have closed, including Corinthian Colleges, ITT Technical Institute and Education Corporation of America, which all have multiple campuses, leaving tens of thousands of students stranded and deep in debt. Another DOE program, the Borrower Defense Rule, also developed during the Obama administration, was designed to provide debt relief for such students, but the DeVos DOE is dragging its feet on that program as well. 

Even after losing in September a federal court case filed by the attorneys general from 18 states and the District of Columbia, challenging the DOE’s delay in implementing the Buyer Defense Rule, the DOE has failed to act on 180,000 pending borrower defense claims. On Tuesday, seven of those borrowers sued DeVos and her agency because the DOE had failed to review their applications.

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