The Department of Education is going to make sure students are not taking on more debt than they can handle, and part of how this will be done is by holding schools accountable for the return on investment of their degree programs. Essentially, the Obama administration is going to start cracking down on for-profit colleges, which started today.
For-Profit colleges especially have over-promised the earning potentials of several degree programs, which leads students to take on significant debt without being able to pay it off through their job of choice. A new set of rules is in place now, which is called the gainful employment regulations. These regulations require that a college has to track their graduate’s debt and employment, to help prove that the programs are not falling short of the federal guidelines. Colleges and other institutions will now have to provide information on the costs of the programs offered, how much students will be able to earn after graduating with the degree, and how much debt could be accumulated to earn the degree in that specific field or job. These regulations and guidelines will help the Department of Education see which programs are notoriously putting students into debt, which then leaves the students with low earning potentials, and it will also let the Department see which programs offer affordable training to give students the best chance at lucrative jobs in adulthood.
The Department of Education Secretary, Arne Duncan, said that “ There are too many [institutions that] have been morally unconscionable with what they’ve done … Too many of these guys took advantage.” He then went onto say “People have been taking out these big loans, ending up in a worse financial situation than when [they] started. Nobody signs up for that.” The schools will need to show information such as how much an annual loan payment will be, to ensure it would not go past 20 percent of discretionary income or 8 percent of total earnings. The programs that exceed the 20 percent or 8 percent end up possibly losing federal funding, and for-profit colleges get about 90 percent of their revenue from federal funding. So in this case, for-profit colleges would be smart to make sure the numbers do not exceed those guidelines, since it could cost the college big time, and would likely lead to the college having to close down if federal funding was cut.
The possibility that these new regulations could topple the for-profit colleges is quite real, with nearly 1,400 programs that serve 840,000 students right now would not pass these accountability standards. At least that is what the Department of Education is touting, and out of all of those students, 99 percent are currently at a for-profit college. So the threat to the for-profit college industry is very real with these new regulations, and it will likely lead to quite a few colleges having to shut down in the next couple years. If the colleges or other institutions do not make immediate changes to their system, first there will be sanctions on the college, and then if nothing changes it will be forced to close down.
The effects of the new rules could topple the for-profit industry, since roughly 1,400 programs serving 840,000 students would not pass the accountability standards today, according to the Department. About 99% of those students are at for-profit colleges. Only 11 percent of higher educated people attend for-profit colleges, but these for-profit colleges wind up with 44 percent of all federal student loan defaults. Since the government now has its hand in the college and student loan areas, these types of defaults will not be tolerated anymore, since that means the government is the one losing the money. Not too long ago, Corinthian Colleges, which was one of t he leading networks of for-profit schools filed for Chapter 11 bankruptcy protection and ended up shutting down campuses, due to them being fined over alleged predatory lending practices. There have also been other institutions cutting back due to government regulations, but these new regulations will lead to even more cut backs and campus closures, especially once the government knows the colleges cannot or will not comply with the new rules. Basically, the government is putting the nail in the coffin for the for-profit colleges across the country, and it’s time these institutions either shape up or ship out, and possibly for good.