NEW YORK – The government is moving forward with its crackdown on the country’s for-profit schools, aiming to protect students from taking on too much debt to attend schools that do nothing for their job prospects.
But the final version of the Department of Education’s rule, released Thursday, is much softer than its original incarnation. It gives schools more time to correct deficiencies and makes it likely that fewer will lose access to federal student aid dollars. The news sent education stocks soaring in morning trading, with companies that analysts had considered most at risk of having to shut down programs or change them significantly like Corinthian Colleges Inc. and Education Management Corp. gaining each more than 25 percent.
Shares of the nation’s largest chain, Apollo Group Inc., which owns the University of Phoenix, rose 13 percent. DeVry was up 11 percent and the Washington Post Co., which owns the Kaplan school chain, rose 6 percent.
The “previously proposed onerous rules have been relaxed,” said UBS analyst Ariel Sokol.
Nearly 18 months after negotiations began on how to define “gainful employment,” the DOE has released conditions that for-profit schools must meet in order to access federal financial aid dollars. If graduates owe too much relative to their income or too few former students are paying back their tuition loans on time, schools stand to lose access to Pell grants and federal student aid. Such a loss would seriously crimp schools’ ability to attract students.
“These new regulations will help ensure that students at these schools are getting what they pay for: Solid preparation for a good job,” Secretary of Education Arne Duncan said Thursday. “We’re giving career colleges every opportunity to reform themselves, but we’re not letting them off the hook, because too many vulnerable students are being hurt.”
Most students at career colleges and vocational schools pay tuition with federal financial aid dollars as much as 90 percent of a school’s revenue can come from government aid. But that leaves taxpayers on the hook if students can’t find good jobs and default on their loans.
