The Education Department proposed much-anticipated regulations Friday that would cut off federal aid to for-profit college programs if too many of their students default on loans or don't earn enough after graduation to repay them.
“Some proprietary schools have profited and prospered but their students haven't, and this is a disservice to students and to taxpayers,” Education Secretary Arne Duncan said in a briefing with reporters. “And it undermines the valuable work, the extraordinarily important work, being done by the for-profit industry as a whole.”
To qualify for federal student aid programs, career college programs must prepare students for “gainful employment."
The Obama administration, amid intense lobbying from both for-profit college officials and consumer and student advocates, is proposing a complicated formula that would weigh both the debt-to-income ratio of recent graduates and whether all enrolled students repay their loans on time, regardless of whether they finish their studies.
Early reaction was mixed, with a Republican senator and a for-profit college lobbying group panning it and advocates for tougher regulation questioning whether it does enough to protect students and taxpayers.
On Wall Street, shares of several for-profit education companies jumped Friday at the news. DeVry Inc., which is among the companies analysts predicted would be least affected by the proposal, climbed 15 percent and was one of the biggest gainers in the Standard & Poor's 500 index.
But shares were mixed among companies such as ITT Educational Services Inc., Corinthian Colleges Inc., Education Management Corp. and Career Education Corp. Those companies operate career colleges focusing more on two-year programs or lower-income students and may need to make big changes if the proposal is adopted, analysts said.
Mark Kantrowitz, publisher of the FinAid.org website, said the government's proposal “appears to represent a reasonable compromise that separates the wheat from the chaff without discarding too much wheat.”
