Feds Propose New Rules for For-Profit Colleges

Photo (cc) by Michael Fleshman

The federal government is cracking down on for-profit and vocational colleges that leave students buried in loan debt and unprepared for the job market.

The Obama administration is releasing new rules on Friday, requiring for-profit colleges to prove their effectiveness or risk losing federal student aid. USA Today says:

“Too many of these programs fail to provide students with the training they need — at the taxpayers’ expense and at the cost of these students’ futures,” Education Secretary Arne Duncan said in a call with reporters to preview the new rules. “That’s why we are taking action to protect Americans from poor performing career programs that burden students with debt and leave them few opportunities to succeed.”

For-profit colleges cost about twice as much as similar two-year and four-year public colleges.

Here are some startling statistics:

  • For-profit college students represent 13 percent of all those attending higher education.
  • 31 percent of federal student loans go to for-profit schools.
  • About 50 percent of college loan defaults are by students of for-profit schools.

Student loan debt you can’t afford to pay and few marketable job skills – the statistics paint a bleak picture of a student’s life after attending a for-profit college. Says The Huffington Post:

Such poor outcomes have led to criticism that some companies lure students with promises of new careers, then fail to deliver training and job placement services. The Obama administration determined that nearly three-quarters of for-profit college programs subject to the new regulations produced graduates who made less money on average than high school dropouts.

HuffPo says the new federal regulations will evaluate college programs on the following:

  • What percent of students default on federal student loans?
  • What are students’ debts relative to the income they’ll earn after college?

The rules would apply to most for-profit schools and public schools that focus on technical and career training. “The student debt payments of typical graduates couldn’t exceed 8 percent of their annual income or 20 percent of their discretionary pay,” The Wall Street Journal says.

Colleges that don’t perform well over two to three years would be cut from federal loan and grant programs, which could force some schools to close. Federal student aid funding provides up to 90 percent of revenue for some for-profit colleges.

We recently told you that the federal Consumer Financial Protection Bureau filed suit against for-profit ITT Educational Services for allegedly pressuring students into predatory loans and misleading consumers about its colleges’ accreditation, job placement rates, and transferability of credits.

Someone I know well felt duped by a for-profit automotive college. He was there for only six months, but amassed a huge amount of high-interest loans from the school, as well as federal student aid. The experience left him broke and disillusioned.

What do you think of this for-profit-college crackdown? Share your thoughts below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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